In the United States, the distinction between periodic salaries (which could be paid regardless of hours worked) and hourly wages (meeting a minimum wage test and providing for overtime) was first codified by the Fair Labor Standards Act of 1938. At that time, five categories were identified as being "exempt" from minimum wage and overtime protections, and therefore salariable. In 1991, some computer workers were added as a sixth category. The tests for all six categories were revised effective August 23, 2004.

The six categories of salaried workers exempt from overtime provisions are: (1) Executive Employees, who hire, fire and direct others; (2) Administrative Employees, exercising discretion as part of office work; (3) Learned Professional Employees, such as medical practitioners, lawyers, engineers, dentists, veterinarians, accountants; (4) Creative Professional Employees in an artistic field; (5) Computer Employees, who must meet certain threshold tests; and (6) Outside Sales Employees, who must work away from an employer's place of business. Some of the 2004 exemption tests depend on being paid a weekly salary of greater than $455, even though no hourly minimum wage is required or maximum number of hours worked is established.

Wages

The U.S. Department of Labor (DOL) administers several laws that affect the wages and hours of covered workers. The Fair Labor Standards Act (FLSA) requires payment of no less than the federal minimum wage for each hour worked and time and one-half the employee's regular rate of pay for hours worked in excess of 40 in the workweek for non-exempt workers. The federal minimum wage for covered, nonexempt employees is $5.85 per hour effective July 24, 2007; $6.55 per hour effective July 24, 2008; and $7.25 per hour effective July 24, 2009. The FLSA also provides for the employment of certain individuals at wage rates below the minimum wage. There is also a special minimum wage which applies to youth under 20 years of age for 90 calendar days after they are first employed.

Most migrant and seasonal workers engaged in agriculture are protected by the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). This law requires, among other things, that workers receive the rate which was disclosed upon recruitment or hire. The disclosed wage cannot be less than the higher of the applicable state minimum wage or the federal minimum wage established in the FLSA.

The Immigration and Nationality Act allows U.S. employers to hire foreign workers on a temporary or permanent basis to perform certain types of work. DOL's Employment and Training Administration (ETA) grants certification to employers to hire foreign workers in cases where there are insufficient qualified U.S. workers available and willing to perform work at wages that meet or exceed the prevailing wage paid for that occupation in the area of intended employment. In most cases, these workers must be paid the higher of the prevailing wage or the actual wage paid by the firm to workers with similar skills and qualifications.

And lastly, DOL enforces laws requiring minimum wages and fringe benefits to be paid workers (including apprentices) performing construction work on federally-funded contracts or providing services to the federal government. The Employment Standards Administration's Wage and Hour Division enforces most of these wage and hour laws as well as Title III of the Consumer Credit Protection Act (CCPA) which offers certain protection for workers whose wages are garnished.

Cafeteria Plans

In an effort to attract and retain employees, employers provide compensation packages that include wages and benefits. Benefits that are paid for by the employer generally are not taxable to the employee. If benefits, such as group life insurance, are paid for by the employee, generally the money used to pay for the benefits is taxable. In recent years, tax laws have been created that permit certain benefits--such as defined contribution (401(k)) retirement benefits, section 125 cafeteria benefits, and health savings accounts--to be paid for with pretax money. Pretax benefits enable both employers and employees to set aside money on a tax-free, salary-reduction basis for retirement expenses as well as for qualified dependent care and healthcare expenses. As employers seek to keep the costs of employee benefits under control, and employees seek to maximize their take-home pay, pretax benefits have become more prevalent.

Flexible benefits enable employers to offer benefit plans that allow employees to select from different plan options according to their needs. Employees can select benefits that are of most value to them and forgo those benefits that are less important to them. For example, an employee who already is covered by a spouse’s health benefit plan might choose only vision or dental coverage from her employer; or a dual-earner family in which both the husband and wife are employed might require funds to pay for childcare, which may not be covered by a one-size-fits-all benefits package.

Dependent care reimbursement accounts set aside money to be used to pay for expenses including childcare, eldercare, or services to a disabled dependent. Healthcare reimbursement accounts set aside money to be used to pay for out-of-pocket medical expenses including deductibles, co-payments, and other healthcare costs not covered by health insurance. Reimbursement account benefits can be part of a flexible benefits package, or they can stand alone.

Health savings accounts allow employees to set aside money to pay for future medical expenses. Health savings accounts must be offered along with a high-deductible health insurance plan. Other features of health savings accounts include the rollover of unused contributions, the portability of accounts, and tax-free interest.

Flexible Spending Account

Health care flexible spending accounts are employer-established benefit plans that reimburse employees for specified medical expenses as they are incurred. These accounts are allowed under section 125 of the Internal Revenue Code and are also referred to as "cafeteria plans" or "125 plans." The employee contributes funds to the account through a salary reduction agreement and is able to withdraw the funds set aside to pay for medical bills. The salary reduction agreement means that any funds set aside in a flexible spending account escape both income tax and Social Security tax. Employers may contribute to these accounts as well.

There is no statutory limit on the amount of money that can be contributed to health care flexible spending accounts. However, some companies place a limit of $2,000 to $3,000 on flexible spending accounts. Once the amount of contribution has been designated during the open enrollment period that occurs once each year, the employee is not allowed to change the amount or drop out of the plan during the year unless he or she experiences a change of family status. By law, the employee forfeits any unspent funds in the account at the end of the year. There have been proposals introduced in Congress to ease this "use it or lose it" rule by allowing up to $500 to be carried over to the next year; such proposals have not been enacted.