This is a common thing to hear at entry-level hourly jobs.

The problem is that the marginal value of the employee to the company is relatively low compared to the amount of extra in taxes they'd have to pay if they wanted to give that employee a raise.

It is often a much better idea for both the company and the worker to use some non-monetary compensation, because the benefit and cost fits within both of their marginal value curves. Otherwise the employee would only see a few more cents, and the company would be paying significantly more taxes (withheld) that they may not be willing to pay.