BY KRISTEN CARROLL
Employees are the single largest expense for most organizations. In fact, within service and hospitality industries, employees can account for an average of more than 50 percent of gross revenue. How can you ensure that you are protecting these valued assets, and not exposing yourself to potential lawsuits or disasters?
Consider these cases
• In November 2013, a Detroit woman was awarded $600,000 from her casino employer, for discrimination. A woman of color, she argued that the casino was promoting younger white women into the position which she was deserving of. The court agreed. (Read it here: http://bit.ly/18ZJghJ.)
• Two months earlier, a Texas worker was awarded $450,000 from a local Kroger supermarket for wrongful termination. The employee had known mental disabilities, and the manager was often heard calling the employee names prior to ultimately firing him. (Read it here: http://prn.to/1fIy4I9.)
• An ex-MotorWorld employee was awarded $750,000 in damages last summer for wrongful termination. The employee alleged she was discriminated against for being Muslim. Once again, the courts agreed. (Read it here: http://prn.to/1fIy4I9http://prn.to/1fIy4I9.)
These are just three recent examples that are not outside of the ordinary scope of damages awarded to employees for workplace injustices. As employers, every single interaction we have with those who work for us is under scrutiny and law. From the moment we post a job opening, to the moment the employee leaves, nearly every interaction is governed by local and federal laws. Do you have someone on your team who can advise you through the complicated web of employee management? Do you know what your obligations are to honor the rights of your employees?
As chauffeured transportation providers, we run a lean business. Many of us wear several hats, and we do all we can to keep our overhead costs as low as possible. Creating a position for human resources may seem like a hardship, since it is not a revenue-producing position. In many cases, when you do hire a human resources leader, the instructions he or she will have for you to be compliant may seem to chip away at your profits even more. It is not uncommon to want to bury your head in the sand and hope that you fly under the radar—or that your best effort will suffice.
The examples above showed some recent damages levied against employers for making very common and unfortunate mistakes in the management of their employees. What happens when you make a mistake with a local or federal regulation?
• AMD Industries was fined $1.2 million by OSHA for exposing workers to asbestos. (Read it here: http://1.usa.gov/1cCUTsN.)
• The CEO of a Minnesota sheetrock company was fined $3.3 million and sentenced to two years in prison for underpaying employee overtime and benefit contributions. (Read it here: http://bit.ly/1cdYxOQ.)
• The federal government has fined Infosys a record $35 million for I-9 form violations and immigration violations. (Read it here: http://on.wsj.com/1er1YDF.)
While the examples are drastic, the principle stands. There is far too much at risk to not have an HR professional on your team to help you navigate through the potential minefield that is employee management. Working in human resources for more than a decade, both as an internal HR leader and an external HR consultant for organizations of all sizes and scopes, I have amassed a list of the most common errors that employers make. Below are seven mistakes related to employee management.
The Misclassification of Employees
The Fair Labor Standards Act (FLSA), has set extremely stringent guidelines on what constitutes an employee from being exempt from overtime. Most employees will always be non-exempt. If you misclassify an employee as exempt from overtime, the fines are quite steep.
As a very broad rule, if an employee does not make a minimum of $455/week and have authority over his work function, he is non-exempt. However, it is much more complicated than that. It is never a problem to misclassify someone as non-exempt, so when in doubt, that can be a safe bet. However, it is best to have someone well-versed in FLSA standards to assist with your classification of employees. If you truly do have employees exempt from overtime, it would be in your best interests to classify them as exempt.
In our industry, another widely spread error related to employee misclassification is the hiring of independent contractors (IC). ICs can be a helpful supplement to your core workforce, as long as you are using them within the guidelines of the law. In most cases, you probably are not. Recently, a Kentucky-based cable installer was fined more than $1 million in penalties and back wages due to employees who were misclassified (http://1.usa.gov/1dSi2tu). I don’t need to tell you about cases that have happened within our own industry.
According to the IRS, in order to be classified as an IC, you must have control and direction over your own work. As an employer, you cannot direct the way the work is accomplished by an IC. If you are providing guidelines and instructions, they are most likely an employee. If the IC is unable to work whenever he pleases without consequence, he is most likely an employee. If the work is available on a long-term basis, the worker is most likely an employee. If the contractor is responsible for doing the exact same work an employee does, he is an employee and cannot be hired or compensated as an IC.
Unfair Hiring Practices
Finding good, trustworthy employees can be hard. It is nice to be able to hire people we know, and we often do just that. However, when you fish from the same pool of applicants, you often inadvertently hire people who are like you in some way, excluding other qualified candidates who may have a diverse background.
For example, if you post a job opening for a chauffeur, receive a stack of applications, and then someone you know personally applies, it is often easiest to hire that person. However, in doing so, you may be overlooking more qualified applicants in the process. If you hire an unqualified 30-year-old white male over a qualified diverse candidate, you are committing an unfair hiring practice.
The Equal Employment Opportunity (EEO) program was set into place to ensure employment opportunities are equal. In my experience, most employers who have failed to meet the guidelines set forth by the EEO have done so inadvertently. The purpose of the program is to ensure hiring and employment practices are inherently fair. It is not enough to try to be fair; you must purposely put programs and practices into place that will ensure fairness and equality.
Your client base is diverse, and your employees should be as well. An absolute best practice would be to create an Affirmative Action plan, supplemented with a diversity recruitment strategy. It is often our differences that make us stronger than our similarities. Of course, if you are a federal contractor or subcontractor with more than 50 employees and more than $50,000 in federal contracts, you are required to have an Affirmative Action plan.
Many small business owners are unaware of the legal obligations associated with a diverse workforce, and it’s not just about gender or race. For example, are you required to give an employee time off on a general busy day like a holiday? In most cases, you are. Under the Civil Rights Act, employers are required to make reasonable accommodations related to religious requests. Is farming out a day’s worth of work a reasonable accommodation for a religious holiday to be observed? Most likely, it would be. However, each situation should be carefully weighed against the law and the operational needs of the business. These decisions cannot be made lightly.
The need to provide reasonable accommodations applies to disabled employees as well. It is essential to add physical requirements to each job description so that you have a basis on whether or not the accommodation requested can be considered reasonable or not. The accommodations and decision-making processes used to navigate through these requests must be administered consistently or fairly.
Unfair Pay Practices
According to a study by the American Association of University Women, female college graduates earn 82 percent of their male counterparts for the same work. The Equal Pay Act of 1963 prohibits wage differentials based on gender. However, they are clearly still occurring.
There are many reasons for this. One is because some employers still consider the fact that a man may be providing for a family as a factor when determining pay. This, of course, is illegal. Another reason is that historically, women are not as aggressive when negotiating pay packages as men, and many employers are happy to pay a bit less to someone who isn’t asking for more. As with the EEO guidelines for hiring practices, it is not enough to make your best effort. You must purposely implement systems that will ensure fairness and equality in the workplace, including the area of compensation. This will only become more heavily regulated in the years to come with the Paycheck Fairness Act.
The Paycheck Fairness Act has been rejected by Congress twice, but it is not likely to go away. President Obama is firmly committed to getting this legislation passed within the next few years, and some version of the Act will be put into place, sooner than later. The Act expands the scope and direction of the Equal Pay Fairness Act of 1963, specifically related to addressing the pay disparity between male and female employees in similar job functions.
Poor Employee Recordkeeping
In recent years, with unemployment reaching an all-time high, it seemed that nearly every former employee requesting unemployment benefits was awarded them, regardless of reason for separation. Unfortunately, many companies have found it actually cost less to allow an employee to collect unemployment rather than fill out form after form, file appeal after appeal, attend unemployment hearings, and take an opportunity to relay the facts that lead to the separation in employment. Some economists believe that it is actually more beneficial to the U.S. economy to have unemployed workers receiving benefits than not, so there is a natural propensity for the states to want to share the burden of support with an employer than through a fully state- or federal-funded program.
The best defense against unjust unemployment decision is a solid record of proof. First, it is important to have documented policies and rules that all employees are consistently held accountable to. If you make exceptions for one, then you will not be able to hold another one accountable for the same error. Second, implement a progressive discipline program. Not only do you need to document issues with employees, you need to give them feedback and guidance on how to improve. Some transgressions may be grounds for immediate termination, but most often, a verbal, written, or final warning is more appropriate. Keeping good records of these issues and performance discussions will give you a fighting chance in unemployment court.
Good employee recordkeeping is not just necessary as a safeguard against unemployment or wrongful termination claims; there is a lot more at stake in the event of a major incident. As chauffeured ground transportation providers, we are transporting precious cargo. In the event of an accident, or even death, every single item related to the unfortunate incident will be called into question. Beyond our responsibility to conduct due diligence when we hire a chauffeur to transport our clients, we must also be able to prove that we were not negligent. Your employee records should contain information regarding the interview process, reference checks, drug screen, motor vehicle license check, criminal background check, and a regular review of performance. That is not a complete list of all items required for an employee file.
Heaven forbid you ever face a wrongful death suit; unless you are able to establish no fault whatsoever, there is most likely no financial recovery for most operators. Just a few months ago, a jury awarded a 13-year-old girl $150 million in a wrongful death suit against a California trucking company (http://fxn.ws/1fICjUd). You must be able to prove you have done everything you could have to prevent such an incident from occurring. Without proper records, this would not be possible.
Failure to Recognize and Reward Top Performers
Wait a minute, I already pay them. I have to thank them, too? You do, and here’s why. There are three types of performers: high, mid, and low. Most of your employees fall in the mid category. Depending on how many low verses high performers you have, your mid performers are fairly easily swayed in either direction. It is important to make sure your high performers are recognized and engaged, or else your entire workforce will be compromised.
Turnover refers to the amount of employees that needed to be replaced during a given time period. The cost of turnover varies widely, position to position and industry to industry. However, in any industry, the associated costs are constant: post the position, time to interview, add a new employee to the system, train and the time of the trainer, the overtime or affiliate expenses associated with a vacant position, and the total time it takes from the hire date to reach the proficiency of the staff member who left.
As a rule, the cost of turnover for a fairly entry-level position, which generally represents the majority of the positions within our industry, is a minimum of three months’ salary for the departing employee. For example, if the departing employee was a chauffeur with a base pay rate of $9.00 per hour, the cost to replace this employee is $4,680. If you have lost a high performer, you have lost far more.
It is imperative to give regular feedback to all employees, but especially to motivate the high performers. Three high performers are worth more to your business than 30 mid and low performers. A rewards and recognition system is key to reducing turnover and keeping your high performers engaged.
Lack of Growth Opportunity
In the same line of rewarding and recognizing high performers, all companies must have a career ladder in order to continuously engage staff members. Promotions must be awarded fairly, new positions should be filled by in-house talent whenever possible, and you must offer opportunities for employees to learn and build upon their skill sets.
If you are a small operator with no plans to grow, this may present more of a challenge. However, you can still create positions for lead chauffeurs, detailers, and office staff to allow your best employees to have an opportunity to advance. Soon you will not know what you did without these key people in place.
Hiring an HR leader is an insurance policy against any possible employee-related disasters. For operators with less than 75 employees, you will need to add at least one member of HR to your team. If you have more than 75 employees, you may consider having more than one member. With as few as 40 employees, you will need a full-time HR staff member. However, that person should be able to extend up to 75 employees as well. Beyond that, the standard is one HR professional to every 75 employees. It is not enough to hire an office manager who has some vague familiarity with HR and payroll, and just because someone handles payroll does not make him an HR professional. A true HR leader most likely has a related degree or 5-10 years of experience, HR certification from the Society for Human Resources Management (SHRM), and has not shared job duties with another clerical function.
If you are a smaller operator, your best option may be to consider outsourcing human resources to a human resources vendor. These organizations can manage your compliance, employee files, payroll, benefits, and more. As with any vendor, do your research to make sure you select someone reputable. [CD01.14]
Kristen Carroll is the Executive Director of Grace Limousine in Manchester, N.H. She can be reached at email@example.com.