Expanding FLSA Over the Years

Over the years, FLSA has been expanded to include other areas of employee protections, such as restrictions on employing children, and employee documentation and recordkeeping. In recent months, the US Department of Labor released an “Administrative Interpretation” (AI) to clarify the definition of “clothes” under the FLSA.

The Definition of “Clothing”

Currently, the FLSA excludes time spent “changing clothes or washing” at the start or end of a workday from compensable time, and the vague exemption has led to many lawsuits and conflicting court decisions on what constitutes ‘clothes.’ The AI provides clarity by stating that the time spent changing into or out of protective gear or equipment required by law, the employer, or the nature of the job, is indeed compensable.

The AI further clarifies that even if ‘changing clothes’ does not fall under a compensable activity or time, it may still trigger the ‘continuous workday rule’ if the subsequent activities after changing clothes would be compensable under FLSA, activities such as walking, waiting, or other travel time. Employers should review their compensation policies or practices to reflect this change to remain compliant with the law.

The guidelines covered by the FLSA can be confusing, and costly, if not adhered to. Speak with a CPEhr HR Consultant for an audit of your FLSA practices.

Source:  EPLI Pro News, July 2010

Employee Benefits Data

The Employee Retirement Income Security Act, or ERISA, governs retirement and other employee benefits, and requires employers to keep records relevant to these benefit plans. For example, employers must keep all records supporting the data in summary plan descriptions, or SPDs. In addition, employers must retain annual reports for all benefits plans, including pension reports. Records should generally be retained for six years under ERISA, although records needed to determine eligibility for benefits should be kept as long as relevant.

The following documents must be kept for SIX years:

• Cobra notices
• Summary plan descriptions and earnings
• Beneficiary designations
• ERISA

The Family and Medical Leave Act

The Family and Medical Leave Act, or FMLA, allows eligible employees up to 12 weeks of unpaid leave in a 12-month period for qualifying medical and family reasons. FMLA has several recordkeeping requirements. FMLA can present an interesting scenario where we have files crossing over. If an employee requests reasonable accommodations or leave under the FMLA or CFRA regulations, documentation of that request should go in the personnel files. However, anything revealing specifics regarding the need must be kept separate in the employee health records. For example: if an individual has been absent due to an illness for 4 days and is returns to work, it is not uncommon to require a physician’s release. If the doctor’s note simply states “this individual is released to return to work with no restrictions” it can go into the personnel file. If however, it includes any diagnosis or indication of the medical health of the individual, it must go into the medical or health files.

As stated, employee medical or health records must be kept separately and confidentially in compliance with the requirements of the Americans with Disabilities Act for a period of FOUR years. Records may be kept on computer as long as they are available for transcription or copying

• FMLA/CFRA
• General documentation of requests go to personnel files
• Specifics of medical need and reasons for requests including diagnosis should go to employee medical or health file

In our next post on the topic of record keeping, we will cover the complicated scenario of overlapping documentation requirements.

Disclaimer

Most employment documents are required to be maintained for up to two years, which include:
•         Applications/resumes
•         Pre-employment tests/reference checks
•         Evaluations of interviews
•         Ads for open positions
•         Applicant or Employee files

There are additional documents that must be maintained for a longer period of time. Examples include:
•         Payroll records, time cards, and union contracts – 4 years
•         Workers’ compensation records, injury reports, OSHA documents – 5 years
•         Employee benefits records, COBRA, ERISA documents – 6 years

Documentation
While recordkeeping prepares you for employment claims, accurate documentation is vital in demonstrating proof of actions.  In order for documentation to work effectively, it must be detailed, focused on the facts and signed whenever appropriate.   For example, performance appraisals, written warnings, or any type of formal job performance evaluation.  These documents should be signed by both the supervisor and employees.   Here are some specific items that must be included in your documentation:
•         Name(s) of employee(s) involved in the event that warranted documentation.
•         Date and time
•         Type of violation/event observed
•         Specific details
•         Photocopy of any evidence-  Evidence may include time cards documenting an individual’s attendance, failure to sign time card or the manipulation of a time card.  Additionally, documents like a doctor’s note and requests for leaves may be evidence that proves useful to photocopy and retain.

There are common documentation errors that can prove costly to addressing an employment claim.  These errors include:
•    Documents not signed
•    Illegible handwriting
•    Overdue/late
•    Inaccurate information
•    Biased/unsupported opinions

In summary, record keeping and documentation are important when managing employees.  Feel free to contact our Human Resources Outsourcing firm with any questions regarding your current record keeping or documentation policies.

Disclaimer

In upcoming posts we will review some of the key elements of a solid documentation practice. But to begin, we thought we should review some of the big DON’Ts of Employee Documentation.

Firstly, realize that there are common errors that do occur, often due to our busy schedule and our need to rush. Most mistakes are avoidable – documentation should never be rushed!

Common documentation errors include:

• Unsigned or undated documents
• Illegible handwriting
• Overdue or late
• Inaccurate information
• Biased or unsupported opinions
• Vague information
• Inconsistency
• Lies

These are common errors that can easily be eliminated.

Sign and date all statements that you write and make sure the individual signs as well if it is appropriate.  If an employee refuses to sign, either have a witness come in and sign that they witnessed the refusal or ask the employee to sign a line that states “they refused to sign the document”.

If it can’t be read it will only frustrate the situation, so remember: penmanship counts.

Don’t delay writing up recent events, as soon after they occur as possible. Delaying will only cloud your memory and weaken the validity of the account. Along those same lines, documentation that was written up days or weeks later than the event carry much less credibility and don’t shed a favorable light on the company or you.

Avoid all opinions and attitudes.  Along those same lines, be specific and don’t be vague.  If an employee needs to improve performance, specifically state how and why; don’t just say “they need to get better.”

Finally, NEVER make personal notes on any documents.  This includes resumes, applications, warnings, performance appraisals, you name it.  Employee documents and files can be subpoenaed in court, and while you many think the employee will never see it, it is altogether possible that a judge will.  And once written, don’t erase your comments – altering documents is against the law, including side-notes and handwritten comments.

These are just a few of the most common and easily avoidable documentation errors. Our next posts will look at Documentation Best Practices.

DISCLAIMER

1. Interviewing
2. Record Keeping
3. Temporary Workers
4. Layoffs and Rehiring

Interviewing. It is important to ensure that managers conducting interviews be trained in what they can and can’t say legally during the interview.  We recommend that at least two managers, or a manager and HR person, be present at all interviews. If an applicant calls later with a complaint, you have a witness for what was said. A set of interview questions that are used consistently for all applicants will help ensure that all applicants were treated fairly, and will assist you in determining the most qualified applicant.

Record Keeping. All of your hiring records should be kept for at least two years according to Title VII and Americans with Disabilities Act. This would include all applications of those not hired, advertisements, and interview notes. The Lilly Ledbetter Fair Pay Act has injected uncertainty into the duration of an employer’s record keeping requirements with respect to pay decisions. This guidance is based upon the noted statutory law. In this period of uncertainty, before destroying any documents related to decisions about an employee’s pay, we recommend you conduct an audit of your pay practices, and seek legal council.

Temporary Workers. Many companies, when they are unsure of their long term hiring needs, hire temporary workers. As the business needs are clearer, employers can shift to full-time hiring, or hire the temporary worker. Temporary or part-time workers can be a good option because the company is able to observe the employee’s job skills. However, hiring temporary workers can be costly because many temporary placement firms charge a substantial fee if the employer permanently hires the temporary worker.

Lay-offs and Rehiring. If you have been through a reduction in force, and are considering rehiring, there are a few considerations. In some layoffs, employees are terminated with an expected return date. For instance, many businesses layoff for the winter, and employees are rehired in the spring. This is usually the case when an employer operates under a collective bargaining agreement, or employs trade related employees. However, in our current economy, when the reduction in force is due to business slowdown, layoffs are generally considered final terminations. Unless you made a promise to recall an employee, you are not obligated to do so. You are free to go through the selection process, and choose the most qualified applicant. Be cautious to ensure there are no discriminatory reasons for not returning a former employee, or promises to the contrary, in which case, you would need to restore the prior employees.

Don’t go at it alone.

While the laws governing employment regulations, hiring and terminations are complex, you should realize there are valuable resources available to assist you along your employment travels. Consider engaging the support of a Human Resources Consulting firm, or a Professional Employer Organization. These firms are experts in employment law and can significantly help reduce your risk of making a bad employment decision.

(Source: EPLI Pro, March, 2010 Newsletter)

Disclaimer

Administrative Services Outsourcing (ASO)

There has been a growing interest in offering non-PEO services in recent years. Known as ASO (Administrative Services Outsourcing), this service model offers clients a full range of human resources consulting, insurance administration and payroll services, without requiring the establishment of a co-employment relationship. An ASO relationship is also more commonly known as Human Resources Outsourcing.

Our firm began offering ASO services approximately five years ago, after our sales force experienced challenges to selling co-employment. In some cases, the reasons were tangible concerns, such as a risky blue collar operation with bad losses which was declined workers’ coverage through the PEO, or a small employer with minimum-wage employees that did not meet our minimum contribution levels for health insurance, or a long-term broker relationship which dashed the sales process.

In other cases, the objections were less tangible, but just as real. Prospects could not completely grasp the co-employment concept, felt they would be losing control over their employees, or simply looked at the PEO industry with suspicion. Insurance agents, fearful of losing a commission, didn’t help the sale either.

Recognizing the value proposition a PEO offers to small business, but fearful that the co-employment requirements could hinder sales, we adopted a more flexible, customized approach to selling human resource services. The philosophy was simple – if we already had the in-house experts available to provide a valuable service to a business, why should we force the PEO box – and possibly lose a deal – if the co-employment relationship did not work for a particular prospect?

Full service HR in a flexible environment

In an ASO relationship, clients can either maintain their existing benefits and workers’ compensation insurance plans, or the PEO shops their insurances on the open market. The win-win is obvious – clients maintain control of their own plans, and other concerns about co-employment can be avoided. At the same time, they still gain access to virtually all the PEO’s services. For the PEO, it can charge administration fees commensurate with the services provided, and maintain broader “golden handcuffs”.

The multi-service approach offers the PEO sales staff greater flexibility when consulting and packaging HR outsourcing services. It also promotes a more customer-centric sales approach, as the sales consultant can walk into a first sales call with no preconceived end-game or one-size-fits-all philosophy.

Particularly in today’s volatile economy, many small employers are hesitant to engage in complex, long-term financial arrangements. By its very nature, co-employment is a more involved relationship that is hard to enter, and even more difficult to break. The current economic climate is another reason ASO may be considered a more attractive option for a businesses looking for HR support.

Keep your HR options open

If you are considering using an outside service to assist you with your Human Resources management, take some time to investigate the benefits of both ASO and co-employment. Chances are, one of them will work for your organization, and  you’ll be on your way to simplifying your business operations, reducing your HR risks, and cutting employment overhead.

Streamlining Operations.

PEOs can help small employers stabilize operating costs is through streamlining their internal administrative operations. By joining a PEO, businesses are able to combine multiple vendors under one roof, thereby eliminating the need to maintain relationships with multiple vendors.

A full-service PEO can provide all of the following services, often at a reduced cost:

1. Payroll processing
2. Tax services
3. Governmental form submissions
4. Safety consulting
5. Assistance with labor law compliance
6. Creating and reviewing employee handbooks & policies
7. Health insurance plans & administration
8. 401 (k) and Cafeteria 125 Plans
9. Workers’ Compensation insurance
10. Management Training
11. Recruiting services
12. Assistance with unemployment administration

Eliminate Multiple “Point People”
From the personnel and management perspective, these services result in a reduction of duplicated efforts between departments and enables them focus their time on core business functions. Often, only one “point person” is required within the client’s organization, replacing multiple positions in multiple departments.

Some companies experience such a drastic reduction in administrative functions they are able to reduce headcount. Others find more valuable, revenue-generating tasks for these employees to fill. The most successful companies will be those that focus on the core business rather than spend money and use staff resources to manage non-revenue generating tasks, such as benefits and retirement plans administration, managing HR compliance regulations, or processing payroll and taxes.

From the business-owners’ perspective, reports indicate that once HR and other operations are outsourced, employers are better positioned to focus on their core operations.

Despite the uncertainty, businesses should take stock of what is required to succeed and use this time to prepare them for the bumpy road ahead as the economy slowly recovers. When considering the future, small businesses should focus on three key employment strategies in 2010: stabilizing operating costs, reducing employment risks, and enhancing overall employee performance.

Stabilizing operating expenses.

Following dismal sales in 2009, employers will be looking to reduce unnecessary expenditures and maintain a lower operating budget until revenues increase. While there are hundreds of areas to be considered, employment costs typically account for the single highest percentage of overall operating expenses in a business. These expenses include both hard and soft costs. Beyond payroll and tax overhead, hard costs are related to health insurance premiums, workers’ compensation, recruiting fees, payroll processing and legal fees. Soft costs include employment administration, management time, employee reviews and compliance. Reducing these employment costs can significantly impact an employer’s bottom line.

Reducing employment risks.

There is a direct correlation between an increase in employment related lawsuits and difficult economic periods. Employers should beware that a downturn in the economy is often accompanied by an uptick in employment litigation.  As such, employers should prepare themselves by reviewing and training managers on termination policies, updating their forms and policies, and ensuring compliance with payroll-related labor laws and regulations. As the economy strengthens, employers may begin to rehire lost personnel. They should review proper interviewing techniques, update their employee handbooks, and have new-hire packets and offer letters reviewed for compliance.

Enhancing employee performance.

Even as companies begin hiring again, it will take some time before the workforce is back to pre-recession levels. What this means for the average business is that managers are trying to maximize productivity with a smaller workforce. The inevitable result is a more stressful work environment as both employees and management struggle to find a healthy balance of productivity despite the decreased manpower. Employers will be required to find new ways of incentivizing, motivating and training their workforce to maintain a positive attitude while managing increased workloads.

Employers that proactively pursue these three employment priorities will be a strong position to weather the uncertain economic times that lie ahead.

Size Counts.

Economies of scale are the primary method through which an HRO firm can reduce a business’ operational costs. By pooling hundreds, and even thousands of businesses, HRO firms aggregate health benefit plans, retirement plans, workers’ compensation insurance, and legal expertise. Additionally, they can manage routine HR tasks more efficiently as the talent and infrastructure is already in place. When a small business joins the HRO firm, they simple access these existing programs at reduced rates and a minimal time investment. They can jump onto the HRO’s programs and platforms with little start-up time or expense, and can hit the ground running.

Other reasons to outsource human resources include:

• Access to outside expertise
• Improving service quality
• Ability to focus on core expertise
• High cost of remaining up-to-date with rapidly changing environments
• Eliminate high volume of low-value transactional activities
• Reduce Management distractions away from core business
• Leverage existing staff to focus on key competencies
• Reduce transaction costs

The HR Outsourcing R.O.I.

Studies indicate that once HR operations are outsourced, many companies show a strong return on investment. IDC, a global provider of market intelligence, conducted a survey of American executives and reported that almost 85 percent of the respondents saved as much as they spent on outsourcing. Over a quarter reported a savings of twice as much. And the savings, according to nearly 95 percent of the respondents, went toward operational performance and innovation.

• federal and state tax,
• workers compensation insurance,
• unemployment insurance,
• employee benefits,
• overtime, vacation and sick pay.

However, now more than ever, employers must be aware that federal and state lawmakers are beginning to crack down on employers who hire ICs that do not meet the strict IRS requirements.

What are the guidelines to be an Independent Contractor?

The following are excerpts from the IRS website, Section 762 – Independent Contractor vs. Employee:

• Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training, or other means.
• Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job. This includes:

1. The extent to which the worker has unreimbursed business expenses
2. The extent of the worker’s investment in the facilities used in performing services
3. The extent to which the worker makes his or her services available to the relevant market
4. How the business pays the worker, and
5. The extent to which the worker can realize a profit or incur a loss

• Type of Relationship covers facts that show how the parties perceive their relationship. This includes:
• Written contracts describing the relationship the parties intended to create
• The extent to which the worker is available to perform services for other, similar businesses
• Whether the business provides the worker with employee–type benefits, such as insurance, a pension plan, vacation pay, or sick pay
• The permanency of the relationship, and
• The extent to which services performed by the worker are a key aspect of the regular business of the company

Government crack-down

As the government is looking for ways to bring in revenue in a down-economy, they are paying serious attention to the losses incurred by the usage of ICs. Reports estimate the misuse of ICs lowers income tax revenues by about $4.7 billion annually. In Illinois, for example, the  University of Missouri–Kansas City Department of Economics estimates that from 2001 through 2005, the state lost $124.7 million PER YEAR year in income taxes as a result of IC misclassification by employers.

In August, Congress began reviewing several bills that tighten restrictions on the use of ICs and exact tougher penalties on employers who bend the rules. The IRS also announced plans to randomly audit six thousand businesses nationwide to curb abuse.

Don’t take shortcuts

If your company engages the use of ICs, don’t let the lure of bypassing a few tax and insurance dollars distract you from the real-life risks at hand. You should take the time to seriously review your IC relationships and determine if they do, in fact, match the IRS guidelines. If you are uncertain where to begin, there are professional human resource outsourcing and consulting firms that specialize in these employment relationships and can guide you to make the right decision for your company.