The Legal Environment and Pay System Governance The major federal laws governing compensation practices are the Fair Labor Standards Act (which governs minimum wage and overtime payments and provides guidelines for classify ing employees as exempt or nonexempt); the Equal Pay Act (which prohibits pay discrimination based on gender); and the Internal Revenue Code (which specifies how various forms of employee pay are subject to taxation). Some coun- tries and municipalities have comparable worth legislation, which calls for comparable pay for jobs that require compa- rable skills, effort, and responsibility and have comparable working conditions, even if the job content is different