The Cost of Misclassified Employees

This week the press had tons of stories about how hiring was up and the economy was on the rebound. I stumbled on a story that talked about how few people had filed for unemployment over the last month and discussed how temporary employees were increasing. Reflecting on those articles I realized that contract employment was on the rise as well.

It made sense. An employer could save some money by utilizing temporary and contract employees due to the employee cost being reduced making getting ramped in staffing more affordable. After all contract employees don’t require employee taxes (unemployment and work comp premiums) be paid.

BEWARE!!! Both state and federal governments are cracking down HARD on employers who incorrectly classify an employee as a contractor. The back unpaid income taxes, unemployment compensation and work comp premiums owed for misclassified employees will eat up any savings the practice may have provided the employer. Add to the fact that there are fines, and potential back wages, and the impact of misclassification of employees could cost a small business …everything!

President Obama has sought additional funding to target businesses who misclassify employees and the state governments are not far behind. There are more that 300 new investigators targeting businesses just looking to find misclassified employees. The fines and back wages often run into six figures.

Unlike so many other employment related issues, obtaining protection from the expensive risk of being caught with misclassified employees, is very easy and cost effective. If your business is in the area of Trucking/Transportation, Construction, Manufacturing, IT or Home Health Care, your industry is being looked at very closely. If your business is not one of these industries, you are not immune. Investigators are looking everywhere. When government budgets are so tight, any chance to recoup unpaid funds is high on the government’s priority list.

When was the last time you evaluated how all your employees were classified? When was the last time you reviewed the differences between and employee and independent contractor? When was the last time you thought about your employee hiring practices. 2011 is the year to get it done. Delay and the government just might do it for you at a very high cost, maybe the cost of your business. The cost of a professional independent review of your hiring practices is a fraction of the impact of fines and potentially the loss of your business.

Happy New Year!

Glenn Brown is the Co-Founder and Chairman of the Board of G & J Consultants, LLC. In addition to having directed the HR Department of a health care services company, Glenn is an attorney with 15 years experience assisting businesses of all sizes and industries in complying with employment and labor legal issues. G & J Consultants specializes in providing small and medium sized businesses with traditional HR services as well as compliance with employment laws and regulations.

Will it be a happy new year for your business?

I recently heard that the federal government was hiring more investigators. In addition to those employers who have mis-classified their employees and failed to pay overtime due, the government is looking for employers, who have been lax in their handling of I-9s documenting their employee’s legal right to work in the U.S, who prevent employees from exercising their employment rights, or ignore their employees’ well being.

Just last month the National Labor Relations Board weighed in and is watching how employers handle employees who use social networks to complain about their work, co-worker, bosses and working conditions.

It appears to me, also a small business owner, that unless you are paying close attention to managing your employee relations, the chances of running afoul of any number of regulations, laws or practices is growing easier by the minute. The really frustrating thing is that I seem to spend more time managing my HR than growing my business. HR and employment issues impact every aspect of my business and if you think about for more than a minute, I bet that you can (and do) say the same thing. Thank goodness that I know exactly what I need to do to solve my HR issues. It is my job to keep fully abreast of legislation, court decisions and regulatory adjustments, so I am pretty sure that no “surprise” inspection will cost my business any part of my hard earned income.

Our company employee handbook is up to date and fully compliant with all federal, state and local laws that apply to me and my business. We have in place standard policies and procedures for handling all types of employment issues that may come up. Our paperwork and employee files are current and accurate, our leave policies are consistent and comply with all the leave policies required by the FMLA, ADA and Work comp.

Of all the things that can impact my business I am in control of my employee relations and fully compliant with every law and duty I have to obey as a business. I am ready for 2011. I hope you can say the same thing. Happy New Year!!!

Glenn Brown is the CEO of G & J Consultants, LLC. In addition to having directed the HR Department of a health care services company, Glenn is an attorney with 15 years experience assisting businesses of all sizes and industries in complying with employment and labor legal issues. G & J Consultants specializes in providing small and medium sized businesses with traditional HR services as well as compliance with employment laws and regulations.

I-9 Audit gets cooperative company a million dollar fine

Recently a $1,047,110 fine settlement was reached against a large clothing retailer for violations of the Immigration and Nationality Act. In 2009, the U.S. Immigration and Custom’s Enforcement Office of Homeland Security Investigations put together a plan to reduce the demand for illegal employment opportunities. This has created the greatest number of penalties, both civil and criminal, imposed by ICE in the past year.

The case involved how the clothing company verified the employment eligibility of its employees. The retail store in Michigan had been using an electronic system to verify I-9 information. The investigation found many deficiencies, mostly technology-related. The company was cooperative and have since changed their compliance program. Fortunately, no instances of knowingly hiring someone unauthorized were found, however the company still received over a million dollar fine.

PTO and the upcoming holidays

Time Off and Pay Requirements on National Holidays

As the holidays approach, ten national holidays are authorized by federal law. A private company is not required by law to observe national holidays by providing the day off to employees. There are several matters of law to keep in mind, however:

• The Fair Labor Standards Act (FLSA) does not require companies to pay non-exempt (hourly) employees for time off on national holidays, but companies may do so. Exempt (salaried) employees who are given the day off, however, must be paid their full weekly salary (assuming they worked or took paid leave during the week in which the holiday falls).
• One of the national holidays — Christmas Day — is a religious holiday, but there are many other religious holidays and observances during the year that are not nationally recognized. Employers are obligated to provide reasonable accommodation for the religious practices of employees. A reasonable accommodation might be allowing an employee to take unpaid leave, personal leave, or paid vacation time for a religious observance that falls on a regular workday. Another option is to offer a “paid floating holiday” so that employees can choose a religious holiday to observe by taking paid time off.
• Paid or unpaid time off may be specified in government contracts covered by the McNamara-O’Hara Service Contract Act or the Davis-Bacon and Related Acts, or by union contracts.
• For federal government workers, the national holidays are called “federal holidays” and all ten holidays are paid days off.

For reference regarding the FLSA, click the link below.

http://www.dol.gov/dol/topic/wages/holiday.htm#doltopics

OSHA News Release

Statement of Labor Secretary Hilda L. Solis on reported decline in workplace injuries and illnesses

WASHINGTON — The U.S. Department of Labor's Bureau of Labor Statistics today announced that nonfatal workplace injuries and illnesses among private industry employers declined in 2009 to a rate of 3.6 cases per 100 equivalent full-time workers, down from a total case rate of 3.9 in 2008. BLS also reported a decline in the total number of cases from 3.7 million in 2008 to 3.3 million in 2009. Secretary of Labor Hilda L. Solis issued the following statement:

"While the reported decline in workplace injuries and illnesses is encouraging, 3.3 million workplace injuries and illnesses are 3.3 million too many. No worker should fear being injured or made sick for a paycheck.

"Complete and accurate workplace injury records can serve as the basis for employer programs to investigate injuries and prevent future occurrences. Most employers understand this and do their best to prevent worker injuries, but some do not. That is why my department's Occupational Safety and Health Administration is aggressively working to ensure the completeness and accuracy of injury data compiled by the nation's employers. We are concerned about the widespread existence of programs that discourage workers from reporting injuries, and we will continue to issue citations and penalties to employers that intentionally under-report workplace injuries.

"Too many Americans suffer each year from preventable injuries or illnesses they received while on the job. Even in these difficult economic times, we must keep in mind that no job is a good job unless it's a safe job."

Diversity??? What Diversity??

In 1964 with much fanfare and congratulations, the Civil Rights Act was passed and signed into law. Some expected discrimination to be banished, particularly from the workplace, and experience, talent and knowledge would determine who was hired and promoted not race, sex, national origin, age, religion or disability.

46 years later, we are “surprised” that far from eliminating discrimination in the workplace it is apparently on the rise. It seems that businesses are getting more mired in the cycle of discrimination than ever before. In the last 20 years as corporations and businesses developed and “mandated” diversity programs and training in their companies, rampant racial discrimination in hiring, promotions and wages is continuing without abatement. Racial harassment claims reported to the federal EEOC have doubled during the same 20 year period and data produced by the U.S. Bureau of Labor Statistics continues to support the contrary impact of corporate diversity programs.

If the Fortune 500 companies can’t get it right, with all the staff and budgets that they have invested in diversity initiatives, does the small business have any chance of escaping increased federal and state enforcement programs?

I believe the answer is a resounding YES, YOU CAN!!!

The problem is that corporate diversity programs seem to have lost the target…the reason for their existence. Corporations are using “diversity” as a marketing tool and looking to see how it impresses and attracts more clients which in turn affects their bottom line. Small business has a more immediate need. Hiring and maintaining an outstanding and productive workforce.

The second motivation for diversity in small businesses is eliminating expensive EEOC complaints and lawsuit. Small businesses can’t support issues with diversity like larger corporations: a $2.5 million settlement for racial harassment (Lockheed Martin); $1.26 million class action lawsuit settlement (Bahama Breeze) or even a $400,000 settlement of a racial harassment charge (Big Lots), but If done correctly, and properly reinforced by owners and managers, diversity in your workplace reaps significant and huge benefits.

Having a workforce that works as a team, operates at a high level of productivity and is cohesive and supportive of each other takes less time to manage, generates better products and services, and improves customer service and creates higher profits.

If you need help reevaluating your diversity plans and programs, or if you don’t have any diversity programs in place, contact someone trained and able to give you a helping hand. Every business regardless of size benefits when they take diversity and equality in the workforce seriously.

Diversity does not need to cost, diversity can save you money and strengthen your business!

Glenn Brown is the CEO of G & J Consultants, LLC. In addition to having directed the HR Department of a health care services company, Glenn is an attorney with 15 years experience assisting businesses of all sizes and industries in complying with employment and labor legal issues. G & J Consultants specializes in providing small and medium sized businesses with traditional HR services as well as compliance with employment laws and regulations.

Get a Watch Dog!

Let me start by stating that I am a huge University of Kansas fan. I am an alumnus of the Kansas School of Law, and I bleed crimson and blue! So, I watched the local and national news coverage on the events of the last few weeks regarding the situation with KU athletic tickets with concern and surprise. This morning I read about the statements made by the Athletic Director, Lew Perkins and thought …what a lesson for all employers and managers of employees.

Do you know what your employees are doing on your time? Do you delegate responsibility then never follow up? Are you so busy that you don’t have time to oversee what your staff is doing? If you are not minding the store, then who is?

Human Resources is more than recruiting, hiring, disciplining, terminating employees. HR is more than creating employee motivation. HR is more than writing policies because it is a good idea legally. HR is more than administrators pushing paper and watch files. HR should be your watch dog making sure that your employees model your values, achieve your objectives and send the right message to your customers, clients and vendors.

Do you have a watch dog? Lew Perkins and KU Athletics sure needed one!

A competent HR professional who is integrated into your business, understands your business model, and embraces your goals and objectives, will allow you to focus on what only you can do…guide the business, generate customers, and built the market for your product or service.

If you need a watch dog, someone to train your current watch dog, or just an outside set of eyes to assist your watch dog occasionally, give us a call!

No business owner should ever have to sit in front of the nation and take the “responsibility” for the actions of his/her employees that cost your business it’s image and millions of dollars.

You have so much more to do with your valuable time.

Glenn Brown is the CEO of G & J Consultants, LLC. In addition to having directed the HR Department of a health care services company, Glenn is an attorney with 15 years experience assisting businesses of all sizes and industries in complying with employment and labor legal issues. G & J Consultants specializes in providing small and medium sized businesses with traditional HR services as well as compliance with employment laws and regulations.

Wage and Hour

What is it about wage and hour law that some employers just do not get? The law seems so simple. If an employee does not meet very specific conditions, that employee is entitled to being paid overtime (generally 1 ½ times their hourly pay rate for all hours worked over 40 hours in a seven day period).

There are many other provisions of the federal law, (Fair Labor Standards Act or “FLSA”) but employers seem to routinely violate this provision. Just look at the numbers! In 2009 the top ten FLSA lawsuits totaled $363.6 million in damages. This is an increase of 44% over 2008. The U.S. Department of Labor estimates that as many as 70% of employers violate the FLSA.

As employers try and wring every penny of profit to keep their businesses open, it seems that employers want to get the most employee productivity for the least amount of cost they can. It is very easy to slip over the line into violating a law that has significant financial teeth. The choice of shaving overtime by calling the employee “a salaried” employee is just too tempting, particularly in these tough economic times.

Is the reward worth the risk? I hear employers ask the same questions and give the same excuses: The lawsuits only happen to big companies who employ lots of employees, right? I’m a small guy with just a few employees, so I won’t get caught. I pay my employee[s] a good salary so I don’t have to pay overtime…

A new law is currently under consideration which will add the penalty of a fine for every person who is misclassified as not eligible for overtime. If the misclassification is an accident or negligent, the fine would be $5000 PER PERSON (triple the amount if the employer misclassified the employee on purpose) in addition damages assessed as a result of the employee suing for violation of their rights under the FLSA equaling unpaid wages for up to 3 years. If a business gets caught, if this law passes, the fine coupled with the damages and legal fees and penalties will be financially devastating!!!

Now, with the Department of Labor recently hiring 250 investigators to find violations of wage and hour laws and the promise of hiring an additional 177 investigators, the question to businesses violating the FLSA is why are you taking any risk at all? Seek help from professionals, audit your pay practices, and make sure your employee classifications are correct and up to date. There are ways to comply with the FLSA and still control paying overtime wages.

The real question is not “what have you got to lose”? It is “what do have to save?

Glenn Brown is the CEO of G & J Consultants, LLC. In addition to having directed the HR Department of a health care services company, Glenn is an attorney with 15 years experience assisting businesses of all sizes and industries in complying with employment and labor legal issues. G & J Consultants specializes in providing small and medium sized businesses with traditional HR services as well as compliance with employment laws and regulations.

“We are a small company, we don’t need HR help.”

One often hears small business owners say, “Well, we have a small tight nit group of employees. My accounting person can handle all the HR issues that can come up.” Despite the continuing assault on Employer rights and the tidal wave of employee friendly laws and judicial decisions, small business owners continue to believe that they are immune from expensive litigation and employee unrest.

One does not have to be a large employer to need professional and experience HR guidance. Take the example of a small construction company in St. Louis, Missouri. A&A Contracting was recently targeted by the EEOC and sued by that agency for discriminating against one of the Contractor’s permanent full time employees. Apparently, this employee had a history of liver and kidney problems. The employee’s health problems also included cancer. The employee’s doctor has cleared the employee to go back to full employment with no restrictions.

The Contractor found out about the employee’s health condition when the employee applied for company health insurance. After the company found out about the employee’s conditions, it terminated the employee. As a result, the company settled the lawsuit for $17,000 in lost wages and compensatory damages.

The lesson here is well stated by James R. Neely, District Director of the EEOC’s St. Louis District Office. Mr. Neely said, “Even small employers need to keep themselves educated and informed of the law’s requirements. At the time the employee was fired, A&A Contracting had approximately 20-25 employees. Any business with that size work force needs to make sure that they have clear, effective anti-discrimination policies and that they provide thorough, comprehensive anti-discrimination training to its managers and employees on a regular basis.”

The EEOC also strongly suggested that the employer needed to engage a HR professional with whom it could consult and have participate in HR related matters.

It is often the experience that prevention of employment related lawsuits is much less costly than settling a lawsuit or even worse, being hit with a judgment and attorney’s fees.

As a small business can you afford not to seek and engage competent and professional HR assistance?

G & J Consultants is a Kansas City based HR consulting firm specializing in assisting small and medium sized businesses in managing HR and employment law issues. The firm is staffed with experienced certified HR professionals and employment/labor attorneys to provide full service HR solutions.

The EEOC published a press release a few days ago about the distribution of a $6.2 million settlement it had reached with Sears, Roebuck & Co. The lawsuit had been filed in November 2004 in federal court in Chicago. The consent decree was entered and publicized on September 29, 2009 as the largest ADA settlement in a single case in EEOC history. The EEOC Regional Attorney handling the case stated:

The era of employers being able to inflexibly and universally apply a leave limits policy without seriously considering the reasonable accommodation requirements of the ADA are over. Just as it is a truism that never having to come to work is manifestly not a reasonable accommodation, it is also true that inflexible leave policies which ignore reasonable accommodations making it possible to get employees back on the job cannot survive under federal law. Today's consent decree is a bright line marker of that reality.

The EEOC had complained that “Sears maintained an inflexible workers’ compensation leave exhaustion policy and terminated employees instead of providing them with reasonable accommodations for their disabilities, in violation of the ADA.” The settlement resulted in payments averaging $26,300 to 235 former Sears employees.

This is not the only such case pursued by the EEOC. The EEOC filed a class action lawsuit suit against UPS in Chicago on August 27, 2009. According to the EEOC press release, the case was initially prompted by an investigation into a complaint that UPS had fired an employee with multiple sclerosis after she exhausted the twelve months off to which she was entitled under the UPS leave of absence policy. She had asked for 2 more weeks of leave so that her medications could be adjusted, but UPS allegedly refused to provide it.

In November 2009, the EEOC reached a settlement with JPMorgan Chase & Co. in a class action based on similar allegations. The EEOC alleged that Bank One, which later merged with Chase, had terminated some employees after they exhausted six-month medical leaves without first investigating on a case-by-case basis whether it was possible to accommodate their limitations so that they could return to work. As a result of the settlement, $2.2 million was to be distributed among 222 individuals who had taken long-term-disability leave and were then terminated.

Big companies that have leave policies, no matter how generous, that call for automatic termination of employees who exhaust the specified period of available time off, are prime targets for EEOC class action suits. Many courts have upheld claims by employees that their former employers violated their rights under the Americans with Disabilities Act by refusing to even consider extending their leaves of absence or providing other forms of reasonable accommodation.

Employers of all sizes should rely on competent professionals assistance to examine their long-term and short-term disability and medical leave policies to ensure that they comply with the ADA’s mandate that employers attempt, on an individualized basis, to accommodate employees’ disabilities before terminating their employment.

Why Technology can be a Double-Edged Sword

Recently I was reviewing an article about technology in the workplace and how productive laptops and “Blackberrys” made workers. The article was aimed at warning employers that when those technological tools are used could have a significant impact on wage and hour issues. (That is of course a very real issue and one I will comment on at a different time.)

I actually began to think about the danger to an employer such tools can have, when employers permit access to their systems. Traditionally, when the employer assigned a laptop or cell phone to an employee, a policy on appropriate use of device along with notice that the employer could and will monitor use and improper use of the device could lead to discipline.

Last night as I watched a commercial for one of the cell phone companies touting a Blackberry for $99, it occurred to me that more and more employees are buying their own laptop and smartphone and then getting access to the employer’s system. Many employers embrace this because their employees are more productive and accessible and the employer does not have to purchase or provide the asset. It also makes working remotely cost effective and viable.

Then, I heard about the lawsuit!! The wife of a male employee sued her husband’s employer after her husband using his own laptop had posted pictures of their young daughter on a kid porn website through the husband’s employer’s internet connection. The woman sued arguing that the employer had a duty to monitor the usage of its internet connection and its failure to do so damaged their family. (The case is still ongoing, and how it will turn out is anyone’s guess, but you don’t want to be the company who foots the legal bill to defend such a case…particularly when the solution is easy and cost effective.)

If an employer chooses to allow its employees to access its resources and assets, it must establish policies for permissible use and make sure that every employee is aware of the policy and the consequences of ignoring the policy. Then, the employer must actually monitor its employees’ use of the company assets including email and internet use and strongly enforce its established policy.

Allowing employee access to the company’s computer files also raise other privacy questions and hinders the security of your electronic information and trade secrets. Accessing data from an offsite location or an employee’s private electronic computers is risky without adequate measures to control how and when your assets are being used.

Getting increased employee productivity is an admirable goal, but it can come at a significant price if you don’t make sure that you protect your assets, and prevent employee misuse. If you don’t have a policy that clearly spells out your expectations and what is allowed and prohibited, write one, publish it to your workforce and closely monitor who gets access to your email and internet systems and how they use it. HR professionals (such as G & J Consultants) can assist you in reviewing your current equipment/internet usage policies and even draft a new comprehensive policy should you need one. The investment and the protection a well crafted and enforced policy provides is worth it!

Discharging an Employee and Save Unemployment Costs

During this time of employee contraction, (U.S. Gov’t report that job losses have SLOWED not stopped.) employers tend to focus on the unpleasant task of actually terminating employees when the employee does something wrong. However, often the needs of the business demand that positions be cut and employees be terminated. When a reduction in force is required, employees file for and get unemployment costs. The employer is required to pay into the unemployment system, and the amount of the annual assessment is based on the amount of unemployment paid out to the employer’s terminated personnel.

These costs are totally controllable and when an employee is terminated for cause, unemployment funds are not paid to the former employee and the employer is not charged.

When I directed the HR department for a heath care company, I advised managers to use a procedure that not only made the termination process easier and less emotional, (for both parties) but also set up the employer to be in a win/win situation.

Let’s face it, after the time and expense of training an individual to be productive and fit into the business and pull their own weight, if you could maintain the individual the replacement costs (e.g. recruiting and training) would be saved and not paying unemployment would positively affect the business financial health.

How to do it? Use a process of discipline that includes a short suspension to give the employee an opportunity to turn around and become a productive member of the team. In the health care company, when an employee’s performance suffered to the extent that termination was being considered, I would ask the manager what level of performance the employee would need to meet to be retained. Past performance would be reviewed and a level of performance would be spelled out in a memo of expectations. The employee would meet with their manager and be informed that their job was in jeopardy, and that the employee was being suspended for 1 to 2 days to consider their position in the company and the level of performance that was expected of that person while in that position. The employee was asked to come back to a meeting with a signed document that stated if they would meet the performance and timeline expected by the employer. Failure to bring the document or show for the meeting was considered a voluntary termination.

Voluntary terminations are not eligible for unemployment benefits. If the employee did come back and did not perform to the company’s expectation, then “good cause” for the termination was established. If the employee did not return for the meeting or failed to bring the required document, that was grounds for termination based on insubordination.

What we found after instituting this policy and training managers on how to implement it, 66% of the employees returned to work as productive members of the team. Those employees, who failed to come back or never met the requirements for the job and were terminated, did not obtain unemployment benefits.

Take control of an easily controlled cost. Don’t keep paying out large unemployment premiums. G & J Consultants show you how to reduce your unemployment premiums and employee replacement costs while retaining those employees you want to keep.

Glenn Brown is the CEO of G & J Consultants, LLC. In addition to having directed the HR Department of a health care services company, Glenn is a licensed attorney with 15 years experience assisting businesses of all sizes and industries in complying with employment and labor legal issues. G & J Consultants specializes in providing small and medium sized businesses with traditional HR services as well as compliance with employment laws and regulations.