2012 California Labor Laws

On October 9, 2011, California Governor Jerry Brown signed almost two dozen new California human resources and labor-related bills into law, effective in 2012. Below we highlight seven of the most important laws. As these these laws directly impact employers in the state of California it is highly recommended you familiarize yourself with them, or contact CPEhr to assist you.

SB-459: Worker Misclassification Act. SB-459 is designed to crack down on the misclassification of employees as independent contractors.

AB-887: The Gender Nondiscrimination Act. This law amends California’s existing anti-discrimination laws as detailed in the Fair Employment and Housing Act. It defines both “gender identity” and “gender expression” as their own protected classes.

AB-469: Notice of Pay Details requires California employers to provide all non-exempt hires with a written notice that contains additional employment information, including  rate of pay, paydays, and additional employer information.

AB-22: Prohibition on Use of Credit Reports in Employment. This new legislation prohibits employers from using an employee’s credit history in making most employment decisions. This also applies to applicants interviewing for a job. The new bill significantly limits the occasions for which an employer may use a credit report.

Assembly Bill No. 592: Interference with California Family Rights Act Leave makes it an unlawful employment practice for any employer to interfere with or otherwise prevent or attempt to prevent an employee from exercising rights under the California Family Rights Act.

Senate Bill No. 757 Domestic Partner Discrimination in Health Insurance. SB 757 is federal legislation that forbids employers from willfully excluding from coverage eligibility discriminating in coverage between spouses or domestic partners of a different sex and those in same-sex marriages or domestic partnerships.

Senate Bill No. 299 – Pregnancy Disability Leave. This new law requires all employers with 5 or more employees to continue health coverage for eligible female employees who take Pregnancy Disability Leave, up to 4 months in a 12-month period.

2012 Workers’ Classification Strategies

As briefly outlined above, California Senate Bill 459, affectionately known as the “The Job Killer Act,” imposes severe penalties on employers who “willfully” misclassify workers as independent contractors.  On the Federal level, worker misclassification has been the focus of attention by the Department of Labor. Labor Secretary Hilda Solis, recently stated, “The misclassification of employees as independent contractors is an alarming trend. The practice is a serious threat to both workers, who are entitled to good, safe jobs, and to employers who obey the law and are undercut when others use illegal practices.”

The Labor Department is now sharing information regarding businesses that misclassify workers with the IRS. As part of their efforts, the DOL has hired approximately 300 investigators to explore wage theft complaints. The IRS has already collected almost $4 million of back wages in 2010, during the first of its three-year plan to audit some 6000 randomly selected, various sized companies.

Employers who misclassify employees may face significant penalties, in addition to employment taxes and benefits. As such, it behooves all employers to review their employee job descriptions and reclassifying misclassified workers if necessary. A few tips:

1. Read through the Labor Department’s rules and examine workers’ job descriptions to determine whether classifications are correct.
2. Investigate complaints immediately. A worker claiming that they are entitled to a particular status or financial benefit should be heeded and employers should be sure to examine the case.
3. Review the IRS guidelines. The IRS provides clear eligibility parameters for determining independent contractor status. One must consider all information that helps determine the degree of control and independence maintained by the worker in relation to the company.

In short, to prevent future aggravation and financial penalties, be proactive, investigate complaints promptly, carefully check each worker’s status and reclassify as necessary. Alternatively, contact CPEhr who can assist you in all aspects of employee job descriptions and classifications.

Reducing California Workers’ Compensation Costs in 2012

After years of stable workers’ compensation insurance rates, California employers can expect to see a significant increase in their insurance premiums starting January 2012. On November 4, 2011, Insurance Commissioner Dave Jones approved an average increase of 37% to the pure premium rates and a claims cost benchmark of $2.30 per $100.

The best way to offset increase in premiums is to maintain a safe work environment, which will reduce the occurrence of workplace injuries, and ultimately lead to a reduction in the company’s experience modification rate (Ex Mod).

Below are four fundamentals practices that will directly impact your workplace safety:

1. Implement an Injury and Illness Prevention Program (IIPP)

Not only is an IIPP a necessity for regulatory compliance*, but a well designed IIPP will also help to minimize injuries and related costs.  An IIPP should address key items including responsibility for overseeing the safety program, communication with employees, employee compliance with the program, hazard (risk) assessment and correction, accident investigation, safety training and recordkeeping.

*All California employers are required by Cal/OSHA to have an Injury and Illness Prevention Program in place.  Federal OSHA is currently considering a similar requirement.

2. Make Safety Everyone’s Job

While it is necessary to designate specific individuals to administer the IIPP, it is also important to emphasize the company-wide shared responsibility for safety.  In order for an IIPP to be effective, everyone from top management to supervisors and employees must buy in to and support the program.  Make sure that managers and supervisors are adequately trained regarding company safety policies so that they can help to enforce these policies with their employees.

3. Consider a Safety Incentive Program

When done right, an incentive program can be a valuable addition to the company’s overall safety program.  Be wary of programs that discourage injury reporting; instead, try implementing a program that uses positive reinforcement, rewarding employees for contributing to workplace safety by making safety suggestions, following safe work practices and assisting with hazard identification efforts.

4. Consider Outsourcing Safety Administration

Many organizations attempt to institute an effective, cost efficient Risk Management Program in an effort to reduce workplace injuries. These programs may be difficult to implement, often with unproductive and costly results. Consider contracting with a Human Resources Outsourcing firm that employs safety specialists to assist you in the creation and implementation of an effective safety plan. Contact CPEhr’s Risk Management Department for more information.

2012 Tax and FICA Information

Once again, various tax and payroll limits will be changing in 2012. Below is a summary of the important changes. Payroll/tax figures which remain the same in 2012 are noted as such.

FICA (Social Security)

Maximum Taxable Earnings  -  $110,100

Employer/Employee 2012 Withholding Percent  -  6.2%

Employer/Employee 2012 Maximum Withholding  -  $6,826.20

($4,485.20 in 2011 for EE)

($6,621.60 in 2011 for ER)

FICA (Medicare)                                                                                                                   

Maximum Taxable Earnings  -  No Limit

Employer/Employee 2012 Withholding Percentage  -  1.45%

Employer/Employee 2012 Maximum Withholding  -  No Limit

(No change from 2011)

SUPPLEMENTAL WAGES                                                              

Rate (flat rate withholding method)  -  25%

Over $1 million  -  35%

(No change from 2011)

WITHHOLDING

The 2012 withholding tables have not been finalized, as Congress has not yet finalized their decision on whether to adjust the tax rates.  Any changes in the withholding tables will be communicated once they have been announced.

Effective January 1, 2012, a new law, AB 469, goes into effect requiring California employers to add a new document to their new hire package. The new law, formalized as Labor Code Section 2810.5, requires employers to provide all non-exempt hires with a written notice that contains the following information:

1. The rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime, as applicable;
2. Allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances;
3. The regular payday designated by the employer in accordance with the requirements of this code;
4. The name of the employer, including any “doing business as” names used by the employer;
5. The physical address of the employer’s main office or principal place of business, and a mailing address, if different;
6. The telephone number of the employer;
7. The name, address, and telephone number of the employer’s workers’ compensation insurance carrier;
8. Any other information the Labor Commissioner deems material and necessary.

Going forward, if any of the above information changes, the employer must provide the employees notice of these changes within seven days in one of the following methods:

1. By providing a written amendment to the statement;
2. By issuing an entirely new notice;
3. Via paycheck stub, if the updated information is contained on the paycheck stub.

AB 469 does NOT apply to exempt employees, public employers, or employees already covered under a collective bargaining agreement (unionized employees).

While the Labor Commissioner has stated that a template will be made available to assist employers, we strongly encourage you to contact a CPEhr human resources outsourcing specialist to assist you in complying with the new law.

Many companies have anti-harassment policies and provide them to their staff upon hire or orientation.  The concern is that they don’t take the time to explain the policy or the avenues available to an individual if they wish to make a complaint.  In addition, managers are woefully unaware of their actual duties and responsibilities, relative to accepting and responding to complaints.

Managers and companies can no longer take a passive approach.  Telling an employee about a policy is insufficient.  Management must become proactive in educating all employees, reinforcing an open-door policy and responding immediately to all inappropriate behavior in the workplace.

Read More >

Year after year, employment lawsuits lodged against American businesses continue to skyrocket, with no end in sight. In the past year, the Equal Employment Opportunity Commission received over 65,000 charges of alleged sexual and raced-based discrimination alone. The most important ways to protect your business is as simple as purchasing a cost-effective insurance product, Employment Practices Liability Insurance (EPLI).

Learn how EPLI can help protect your business against employment litigation.

Read more>

Unless you’ve recently returned from a trip to the moon, you have undoubtedly heard of the recent Supreme Court ruling in the Wal-Mart v. Dukes discrimination class action lawsuit. This landmark decision addresses several important issues relating to all class action lawsuits, and provides important insights towards implementing human resources best-practices.

Read More.

The most recent statistics report that LinkedIn now has over 100,000,000 users and Twitter has over 175,000,000. But Facebook leads the pack with over 640,000,000 users – that is more than double the population of the entire United States!

So what does that have to do with work, you may ask? Well, consider these incredible statistics as reported last year by Network Box, an online internet security firm:

An analysis of over 13 billion business URLs in 2010 indicates that almost 7 percent of all business internet traffic goes to Facebook.  The report also shows that 10 percent of all corporate bandwidth is used on YouTube!

The bottom line – the chances are, on any given work day, your employees are online. Whether your corporate culture embraces social media, or despises it (or simply doesn’t understand it), it is crucial to implement a social media policy in the workplace. Any business that does not have a solid policy in place, or doesn’t train its employees on the do’s and don’ts of social networking as it relates to the company, exposes themselves to significant risks. Beyond disparaging remarks or negative press, this can include opening its doors to the release of trade secrets or confidential information.

There are several venues now for electronic and social media, and businesses should have a policy in place that addresses each one.

1. Social Media Guidelines: The Social Media Guidelines addresses the posting on a company-sponsored website.  Your company may have a Facebook, MySpace or Twitter page and employees are allowed to post comments and interact with customers and clients through this medium.
2. Blogging: Blogging is the posting of information on either a personal or someone else’s site, web log, journal etc and also includes posting opinions on YouTube, Twitter, bulletin boards, chat rooms, etc. It is on-duty and directly relates to the business of the company
3. Social Networking: Social Networking addresses how employees represent the company or speak of  the company while they are off duty
4. Electronic Media: The Electronic media and monitoring policy is about how employees use the company property issued to them, whether it is a PC or a laptop, Blackberry, mobile phone or office phone, stationary or mobile equipment. This policy addresses the appropriate use of the equipment, and the understanding that because it is company property, there should be a greatly reduced – or zero – expectation of privacy.

The law permits employers to regulate and even prohibit employees from engaging in online social networking activities while on company time, property or business.  It is also appropriate to LIMIT employees from posting disparaging comments or discussing company business while social networking by adopting a policy making it clear that such conduct is inappropriate. Again, the objective is to lower the expectations of privacy of employees when implementing these policies.

General Factors to Consider

The wording of the policy may vary depending upon your industry and business but there are certain basic fundamentals to keep in mind:

1. First and foremost: While common sense may make sense to you, always have legal counsel look over your policy before distributing it to your staff.
2. Keep the social media actions in line with existing company policies regarding use of the company’s electronic media (phones and computers), confidentiality of company information, and all laws regarding harassment and discrimination.
3. Similar to other corporate policies, other off-limits or inappropriate social networking behaviors would include, profane, vulgar, defamatory, threatening, harassing, hateful, abusive, bullying or embarrassing comments or postings about other employees.
4. Employees are expected to be respectful of the company’s products, and services.  Though discussion of pay or policies may be protected activities, running down the quality of service or products should be disciplinary issues.
5. Let employees know that information regarding the company’s clients, business partners, or details of projects and plans are off limits.
6. Specifically state that use of protected logos and trademarks is forbidden.
7. If an employee identifies themselves as a company employee, or discusses matters related to the company on a social media, require that the site must include a disclaimer on the front page stating that it does not express the view of the company and these are strictly personal opinions and views.
8. Finally it should be clearly stated in the policy that they should expect compliance monitoring without prior notice.

The prospect of creating and introducing a social media policy may seem daunting, if not down-right impossible at first, but don’t underestimate its importance. With social media gaining momentum both off-site, and on the job, the time to begin working on a plan is now. Always consult with legal counsel if you need help, but get started today!

While reports of a “rebounding economy” are still mixed, the fact that so many companies are hiring is an indication that things are beginning to turn around. With 2.5 million people looking for work, hiring managers must be prepared for a massive influx of resumes for each open position they post. For the first time in a decade, employers are in the driver’s seat with an abundance of qualified candidates who can, and have, done the job before.

However, employers must be careful to have a system in place BEFORE they begin to advertise, receive, review, interview and select the most qualified candidates. If not, be prepared to be overwhelmed! Here are 20 tips to help you manage all phases of the recruiting process to help you hire the most qualified candidate, while not losing your mind!

1.   Identify the needs of the job.

• • Make sure the job description is accurate and clearly reflects the needs of the position
  • Is the need temporary or full time?
  • Check the salary ranges

2.   Advertising for the Position

• • Make sure jobs are posted to high quality, reputable web sites – you get what you pay for
  • Post jobs to industry specific sites when necessary for more qualified candidates

3.   Selecting Resumes

• • Set some immediate disqualifiers (i.e., don’t consider candidates asking for more money than allotted in the budget, don’t consider candidates who live 100 miles away, etc.)
  • Don’t try to keep up with all the resumes as they are delivered – they will be hitting your inbox fast and furious, and it’s the easiest way to become overwhelmed!
  • Let the bulk of the resumes come in for about a week and then set aside a few hours to go through everything in one sitting.

4.   Conducting Interviews

• • Don’t rush the interview process!
  • Don’t let the need to fill a vacant position lead to a hasty hiring decision you will almost certainly regret
  • Conduct a phone interview first to make sure everyone is on the same page regarding salary expectations, job duties, hours, etc.
  • Have a different purpose for each interview (i.e., pre employment screening during 1st interview, job specific role playing scenarios during 2nd interview, etc.)
  • Never hire someone after just one in-person interview
  • Involve trusted members of the potential new hire’s team in the latter stages of the interview process

5.   Selecting the best candidate

• • Consider the person’s strengths and don’t just focus on imperfections
  • Consider more than scores and numbers – personality counts!
  • Select the person who wants the job the most –
    • Views the job as an opportunity
    • Is happy to be there
    • Will work hard in the position

And here are a few final tips:

• • Don’t treat an open position as a thing that needs to be handled, but rather a need for a person to join, or perhaps be the start of, a new cohesive unit
  • Update the needs of the position to accurately reflect the company structure in 2011 and not years past.  This includes, but is not limited to, reevaluating job descriptions and salary ranges
  • Don’t be afraid to tread lightly and slowly when filling an open or new position.

The Patient Protection and Affordable Care Act (PPACA), otherwise known as the “Health Care Reform Act” was signed into law on March 23, 2010 by President Obama. Most of the initial provisions did not go into affect for 6 months, or September 23, 2010. The bill is a whopping 2000+ pages long, with a 14-page Table of Contents! It’s no wonder that most employers have little comprehension of what is contained in the bill, and less understanding of how the bill will affect their business. To understand the impact of the bill on your business, you should contact a specialist who is an expert on small business medical insurance plans and is familiar with the Act.

In the meantime, we will take a cursory view of health care reform, and a year-by-year snapshot of changes to come. Hopefully, it will provide a starting part for discussion.

The Act contains five key provisions:

1.     The requirement for all US citizens and legal residents to have health insurance;

2.     Penalties for employers who do not offer health insurance for their employees;

3.     State Based Health Exchanges created to offer cost effective insurance options

4.     Premium credits for low income individuals;

5.     Eliminates pre-existing condition and annual/lifetime benefit limits

A Year by Year Look at Health Care Reform

Some changes went into effect in 2010, such as coverage for adult dependents (dependents until age 26), and several more will happen in 2011. The most significant changes, however, will not go into effect until 2014. Below is a snapshot of key changes that will be going into effect in the coming years:

2011

• No pre-tax reimbursements from “health accounts” for non-prescribed, over the counter medications,
• 20% tax on nonqualified HSA withdrawals,
• Reporting the value of employer sponsored coverage on w-2’s (delayed)
• Automatic enrollment in long term care program, employer may opt out (delayed),
• Drug company fees: $2.5 billion in 2011, $4.2 billion in 2018

2012

• Uniform explanation of coverage,
• Pre-enrollment document sent explaining benefits and exclusions,
• 60 day notice for material modifications, if not provided in uniform explanation of coverage,

2013

• FSA contributions limited to $2,500,
• New federal employer tax, $2.00 per covered individual per plan year
• Medicare payroll tax increase from 1.45% to 2.35%,
• Employer notice to employees of exchanges, premium subsidies, and free choice vouchers,

2014

• Individual mandate – every citizen must have coverage,
• Individual penalties for not purchasing coverage,
• Guaranteed issue,
• State health exchanges effective
• Standard benefit plans, (bronze, silver, gold, platinum),
• Waiting period not more than 90 days,
• Employer penalties for not offering coverage or at least one FTE receives a tax credit,
• Health insurance company fees: $8 billion 2014, $14.3 billion 2018, 2019 prior year amount increased by premium growth rate.

2018

• Cadillac Tax. 40% tax on plans value in excess of $10,200 single, $27,500 family.

Penalties for Non-Coverage

As stated, most of the act’s important provisions will become effective in 2014. The most relevant law for employers is the penalty they will face for non-coverage of employees. The exact penalties are complicated to calculate, base on numerous factors. Some of the basic guidelines are outlined below:

Employers with more than 50 employees:

• If coverage is not offered by the employer and even one full-time employee (FTE) receives a premium tax credit, the employer will pay a fee of $2,000 per FTE, excluding the first 30 ee’s.
• If “affordable” coverage is not offered and one FTE receives a premium tax credit, the employer will pay the lesser of $3,000 for each employee receiving a tax credit, or $2,000 for each FTE. Affordable coverage is defined as an employee cost of health insurance, less than 9.5% of household income and the actuarial value of plan is at least 60%.
• A Voucher will be required if the employee contribution exceeds 8% of household income.

All Employers:

• Employers that offer coverage are required to provide a free choice voucher to employees with incomes less than 400% of the Family Poverty Level (FPL), whose share of premium exceeds 8% but less than 9.8% of their income and who chose to enroll in a plan in the Exchange.
• A Voucher equals to what the employer would have paid to provide coverage under the employer’s plan. Employers providing free choice vouchers are not subject to penalties.

Employers with 200 or more employees

• Required to automatically enroll employees into health plans offered by employer. Employees may opt out.

If the provisions of the health care reform act sound complex, they are! We highly recommend you consult with a specialist who is an expert on small business medical insurance plans and is familiar with the Act. Feel free to contact CPEhr’s benefits specialist with any health care reform questions.

While federal legislation on small employers remains complex and burdensome across the country, overbearing employment and labor laws in California are helping it maintain its reputation as the one of the most litigious states in the Union. Below are two recent court cases which highlight the complexity of labor laws in California, and the lengths to which employers must go to be informed and protected.

Wage and Hour: Payroll Companies are Not Liable as the Employer

Outsourcing payroll processing is a common business practice.  A recent case that reached the California Supreme Court addressed the issue whether or not a payroll processing service could be held responsible, as an employer, for wage and hour violations.  The California Supreme Court had determined in a previous case, Martinez v. Combs, what defines a legal “employer”. The Court applied this definition to the recent case of Futrell v. Payday California, Inc.  It found that in order to be liable as an employer, an entity must exercise control over an employee’s wages (the authority to negotiate and set the employees’ rate of pay). In Futrell v. Payday California, the court found Payday merely calculated pay, tax withholding and issued paychecks but did not manage the employees’ wages.  They determined that payroll preparation alone does not meet that standard.

This case shows that employers who utilize outside processing firms for payroll administration will be liable for wage and hour violations, such as meal and rest period and overtime violations. Conversely, the case is good news for organizations who simply provide administrative payroll services to employers but are not involved in managing employees wages.

Compensation Agreements

In McCaskey v. California State Auto Association, the California Court of Appeals ruled that an employer may unilaterally terminate its duty to honor a compensation policy only if the following conditions are met:

• The policy must be of indefinite duration
• The employer must effect the change after a reasonable time and with reasonable notice
• The employer may not interfering with the employee’s vested benefits.

In McCaskey v. California State Auto Association , the court ruled that the plan was not for an indefinite duration under California law.  Rather, it said that the plans terms suggested an implied-in-fact durational term by which CSAA’s duty to honor the policy, either at age 65; after 10 years; or, upon the employee’s retirement.  The court affirmed that a contract of indefinite duration is terminable after a reasonable time on reasonable notice, which was not met in this case.

Labor and Employment Laws in California

The cautionary note to California employers is to review your compensation agreements carefully to determine if they were properly drafted by an attorney.  Prior to changing agreements, particularly those related to compensation (including sales/commissions agreements), you should consult with legal counsel.

Alternatively, if you are a California-based employer, it is imperative that you contact a California human resources services provider who can advise you in all areas of labor law and employment administration.

The Workers’ Compensation Insurance Rating Bureau (WCIRB) has recently requested a substantial increase in Workers’ Compensation rates.  In order to help contain Workers’ Compensation insurance costs, it is vital that employers focus on injury prevention and workplace safety.  Here are some tips that can be used to help keep employees safe and Workers’ Compensation costs down:

1. Implement an Injury and Illness Prevention Program (IIPP)

Not only is an IIPP a necessity for regulatory compliance*, an effective IIPP will also help to control injuries and associated costs.  Your IIPP should address key items including authority and responsibility for the safety program, employee compliance, communication with employees, hazard assessment and correction, accident investigation, safety training and recordkeeping.

*All California employers are required by Cal/OSHA to have an Injury and Illness Prevention Program in place.  Federal OSHA is currently considering a similar requirement.

2. Make Safety Everyone’s Job

While it is necessary to designate specific individuals to administer the IIPP, it is also important to emphasize the company-wide shared responsibility for safety.  In order for an IIPP to be effective, everyone from top management to supervisors and employees must buy in to and support the program.  Make sure that managers and supervisors are adequately trained regarding company safety policies so that they can help to enforce these policies with their employees.  Involve employees in the safety program, encouraging them to make safety suggestions, assist with hazard identification surveys and job hazard analysis.  This creates a sense of employee ownership of workplace safety issues.  Also consider incorporating safety into performance evaluations and bonus programs.

3. Consider a Safety Incentive Program

When done right, an incentive program can be a valuable addition to the company’s overall safety program.  Be wary of programs that discourage injury reporting; instead, try implementing a program that uses positive reinforcement, rewarding employees for contributing to workplace safety by making safety suggestions, following safe work practices and assisting with hazard identification efforts.

4. Consider Outsourcing Safety Administration

Many organizations attempt to institute an effective, cost efficient Risk Management Program in an effort to reduce workplace injuries. These programs may be difficult to implement, often with unproductive and costly results. Consider contracting with a Human Resources Outsourcing firm that employs safety specialists to assist you in the creation and implementation of an effective safety plan. Contact CPEhr’s Risk Management Department for more information.

Contributed by CPEhr’s Senior Loss Control Manager, Sara Richards, MS, CRP, ARM.

October is National Ergonomics Month, and while many of us typically think of ergonomics in terms of our computer workstation set-up, there is an increasing trend of ergonomic problems associated with handheld devices; specifically, text messaging on cell phones. The American Society of Hand Therapists (ASHT) past President Donna Breger Stanton, MA, OTR/L, CHT, FAOTA warned in a Consumer Alert that, “Handheld electronics may require prolonged grips, repetitive motion on small buttons and awkward wrist movements. This combination can lead to an increased susceptibility to hand, wrist and arm ailments such as carpal tunnel syndrome and tendonitis”.

Growing Texting Trends

Earlier this year, ABC News reported on an Illinois teen who was diagnosed with carpal tunnel syndrome attributed to texting up to 100 times per day. The doctor prescribed wrist braces, cortisone injections and surgery. Teenagers are notorious for their text messaging habits, and research shows that adults are becoming increasingly reliant on this technology. Pew Research Center, in its Internet & American Life Project research, found that teen texting averages 50 messages per day compared to 10 messages per day for adults. While not yet reaching the levels of teen texting, adult texting is definitely on the rise. The Nielsen Company, at the request of the Wall Street Journal, analyzed cell phone bills of over 60,000 subscribers. They found that adults ages 45 to 54 sent and received 323 text messages per month in the second quarter of this year, up 75 percent from a year ago. Pew Research Center also found that adult text messaging has increased. They found that 72 percent of adults send and receive text messages, up from 65 percent in September 2009.

How to Minimize the Risks

So what can we do to prevent physical problems associated with texting? ASHT has designed the following guidelines for safer use of handheld electronics and portable devices:

• If you have pain during the activity, stop. Pain is one of the ways your body is letting you know that you are overextending a particular muscle group.
• Use a neutral grip when holding the device. A neutral grip is when the wrist is straight, not bent in either direction. This will allow for wrist motion in a plane where more motion is available in the wrist.
• Take a break every few minutes or switch to another activity. Overuse of repetitive motions, such as pressing buttons, can cause tendonitis of the elbow or lead to Carpal Tunnel Syndrome (tendon or nerve irritation).
• If possible, place pillows in your lap and rest arms on pillows or use the device supported on a desk or tabletop. This will allow you to keep your head in a more upright position and therefore decrease neck strain. The pillows or desk will help support the arms so they do not have to be held up in the air.
• Sit in an appropriate chair. This is a chair that allows you to put your feet comfortably on the floor and also provides good back support.
• Switch hands frequently and vary the use of fingers/ digits. This will allow the one hand or other fingers/digits to rest and reduce fatigue.
• Frequently look away from the screen and focus on a distant object to help reduce eye fatigue.

As with computer use, posture is key when it comes to handheld devices. Breger Stanton advises “Watch your posture. People may strain their elbows and wrists by leaning or slouching for a long period of time while working on these tiny keyboards. If you are feeling discomfort or lack of circulation in your arms and hands while working on a handheld device, you could by laying the groundwork for more pain in the future.” ASHT also recommends performing hand and wrist exercises to reduce the risk of injuries when using handheld electronics.

For more information, please contact CPEhr’s Risk Management Department.

Are you taking the right approach to workplace squabbles? Read the following four statements and mark each one “True” or “False.” Then check your answers below.

1. When you begin to discuss an unpleasant situation, you should not leave until you resolve the problem. True or False?

2. You should begin a conflict discussion by stating your position and presenting a solution. True or False?

3. Once you realize that you have a problem, you should confront the person as soon as possible. True or False?

ANSWERS:

1. False, if a co-worker becomes irate, irrational or defensive, you should agree to continue the discussion later. A person in that condition is unable to negotiate or seek solutions.
2. False, stating your problem with the person is likely to trigger a defensive reaction. Instead, describe the negative effects the situation is having on your working relationship and on the team as a whole. Then ask your co-worker to suggest solutions.
3. False, you should never enter a conflict discussion unprepared. Once you identify a problem, observe your interactions for a week or so and document the circumstances. That way, you will be prepared to offer specific examples.

Source: Communication Briefings- November 2010

Case Study #1

Joe applies for a job in a robot factory and must take a pre-hire drug test. Before taking the test, he signs a HIPAA authorization allowing the drug test results to be given to the factory.

While taking the test, one of the technicians notices that Joe is exhibiting symptoms of another medical problem. When she tells Joe about her observations, Joe decides to take another test.

Unfortunately, this second test reveals that Joe has a serious illness.

Under HIPAA, what else might the technician do in this situation?

Answer:

Although the technician may release Joe’s drug test results to the factory, no other PHI may be disclosed unless Joe signs another authorization.

Joe’s authorization only permitted the disclosure of his drug test results to the factory.  Authorizations must be carefully examined to determine if disclosures are restricted, and all limits must be carefully adhered to.

Case Study #2

To comply with HIPAA’s Security Rule, organizations should identify each staff member’s individual need to access E-PHI, permit access only for appropriate purposes, and prevent all other access.

Basically, different levels of access to E-PHI should be provided to different staff and work stations, based on their job responsibilities and needs.Organizations must also be able to modify staff access rights, for example when someone’s duties change, or their job ends.

For example, suppose Bob resigns from his job, which had given him online access to E-PHI of his employer’s patients.

In this situation, what must Bob’s employer do to comply with HIPAA?

Answer:

Organizations must be able to detect unauthorized access to E-PHI, modify ( and terminate) the access rights of staff, and implement policies and procedures to safeguard the facility and equipment from unauthorized physical access, tampering, and theft.

Source: LawRoom

Here is another short True/False quiz to test your HR and employment law knowledge:

1.  You cannot require an exempt employee to punch a time clock.  T ____   F____

False – You can, and we recommend that you require exempt employees to keep a time record.  However, unlike non-exempt employees (even those paid by salary), you are not required to keep time records of the exempt employees’ working hours.

2.  The Fair Labor Standards Act requires employers to provide meal periods.  T ____  F____

False – Rest and meal periods regulations are left for the States to decide, and the results vary widely, so be sure to check your state’s law.  Federal law does provide that if you do give employees a meal period, they must be completely relieved from duty for the time to be unpaid, and “watching the phones” is not relieved of all duties.  Federal law also provides that short breaks, up to 20 minutes, if offered, must be paid.

3.  You may require an exempt employee to work 50 hours per week, and make up time he or she has missed.  T ____  F____

True – It is something of a myth that exempt employees may decide how many hours to work, and that myth was put to rest by the DOL opinion letter.

Earlier this month, a troubled employee fatally shot nine people (including himself) and wounded eight others when he arrived to the warehouse where he worked for the last two years. He was there to meet his manager for a disciplinary hearing.

This tragic case is reflective of the startling statistic that homicide is the second leading cause of job-related deaths following vehicular accidents. There are approximately 2 million employees (annually) who are victims of workplace violence. While homicide is an extreme case, workplace violence has been reported to include assault, robbery and rape.

Linda Robinson, CPEhr’s Training Manager, cites many reasons for violence in the work environment. These include:

• Pressure and stress of modern life—economic, social, and psychological challenges that can build up over time and drive people over the edge
• Individuals who may view violence as a way to deal with their frustrations and solve problems
• Cultures that tolerate and glorify violence
• Access to weapons

While these are some of the reasons that workplace violence exist, according to Robinson, there are “undoubtedly many other causes that contributes to this act. As an employer, it is your duty to create a safe environment for all employees.” While there is no way of knowing if violence will occur in your organization, here are proactive steps and follow-up intervention items that you can make before violence erupts:

Proactive Steps:

• Address threatening behavior right away
• Review your workplace policy with employees that are causing problems
• Educate your employees to report any disruptive, aggressive or violent acts
• Refer employees that have exhibited violent behavior to counseling (EAP or private)

Follow-up Intervention:

• Monitor the employee’s behavior
• Use progressive discipline as needed
• Assess the violent potential of terminated employees

While intervention is a proactive approach to address violence in the workplace, the number one prevention, according to Robinson, is to define, require and measure professional conduct across all-levels of the organization. This will create an environment that establishes a protocol that sets forth a tone for professional conduct within the workplace. When a professional environment is a part of the culture, employees who are disruptive and/or acting violently will be identified much faster than in a chaotic environment that has no professional standard.

Take this short True/False quiz to see how knowledgeable you are on some basic payroll laws.

False – The Field Operations Handbook of the U.S. Department of Labor states that direct deposit is an acceptable means of payment, as long as employees have the option of “receiving payment by cash or check directly from the employer.” Most States require the employee’s written permission to participate in direct deposit, and any employee may refuse.

2. “Salaried” employees are not eligible for overtime. True or False?

False – “Exempt” employees are “exempt” from the laws requiring overtime, and while exempt employees are paid under the salary basis rule, it is the duties of the position and the level of pay that determines who is “exempt” from overtime.

3. You cannot require an exempt employee to punch a time clock. True or False?

False – You can, and we recommend that you require exempt employees to keep a time record. However, unlike non-exempt employees (even those paid by salary), you are not required to keep time records of the exempt employees’ working hours.

In April, 2010, Joshua Sable, Esq., CPEhr’s in-house General Counsel, conducted a webinar covering important changes to labor laws affecting small businesses. The “2010 Employment Law Updates” webinar covered a wide range of HR topics, including the HIRE Act, Healthcare Reform, Disability Discrimination, Harassment Claims and many more. To hear the webinar in its entirety, please click HERE. Below are excerpts of some of the information presented in April’s webinar.

HIRE Act. The Act provides a wide range of incentives for employers including a tax holiday for hiring “new” workers and a tax credit for retaining such workers. The goal of the plan is to stimulate the economy and bring people back to work.

The key highlights of the “Tax Holiday” are:

• Relieves a “covered employer” of its obligation to pay its 6.2% match for Social Security on the first $106,800 of wages (potential savings of $6,622)
• Applies to those workers hired after 2/3/10 but before 1/1/11 on wages paid between 3/19/10 and 12/31/10

Health Care Reform. Two bills were signed into law on March 23rd and 26th, 2010 – The Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act, respectively. Both laws have important consequences for employers and group health plans.

Effective 01/01/2014 employers with 200 or more fulltime employees must automatically enroll new hires in health coverage. Employers with more than 50 fulltime employees that do not offer coverage must pay a penalty of $166/month per employee (excluding first 30).

Disability Discrimination. Recent California case law has changed the playing field, once again, in regards to disability discrimination. The two key updates are:

In the event an employee has been previously granted special accommodations for a disability, the employer has a continuing duty to inform new supervisors of these accommodations. Failure to do so can place the employer at risk of being sued.

Employers are required to actively identify and offer available positions to disabled employees – it is not sufficient to merely “allow” the disabled employee to apply for a new position.

Harassment Claims. Attorneys have previously advised managers that “being a jerk” on the job, while impolite and unprofessional, does not violate the law, so long as the negative behavior was work related. However, a recent case made its way to the California Supreme Court (Roby v. McKesson) wherein an employee claimed her manager demonstrated particular hostility towards her, despite the fact that the behavior was in the context of job and performance criticism. The Court ruled in favor of the plaintiff, stating the manager’s behavior created a hostile work environment. The clear message to managers: don’t be a jerk to your staff in the office!

If you have any questions about these, or any other HR related topics, do not hesitate to contact your CPEhr Client Services Representative.

Under the Americans with Disabilities Act (ADA), employers must engage in an interactive process with the employee to determine if a reasonable accommodation can be made. The following cases remind employers of the importance of this process when evaluating an employee’s workplace request due to a disability.

Medication Side Effects May Be a Disability

The 3rd Circuit Court of Appeals joins other courts in holding that adverse side effects from medical treatments may be qualified as a “disability” under the ADA even when the underlying health condition does not. In Sulima v. Tobyhanna Army Depot, the plaintiff was on prescribed weight loss medication which caused him to take long restroom breaks. He supported his frequent restroom visits with a note from his doctor, and although the employer had attempted to transfer him to another location, no alternative work was available. As result, he accepted a voluntary lay off believing that he was scheduled to be involuntary laid off. In the lawsuit, he claimed that the employer discriminated against him on the basis of his disability by attempting to transfer him and laying him off. Although the Court ruled against the employee, it agreed that the side effects of the employee’s medication met the definition of an ADA disability. In light of this holding, employers should note that an employee taking medication resulting in adverse side effects may be protected under the ADA, and should engage in the interactive process to arrive at a reasonable accommodation.

“Schedule Change” as the Accommodation

The 3rd Circuit Court held that a “shift-change” qualifies as a reasonable accommodation for an employee who cannot drive at night due to a disability. In Coldwell v. Rite Aid Corp, the employee requested to be assigned only to day shifts because she could no longer drive at night due to the loss of vision to her left eye. The employer denied the request on the basis that it was not responsible for how an employee gets to work, and that transportation is not a workplace condition within its control. The Court disagreed and said that although transportation to and from work is outside the employer’s control, a shift change is not. It clarified that the employee requested for a shift change, not for assistance in getting to work. A shift change is a work condition that can be reasonably accommodated by the employer by changing the time the employee is required to be at work.

Source: EPLI Pro News, May 2010 Newsletter

Why are health care costs so high? This question has been asked by individuals and employers for many years, but over the past 6 months, the question of rising health care costs has stolen the spotlight away from almost every other domestic agenda topic.

In March, 2010, Peter Duncan from Sidles Duncan Insurance answered the question in our free monthly training webinar, and offered employer-based solutions to mitigate the increasing costs of medical insurance.

Why are medical costs so high?

Mr. Duncan presented many reasons:

• Prescription drug spending increased from $216.7 billion in 2006 to $515.7 billion in 2017, a 138% increase.
• Increased utilization: consumers are more aware of new procedures and technology, and are using them at record rates.
• New medical technology for the early detection of disease, new treatments, and medications for acute illness has increased.
• Demographics: the population continues to age
• Population health status continues to deteriorate
• Impact of the recession on medical costs

1. Aging workforce: 33% of workers age 55-64 postponed retirement
2. Unemployment March 2009: age 20-24 increased 14%, 55+ increased 6.2%
3. California Unemployment increased 62% in the last year.
4. COBRA Subsidy: enrollment increased from 19% to 38% of eligible
5. COBRA Utilization: 150% of premium
6. Consumer anxiety increases utilization

The Deteriorating Health of the U.S. Population

Over the past half century, there has been a clear and significant decline in the level of health amongst the population. Consider the following shocking obesity and diabetes statistics:

• Obesity trends from 1985 to 2008: In 1985, only 8 states showed 15% of the population suffered from obesity. By 2008, over 25% of the population in 50 states was over the obesity level!
• Diabetes: only two million workers suffered from diabetes in 1958. By 2006, the number had increased to 17.5 million.

The Cost to Employers

According to the Mercer 2006 Employer Annual Survey, healthcare costs to employers are estimated at $13,500 per year, per employee. That is made up of only $3400 in direct healthcare costs, while $10,100 is estimated in productivity loss. Specifically in the area of smoking, smokers cost employers over $4000 per year, compared to only $1700 for non smokers. The total lost productivity is estimated at $80 billion per year.

Ultimately, an unhealthy workforce will lead to higher premiums for the employer. According to the 13th National Business Group on Health/Watson Wyatt report 2008, healthy companies experience an average annual health cost increase of 1%, compared to 10% by “unhealthy” companies.

It is clear that a healthy employee population will not only impact an employers direct insurance costs, but will also lead to increased productivity and reduced absenteeism.

The Role of Wellness

Mr. Duncan reported that 87% of health care costs are due to lifestyle choices. Overall, there is a very positive attitude of employees towards wellness programs at work:

Of employees polled:

• Would Work with a Health Coach 49%
• Would Enroll in a Weight-Management 53%
• Would Get Onsite Health Screenings 55%
• Would Use Work Site Fitness Centers 59%

Considering this positive wellness attitude companies should implement the following six areas to improve the lifestyle of their employees and the overall health of their organization:

• Develop a Strategic Plan
• Ensure that you have the right mix of interventions
• Develop a communication plan to maximize engagement
• Use incentives to engage members
• Provide the right tools to make good health care decisions
• Use onsite wellness programs to increase awareness

CPEhr provides on-site benefits consulting and can assist in creating and implementing a Wellness Program for your company. Contact your Employee Benefits representative for more information.

There are many federal laws and state requirements, ranging from the Fair Labor Standards Act to Title VII of the Civil Rights Act, that require employers to retain employee records. In addition to maintaining employment files, accurate documentation will assist in addressing employment claims. Most employment documents are required to be maintained for up to two years.

These documents 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, recordkeeping and documentation are important when managing employees.

Remember the playground bully? The kid whose purpose was to torment, threat, and (at times) physically assault others? Well, that bully grew-up and became your co-worker. If not addressed, bullies can cost an organization over $750,000 annually, according to Allison West, Esq., SPHR at the HR Star Conference hosted in Los Angeles.

While there are no laws against bullying, there are claims of unlawful conduct that protect employees from behaviors that may be the result of bullying such as: Discrimination, retaliation, invasion of privacy, emotional stress and defamation of character. In April 2008, the Indiana Supreme Court upheld a verdict of $325,000 against workplace bullying. The plaintiff claimed assault, intentional infliction of emotional distress, and tortious interference with employment.

Researchers have found that workplace bullying is more harmful than sexual harassment. As published in the American Psychological Association, twenty five percent of targets (people being bullied) and twenty percent of witnesses leave their jobs, because of workplace bullies.

The financial loss to an organization starts before an employee (who was bullied) resigns. Leading up to the resignation, the organization’s day-to-day operations will suffer and negatively impact the bottom-line due to an increase in absenteeism, low morale, decline in performance/productivity, time spent by management to investigate, organization’s PR, health care cost and legal fees.

One may wonder, if bullies are so costly, why are they in the workforce? According to Allison West, the number one reason that bullies are in a workplace is because the employer lets them get away with bullying. By not directly addressing their behavior and ensuring that it changes, a bully will continue to create an uncomfortable environment for others. Characteristics of a bully may include:

• Belittling opinions
• Aggressive voicemails/phone calls
• Ignoring /interrupting others
• Rolling eyes/threatening posture
• Humiliating/intimidating others

Here Are Ways to Create an Environment Free from Bullies:

1. Institute Organizational Core Values – Ensure that every member of the organization follows them.
2. Create a Policy against bullying that includes an anti-retaliation clause.
3. Investigate all reports of bullying.
4. Don’t Ignore Claims
5. Train Your Staff- Make workplace bullying a part of your Sexual Harassment training and train on Respect in the Workplace and Conflict Resolution
6. Reward deliberate acts of kindness
7. Conduct Exit Interviews- Find out why employees are leaving
8. Track Turnover Rate by department and manager

If you have been a target of bullying, please contact your Human Resources Representative for further guidance.

Source: “The Bully and the Bottom- Line” Workshop Allison West, Esq., SPHR at the HR Star Conference, 2010

According to the U.S. Government Accountability Office (GAO), the IRS claims to lose millions of dollars in uncollected taxes each year due to independent contractor misclassification by employers. As such, as part of a national research project on employment taxes, the IRS is scheduled to audit 6,000 randomly selected companies ranging from large to small firms and even non-profits. The goal of the program, which is scheduled to last from 2010 to 2012, is to create a scoring system for employment taxes. The audit will focus on the following items: failure to file, fringe benefit issues, executive compensation (including stock options) and employees misclassified as independent contractors.

The IRS sets forth clear eligibility guidelines for what determines independent contractor status. The following is taken from the IRS website:

Common Law Rules

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

Facts that provide evidence of the degree of control and independence fall into three categories:

1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Understanding the Implications of Misclassification

Employers should understand the implications of misclassifying employees as independent contractors. Employers who misclassify employees as independent contractors may find themselves responsible for employment taxes and penalties, as well for various benefits that the misclassified employee may be eligible for such as health insurance, pension, vacation and sick benefits, worker compensation, unemployment, etc. It is important for employers to review their 1099s, identify independent contractors who may be misclassified and reclassify them appropriately.

The “Twenty Factor Test”

Perhaps the most famous determinant of independent contractor status is the IRS’s 20 Factor Test. The IRS created the test as a tool to help employers identify if their worker is an independent contractor or employee. Although, a worker does not necessarily have to meet all 20 factors to be considered either an employee or an independent contractor, it is important to view the circumstances of each individual case. You can download a copy of the 20 Factor Test here.

When you, the employer, deliberately choose to develop your staff, you are investing in the solidarity of the company as well as your people. When you train your staff, you provide more meaning for people at work, and you build and strengthen the skills, processes, and knowledge development that your organization will need in the future.

Reasons to Train

There are many reasons to train employees, and with the recession lingering, training can affect your bottom line.

Keeping the Customer Happy

It’s clear that if your employees are not properly trained in whatever service you are providing, your business will be short-lived. If customers are not getting the service they came for, and more importantly, they are not being treated professionally and pleasantly, they will not remain clients for long. The chairman of Marriott Hotels, Bill Marriott Jr. summed it up when he said about employees “train them, show them you care…they will treat the customers right. If the customers are treated right, they’ll come back.”

Even in businesses where employees don’t directly interact with customers, training will ensure that the product or service always meets or exceeds the standards expected by the customer.

Additionally, with technology advancing on a daily basis, employees need to learn a slew of new things to continue producing at a profitable level. Things like social media, supply chain software and advanced engineering and software tools are just a few items on an ever-growing list of must-knows to remain competitive.

Remaining Competitive in a Global Environment

With businesses competing in global markets, employees need to be aware of various cultural issues that can come up when working with foreign clients or partners. Behavior or communication that is deemed appropriate in the United States might be completely inappropriate elsewhere. At best, actions and symbolisms might have completely different meanings in foreign cultures. This lack of knowledge can result in botched business deals or unsuccessful marketing campaigns.

Avoiding Lawsuits and Liability

As we all know, the last thing any business wants is a lawsuit. Aside from all the bad press which might impact business, the actual lawsuit can be very costly (especially if you lose) and time-consuming.

To avoid this, managers need to be properly trained in areas such as:

• Sexual-Harassment
• Discrimination Laws
• Hiring and Firing Procedures
• Overtime
• Workplace Violence
• Safety Laws

Obviously this is a partial list, but the point is clear. To avoid lawsuits, managers and employees need to be trained in proper workplace conduct.

Keeping the Employees Happy

All businesses want their employees to be highly productive, use their creativity in dealing with challenges, and to give their utmost in making the business succeed.

The only way this will happen is if employees feel valued and appreciated. Training them on safety issues, core areas of activity, etc. all send a message to them that they are of value. When they feel that the business cares about them (by providing them with the tools and training they need to succeed) they will become the employees that all companies wish for.

Of course, if employees are happy they are also less likely to look elsewhere for work. As replacing an employee can cost up to 60% of that employee’s annual salary, investing in training can be a more cost-effective option.

In summary, training can go a long way in increasing productivity and decreasing unnecessary costs.

Companies both large and small are finding themselves in legal battles against employees for not complying with overtime laws. A New Jersey federal court jury unanimously awarded $2.5 million to Staples, Inc. employees in a class-action lawsuit for failing to comply with the laws that require the correct classification of employees (e.g. exempt or non-exempt) and paying for overtime wages. In addition, Valero Energy Corp. is currently involved in a class-action lawsuit that seeks $100 million in damages. The suit, brought on by three current employees, alleges that Valero required employees to work overtime hours “off the clock” without compensation. As an employer, it is important that all wage and hour laws are adhered to, including payment of overtime and the pay-out of bonuses.

Understanding Overtime Hours:

California requires that all hours worked in excess of eight (8) regular hours in one workday or forty (40) regular hours in one workweek will be treated as overtime. Non-exempt hourly employees are compensated as follows for working overtime:

1. Time and a half the regular rate of pay for hours worked beyond eight (8) in a workday;
2. Double the regular rate of pay for hours worked beyond twelve (12) in a workday;
3. Time and a half the regular rate of pay for the first eight (8) hours worked on the seventh consecutive workday in a workweek;
4. Double the regular rate of pay for hours worked beyond eight (8) on the seventh consecutive day worked in a workweek;
5. Time and a half the regular rate of pay for hours worked beyond 40 in a workweek.
6. There is no “pyramiding,” which means you will not be paid overtime twice for the same hours of work.

Bonuses:
Employers usually pay two types of bonuses: non-discretionary and discretionary. Discretionary bonuses are usually paid as a gift for past services and are not measurable by an employee’s work performance, and/or hours worked. An example of a discretionary bonus is a holiday bonus or special occasion bonus. Non-discretionary bonuses are bonuses that are intended to increase an employee’s performance and efforts. For example, bonuses paid on work performance efficiency and quality, attendance, years of service, and bonuses promised to employees at time of hire are considered non-discretionary.

When paying out non-discretionary bonuses, you must also pay the overtime “premium” on the bonus. According to the Department of Labor, since the bonus was earned during the regular hours as well as the overtime hours, the overtime “premium” on the bonus is paid on half-time or full-time (for double time hours) on the regular bonus rate (from DLSE Manual). Unfortunately, you cannot just pay an employee a $100 bonus, if they worked any overtime in the pay period for which the bonus was earned. You must reference the bonus on their pay stubs and note the workweek(s) that the bonus was earned.

Example On How to Calculate Overtime Premium When a Bonus is Paid:

Regular hourly rate of pay…………………………………………………………………………………….$10.00

Overtime rate of pay…………………………………………………………………………………………$15.00

Total hours worked in workweek = 50

Total regular hours worked= 40 (8 hours x 5 days)

Total overtime hours at time and one-half = 10 (2 hours x 5 days)

Bonus………………………………………………………………………………………………………….$100.00

Regular bonus rate:
$100.00 (bonus) ÷ 50 (total hours worked) =

$2 .00 ÷ 2 (for half of the regular rate) =

$1.00 x 10 (Overtime Hours) = $ 10.00

Total earnings due for the workweek:

Regular hours: 40 hours @ $10.00 ………………………………………..$400.00

Overtime: 10 hours @ $15.00 ……………………………………………..$150.00

Bonus …………………………………………………………………………$100.00

Overtime on bonus……………………………………………………………$ 10.00

Total ……………………………………………………………………………$660.00

Remember, wage and hour laws vary by state, it is important that you understand that as an employer you are mandated by law to pay your employees for all hours worked.

The absence of an Injury and Illness Prevention Program (IIPP) ranks among the most frequent Cal/OSHA (California Occupational Safety and Health Administration) citations against businesses. Fines for the failure to have an IIPP are upwards to $7,000. Many California employers are not aware that it is mandated by law to have a written IIPP. The law (Senate Bill 198) enacted in 1989, and effective on July 1, 1991, requires California employers to develop and implement an IIPP.Below is a list of the eight required sections of the IIPP, along with suggestions that will help you get started in creating an effective safety program:

1. Management commitment/assignment of responsibilities- A demonstration of safety and health begins with top-level management. Management’s commitment to safety will set the tone for the rest of the organization. Appointing a safety captain to be in charge of the program is a great start to demonstrating company-wide commitment. While the safety captain’s primary role is to ensure that safety work-habits are adopted throughout the organization, they may, also, lead a safety committee comprised of employees representing each department/area of the organization. Members of the committee can assist the safety captain by executing the organization’s safety goals.
2. Safety Communication system- There are many creative ways that you can communicate the importance of safety to your staff. They may include: introducing your safety program during new hire orientations, include examples of safe behaviors in a company newsletter/company-wide communication, post safety posters throughout your facility or communicate a safety tidbit on a regular basis at a start-up/staff meeting. Remember, empowering your team to develop creative ideas on how to effectively communicate your safety program will go a long way in motivating them to stay committed.
3. Compliance to the safety program- Make sure that all employees practice safe work habits throughout the day. A great way to ensure compliance is to create a Safety Recognition Program that rewards employees for working safely. The Recognition Program does not have to be costly. It may include: a designated parking space for a quarter, lunch for the top five safe employees, or verbal recognition in a company-wide event.
   Remember: The best way to seek compliance by your employees is to first gain their commitment. Employees are not motivated when they feel like an initiative is “shoved down their throats.” However, if they feel like they are a part of the solution, their commitment will translate into compliance by being a safety role model. For example, demonstrating initiative by communicating safety hazards to the management team. On the flip side, there should also be consequences established for those employees that are exhibiting unsafe behaviors in the workplace.
4. Hazard Assessment- An internal assessment of anything that is potentially dangerous must be included in a written inspection report and reviewed by management and/or the safety committee. Hazards that are identified in your assessment must be corrected. However, if they can not be corrected immediately, then establishing a date will demonstrate your commitment and show that there is a plan in place to make identified corrections.Please Note: imminent hazards cannot be postponed for corrections.
5. Investigations- The investigation process must be documented in your IIPP. This allows for the identification of root causes of the incident, while making corrective actions. The investigation needs to occur after the accident happened, while the facts are fresh. If possible, interview the injured worker at the scene of the accident. Remember, every investigation should include an action plan that addresses the prevention of future accidents.
6. Hazard Correction- Include methods/procedures for correcting unsafe or unhealthy conditions in a timely manner.
7. Training- Training is important to not only educate, but to reinforce the requirements listed above (1-6). Training should be done at minimum- when new guidelines are established, to all new hires, and for all supervisors. Additionally, training must be done when new hazards are introduced into the workplace and when employees are assigned new job duties that will expose them to new hazards.
8. Record Keeping- Is one of the most important elements of your IIPP. It shows Cal OSHA that you not only have written documentation of your safety program, but that your program is being implemented. Records should be maintained for at least a year. They should include records of scheduled and periodic self inspections as well as safety training. Inspection records should include the name of the person that conducted the inspection, the unsafe conditions or practices identified and the corrective action taken. Safety training records should include the employee name or other identifier, training dates, type(s) of training and the name of the training provider. In addition, while recordkeeping is very important, requirements are less stringent for employers with less than 10 employees.

The IIPP is not only a way to save money, but it also reinforces the importance of workplace safety. While all eight requirements are listed, each requirement is extensive. If you have additional questions about the eight requirements, please call your Risk Management Representative to assist you with creating an effective Injury and Illness Prevention Program.

Most people will agree that there is never enough time in a 24-hour day. If there were ten more hours added to each day, would we still have enough time to accomplish what we want? While we will never know the answer, according to the monthly publication, “Communication Briefing,” there are five major time-wasters that we can improve upon. If managed correctly, you may find lost time.

1. Spreading yourself too thin-We can all relate to trying to accomplish everything in a short window of time. However, trying to complete so many things at once can be an unrealistic expectation. Suggestion- Prioritize the tasks that must be completed everyday or hourly. When prioritizing your day, get the most important items done first. This will help you accomplish all of your assignments set aside for the day. You will also feel great satisfaction when tasks are accomplished. A key to prioritizing your day is to schedule some open-time for unforeseen deadlines that could shift your day.
2. Being afraid to delegate- Delegating tasks that do not require your full attention is important in managing your time. I have heard many people say that it is easier to do it themselves. Well, this misconception can be overwhelming and stressful. Delegating allows for time to be freed up so that the most important items may be completed. Not delegating to trusted employees is, also, a missed opportunity for providing feedback and/or development for employees who you are grooming. In addition, the delegator does not have to lose full control of the tasks, since they can always review the assignment and make final edits prior to completion.
3. Not wanting to say “no” to requests- There is no way to say “yes” to every request while trying to manage your own responsibilities. Make a decision of what you must and want to do. Then say “no” to all other request. This will empower you to be the manager of your time, while not setting unrealistic expectations to you or the person that is requesting something from you.
4. Being tied to the phone- There are many things that you can do to ensure that your time is not monopolized on the phone. You may have someone screen your calls, use a voicemail system when you don’t want to be disturbed, or schedule phone time to make/return calls.
5. Procrastinating- There are a number of reasons why we procrastinate; we may feel like the assignment is so unpleasant that it is a chore or, the task is too large. Assignments that are unpleasant should be accomplished first; this will get them out of the way, so that you can spend time on tasks that are not boring. For larger tasks, dividing them into smaller pieces will help make it manageable. Also, remember to incorporate what you learned in steps 1-4. For example, after dividing the project into smaller pieces, allocate time on your schedule to work on the project, delegate portions of the assignment that you are comfortable with delegating, be prudent with your time by saying “no” to assignments that do not require your attention and watch the amount of time that you are spending on the phone.

Remember, managing your time is something that can be only mastered with practice and organization. It is important to reward yourself when you have reached milestones. You may define your milestones in many ways. One can be recognition for having more freed-up time then the previous week or that you trained an employee, because you delegated effectively.

The State Compensation Insurance Fund, or SCIF, announced a mid-year rate hike of almost 15% in its workers’ compensation rates, effective July 1, 2009. While this may sound like bad news for a quarter of California’s employers who are covered by SCIF, the news could have been a lot worse – the 15% increase is significantly lower than the 27.1% increase recommended by the Workers’ Compensation Insurance Rating Bureau (WCIRB) earlier this year.

Almost every carrier in the state has also reported increases -

• Woodland Hills’ Zenith Insurance Co., one of the bigger players in the California comp niche, filed for a 4 percent July increase
• Two Berkshire Hathaway Inc. entities have filed for 10.3 percent increases
• Several Guard Insurance Group companies, meanwhile, filed for jumps in the 2.2 percent to 5 percent range.

The rate increases are blamed on rising indemnity and medical costs related to workplace injuries.

How to keep your costs low.

Despite the state-wide increases, insurance companies view the loss history of an individual company before bumping rates. The Loss Ratio (the ratio of losses paid out versus premiums paid in) is the most important factor in determining rate increases. Even while published base rates state-wide may be increasing, a company with a low loss ratio can still experience a decrease. There are two ways to keep your Loss Ratio low: 1) decrease the FREQUENCY of accidents, and 2) decrease the SEVERITY of an injury when it occurs.

1. Frequency. When reviewing loss ratios, the insurance companies analyze how often injuries occur, and if they are of similar type. Similar injuries that repeat themselves time and again (slips and falls, or back strains, for examples) indicate a weakness on the part of the employer in that area. Improved training and awareness will help reduce the frequency of these injuries. On the other hand, common, unrelated injuries may indicate a general lack of training and give the employer reason to pause and assess their workplace safety as a whole. They should review and update their Injury and Illness Prevention Plan, institute regularly scheduled safety meetings, and implement incentive/bonus program that recognize and reward workplace safety.

2. Severity.Once an injury occurs, the employee, will generally receive medical care. They will be examined by an industrial doctor who will determine the severity of their injury, the necessary medical care, and if they will be required to take time off work. The insurance company will be responsible to pay for all related medical, rehabilitation and indemnity (time off of work) costs. The longer an employee receives medical care and remains off work, the more the insurance company pays. Therefore, it is in the best interest of the employer to return the employee to work as soon as possible. If an employee is unable to resume their previous job function, the employer is encouraged to incorporate a “Modified Return To Work” Program whereby the employee can return to payroll while performing permitted job functions. This can significantly reduce the indemnity costs and minimizes the negative impact to the employer’s insurance policy. An employer should also be vigilant in reviewing open claims with the insurance carriers and to have them closed and removed from the record as soon as possible.

Let a PEO (Professional Employer Organization) manage it for you.

Creating and maintaining an effective safety program is often beyond the capabilities of the average small and mid-sized employer. As rates increase, more and more businesses are turning to PEOs to assist them.

A PEO is a firm that specializes in assisting employers with all the responsibilities relating to employees. A PEO becomes the “Administrative Employer”, making the PEO the legal employer for taxation and insurance purposes. It allows its clients to access a large insurnace pool and through economies of scale, reduce the costs of workes’ compensation insurance premiums. The employer remains in control of all day-to-day activities, and serves as the “Managing Employer”, overseeing the employees on-site.

The PEO employs a team of Safety and Risk Management experts. This Risk Management team has the expertise and experience to provide even the smallest employer a safety program that will help reduce the frequency, and severity, of claims.

In conclusion

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Despite state-wide increases to workers’ compensation rates, employers can control their costs by analyzing their losses and implementing a safety program that addresses their weaknesses. A PEO is a viable, and cost-effective, method of managing an effective loss control plan that will ultimately reduce injuries and help improve your workers’ compensation premiums.

In response to current economic pressures, companies are forced to quickly rethink their ways of operating and learn new groundrules. Working through a myriad of challenges, business must continue to remain focused on profitability and stability.

On Thursday, May 22, CPEhr participated in the Los Angeles Venture Association’s (LAVA) Los Angeles chapter meeting entitled, “Dealing with a Down Economy – Doing More with Less”. Click here for photos of the event.

The meeting included a panel of experts, including CPEhr’s CFO, Grace Drulius. The panel discussed “Doing More with Less” and provided insights and experiences on the following issues:

• Experiences from companies – suggested do’s and don’ts
• Rightsizing employee levels – rules and best practices to be aware of
• New employee relationships – potential for lower cost and greater flexibility
• Rethinking what’s a core function – outsourcing or selling non-core functions
• Using technology – lower operating costs and increase efficiency.

CPEhr – Helping California Employers “Do More With Less”

For close to thirty years, CPEhr has assisted small and mid-sized employers manage their Human Resources functions more efficiently, and cost-effectively. Acting as our clients’ off-site HR Department, CPEhr offers a wide range of services and benefits at discounted rates. By outsourcing all the non-core, non-revenue generating activities to an outside provider, clients are able to focus their limited resources, time and money on their core business priorities.

CPEhr’s services include:

• HR consulting to assist in compliance with applicable federal, state, and local laws and ordinances including immigration, meals and breaks and wage and hour law
• Employee handbooks and policy manuals
• EDD unemployment claims management, investigations & audits
• On-Site Management Training including Sexual Harassment
• Workers’ Compensation claims management and tracking included
• Safety program implementation and assistance
• Payroll processing and delivery
• Payroll tax service, including preparing and filing Federal 941 and State Unemployment Tax returns
• Procurement and roll-out of Employee Benefit Plans.
• Administration of CPEhr plans, including:

Major Medical Benefits, Dental, Vision, Life & Disability Insurance, plus 401(k) Plan

• Cafeteria 125 Plan, including administration and 5500 filing
• Credit Union and supplemental plans

For more information, or to learn how CPEhr can help you company accomplish more, with less, please contact us at (800) 850-7133 or email info@cpehr.com

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Small Business Insight:

Downsizing Can Raise Legal Issues

Four important considerations to make before reducing staff

Employers are faced with the tough decision to reduce staff in response to the deepening recession. There are important legal issues that may negatively impact business owners, if not considered prior to downsizing.

The increase in unemployment continues to grow significantly, since the beginning of the recession in 2008. According to the Employment Development Department’s (EDD) report released in April, California’s unemployment rate increased to 11.2 percent during the month of March. This increase is 2.7 percent above the U.S. unemployment rate of 8.5 percent, and 4.8 percent above the same time last year.

If an employer is considering downsizing their workforce, proper planning can save the organization from unlawfully terminating employees. Below are some things to consider before downsizing:

Consideration #1 – Alternatives To Downsizing:

There may be other alternatives to saving money during a challenging economic time. Consider the following:

1. Freeze new hire positions, pay or bonuses
2. Reduce salaries, fringe benefits, or 401 (k) matching
3. Reduce work hours or adopt alternative work schedules
4. Make selective, performance-based terminations
5. Provide incentives for early retirement
6. Telecommuting
7. Job Sharing

These cost-cutting options will allow the organization the ability to retain talented employees who are familiar with the goals of the organization, while not being placed in the position to hiring and training brand new employees once the economy bounces back. If effectively communicated, employees will appreciate an organization that works diligently to look for alternatives to downsizing.

Consideration #2 – Legal Requirements-WARN Act:

If downsizing is the solution to stay afloat, there are federal and state laws that must be considered. The federal Worker Adjustment and Retraining Notification Act (WARN) applies to organizations with 100 or more full-time employees or 100 or more employees who regularly combined total of 4,000 hours (non) overtime in a week. WARN requires employers that fall under the act, to give employees, state and local officials a 60 days notice to mass layoffs or plant closures that are expected to last for at least six months. According to the law, mass layoffs are defined as a 33 percent reduction in the workforce or the layoff of 500 employees within a 30-day period.

WARN further requires employers of unionized employees to give the union 60 days’ notice when any of their members will be laid off. Nonunion employees must receive individual notice, which may be included with the employee’s paychecks or mailed to them. In addition, some states have laws similar to the WARN, those laws may have additional requirements.

Consideration #3 – Selection Process:

Layoffs are difficult; a specific selection process serves as a documented method of selecting employees that are laid off. A written documentation of the process will defend the organization against discrimination charges like American with Disabilities Act (ADA), Title VII, California’s Fair Employment and Housing Act (FEHA). “Seniority and performance appraisals are common methods in selecting the employees that are laid off. Selecting a process and consistently applying it will help if faced with unlawful termination claims,” says Linda Robinson, CPEhr’s Training Manager.

Consideration #4 – Benefits and Services For Laid Off Employees:

Employees that are laid-off may not be aware of the benefits that they may receive. For example, they may be eligible for a severance pay. In addition, if they have accumulated vacation time, they must be paid out for the amount. Under the federal law the Consolidated Omnibus Budget Reconciliation Act (COBRA), laid-off workers are entitled to continue health insurance coverage for themselves and their families for up to 18 months. However, employees must know that they have to pay the entire monthly premium.

For close to thirty years, CPEhr has assisted local employers with all their employment challenges. If you are contemplating downsizing, consider the services an outside firm to guide you through the process and help reduce the impact of layoffs and minimize the risks of lawsuits.

Employment costs often comprise the greatest area of expense within a company. Salaries, benefits, taxes and related insurances typically constitute more than half of an organization’s operating budget, and in service industries, it can be significantly higher. As such, they are often the first area of expense to be considered when companies are forced to cut costs and reduce overhead.

This trend is clearly supported by the newest figures released this month by the Employment Development Department. Nationwide, unemployment remains at 10% into 2010. In California, the unemployment rate also remainsat historical highs, hovering around 12%.

If an employer is considering layoffs or downsizing their workforce, they must be aware of the complex regulations and potential pitfalls relating to such a strategy. As such, many employers engage the services of a Human Resources Outsourcing firm or Professional Employer Organization to assist them in the process. Click here to learn more how an HR Outsourcing firm can reduce the risks of employee lawsuits.

If a company opts to downsize internally, they should take the time to research employee layoff rules and regulations, and should take a proactive approach with their staff to minimize the impact on employee morale and productivity. Below are some areas to consider before laying off staff:

Are Layoffs the Right Choice?

Firstly, consider if laying off staff is the best choice. While letting employees go may seem like the quickest way to reduce costs, there may be safer alternatives. Consider the following:

1. Freeze new hires, pay or bonuses
2. Reduce salaries, fringe benefits, or 401 (k) matching
3. Reduce work hours or adopt alternative work schedules
4. Make selective, performance-based terminations
5. Provide incentives for early retirement

Review and Prepare.

If layoffs are inevitable, be proactive by forming a committee to address the multitude of areas which are likely to be affected. Be sure to review your company’s Employee Handbook and review your termination policies. Be sure to ask, and answer, the following questions:

• Have you reviewed your company’s Progressive Discipline policies?
• If so, was the system followed?
• Are there written employment contracts?
• Are there union contracts? Do they limit your right to terminate?

Additional areas to consider include:

1. Establish an objective, financially beneficial reason to layoff staff. This will be important if your motives are questioned in the future.
2. Review your workforce and determine which employees will be selected for layoffs.
3. Train managers and supervisors on proper layoff procedures.
4. Draft enforceable severance and release agreements.
5. Prepare COBRA notices.

Reduce your risk of lawsuits.

There are many federal and state laws governing layoffs. You should be certain to study the laws, or contact an expert who can help. The most relevant law governing layoffs is the Federal Worker Adjustment and Retraining Notification Act (WARN). This law affects employers with more than 100 employees. If the employer shuts down a site or lays off more than 50 workers in a 30 day period, they are required to provide employees 60 days written notice prior to these layoffs. Additionally, they must notify the relevant federal and state agencies.

Additionally, you should be fully aware of federal guidelines and laws that regulate the termination of employees. These include American With Disabilities Act (ADA), Title VII, California’s Fair Employment and Housing Act (FEHA), as well as wrongful termination laws, wage and hour laws, restrictive covenants, and disparate impact, to name a few. Be sure to consult with an attorney of professional HR firm to determine your risks and exposures.

Consider the human side of downsizing.

Employees are people too. Whether you intend on keeping, or firing an employee, treat them fairly and with respect. Recognize that layoffs affect all employees, not only those being let go. It is likely that the morale of all employees will be affected, so show compassion in all your activities; it is likely to go a long way in shoring up the respect of your staff.

Bonuses and incentives.

The remaining employees will most likely be responsible to pick up the workload left by their departing coworkers. Best practices encourage bonuses or recognition rewards to show your appreciation for your staff. In tough economic times this may not be feasible, but many inexpensive incentive programs exist. Be creative, think out of the box, and you and your remaining staff will enjoy a successful business relationship.

Many employers find the task of conducting even a single termination daunting, not to mention initiating company-wide layoffs. An alternative to “do-it-yourself” is to contract with a professional Human Resources Outsourcing firm, or with a Professional Employer Organization (PEO) and to have them conduct the layoffs on your behalf

Accurate and up-to-date personnel files provide protection when faced with litigation

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With unemployment reaching double digits, it may only be a matter of time until an employer will be sued over a personnel issue. But keeping accurate, up-to-date, consistent personnel files can help mitigate the damage.

“Many employers don’t realize the importance of personnel files until the files are requested or subpoenaed for employee legal matters,” says Thi Ha, human resources generalist at CPEhr, a human resources outsourcing firm.

The Society for Human Resource Management (SHRM) says there has been an exponential increase in employment related lawsuits in the last ten years. According to SHRM, companies are spending hundreds of thousands of dollars in legal fees. The spike in employee litigation is credited to new laws that were established in the early 1990s, such as the American with Disabilities Act of 1990 and the Civil Rights Act of 1991. Employees are also much more educated and aware of their rights to sue an employer, because information about employee lawsuits is circulated throughout the mass media.

According to SHRM, The U.S. Equal Employment Opportunity Commission (EEOC) received 80,000 discrimination charges in 2004. The cost of settling an EEOC charge increased almost 79 percent since the early 1990s. In addition, the median jury verdict in employee litigation as of February 2006 was $250,000, nearly double the average award in 1997.

“Personnel files are a historical time-line of an employee’s life cycle from hire to termination and will be useful when referencing current or ex-employees” says Ha. There are key policies and practices that should be put in place to ensure that the proper creation and maintenance of personnel files are followed throughout the organization. Regardless of size or the nature of the business, all organizations that have a staff of employees should maintain personnel files.

1. Establish Policies and Procedures:

Establishing and enforcing a policy that addresses the management of personnel files is the first step to ensuring integrity to the process. A clear written policy must be detailed in your company’s employee handbook. The policy may include how your employee files comply with applicable state and federal laws, securing employee files and the kinds of information that may be found in them (e.g. signed copy of updated employee handbook, information about pay rate, job change, job status, and performance appraisals) and finally, the process of how current or ex-employees may gain access to their personnel file.

2. Comply with applicable state and federal laws:

There are many employee documents that are required and must be retained for various lengths of time, including employee health records, benefits data and affirmative action documents. Many of these employee documents are required to satisfy such laws as Title VII of the Civil Rights Act, Fair Employment and Housing Act (FEHA), Americans with Disabilities Act (ADA) and The Fair Labor Standards Act (FLSA). “As a rule of thumb, employee files should be maintained through the entire employment lifecycle and housed for seven years after the employee has terminated,” says Ha. This will protect the organization in the event that files are requested or subpoenaed for employee legal matters. The Department of Labor is an excellent resource to find out what federal employee documents are required to be retained, along with length of time.

3. Ensure Privacy:

To insure privacy and security, employee personnel files should be housed in a locked file cabinet with access limited to the human resources manager. For practical purposes, terminated employees’ files can be retained separately.

Many organizations require advance notice in writing from current and former employees who are requesting the review of their employee file, within a specified time frame. Once a time is scheduled for the employee to review their file, a supervisor or human resources manager should be present. Employees have a legal right to see their files, but may only have physical copies of the documents that include the employee’s signature.

As a practice, human resources managers should track when information is released (photocopied and given to the employee). This can be a separate log that is included in each employee file that documents the date, time, specific information released and the initials of the human resources manager that released the information. Never compromise the integrity of your files by releasing actual employee signed documentation; a photocopy will suffice.

It is equally important to establish a privacy practice for employees who currently work within the organization, as it is for ex-employees. This will minimize adverse action by a manager that, if exacerbated can lead to a charge of discrimination. For example, if a manager reviews the employees’ medical information and finds out that their employee suffers from an illness that prompts the manager to act differently towards the employee then this may become a discriminating act by the manager based on the medical information that they reviewed. Or, a manager may find out that their employee is undergoing payroll garnishments and begin to make unfair judgments about their employee’s performance which in fact has nothing to do with the garnishment. To avoid such inadvertent acts, which can be misconstrued as unfair treatment of the employee by the manager, it is recommended that employers maintain a separate confidential file, as explained below.

4. Create Employee Files:

A simple uniform process in creating employee files will go a long way in maintaining organization. Ha recommends employers create two sets of files. The first set is standard individual files that may be accessible to both members of management and human resources. Each employee file should contain employee personnel information such as:

• Performance reviews
• Status changes (e.g. full-time, part-time)
• Job application
• Resume
• Emergency contacts
• Payroll records
• Personnel Actions – disciplinary notices, promotions and demotions, discharge, lay-off, transfer and recall.

The second set of files is confidential employee files that may only be accessed by the human resources manager. Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) employers are required to protect the privacy of employees’ personal health-related information by adopting procedures to keep them private. The American with Disabilities Act (ADA) requires employers to separate all medical records including physical exams, medical leaves, workers’ compensation and drug and alcohol testing. The individual and confidential employee files may also include information such as, wage garnishments, identification records, benefits information, first aid records regarding job injuries, reference checks, emergency contacts and drug and alcohol test records.

The only form that should be separate from both the standard employee file and confidential employee file is the Employment Eligibility Verification Form (I-9). These forms should always be kept in a separate file segregated from the others. An employer may have one I-9 file (unlike individual employee files) that includes all of the employees’ I-9 forms. In the event that The Federal Department of Homeland Security requests copies of these forms, you can release copies of the I-9 forms while maintaining the confidentiality of the rest of the employee files.

6. Audit.

Annual audits by the human resources department of all employee files will assist in maintaining consistent information across the organization. In addition, the audit process serves as the first indicator of any discrepancies or missing information that can be immediately resolved.

Instituting appropriate practices with regard to maintenance of employee information will provide protection to management in the event of a challenge. It will also enable the organization to more effectively identify training, promotion and retention initiatives that can only strengthen its productivity, customer service, and growth.

Monique Stennis, CPEhr
mstennis@cpehr.com

Research Brief

Human Resource Outsourcing Trends and Their Impact in a Tight Economy

SUMMARY

While there are indications that the tight economy may be starting to turn around, small businesses may feel the squeeze for some time to come. The government has instituted certain economic incentives, but small business must also take matters into their own hands to offset rising operational costs and flat revenues. Many have done so by turning to Human Resources Outsourcing firms as a way reduce overhead and improve productivity. While some employers may select to outsource specific functions, others have opted for a complete outsourcing solution. Despite the sluggish economy, HR Outsourcing continues to gain momentum.

An Economic Slowdown

Despite some positive trends in the fourth quarter of 2007, such as an increase in consumer spending (up 2.0%), 280,000 new jobs, and an increase in exports (up 3.9%), many other trends impacting small business continued to remain flat, or on the decline:

• A 0.6% rise in the Gross Domestic Product (GDP)
• A steady decline in investment in the residential sector
• Corporate profits fell a total of $52.9 billion
• Exports slowed to an increase of only 2.8%, down from 6.5%
• A below 50 rating in the Supply Managements’ manufacturing composite index (the lowest since April 2003), indicating the manufacturing industry was contracting
• Unemployment rose to 5.0%, the highest level since April 2005
• The National Federation of Independent Business (NFIB) found the Small Business Optimism Index down 3%

Source: Small Business Administration, Office of Advocacy, March 2008

2008 Economic Stimulus Act

In an effort to boost the economy, the government passed the Economic Stimulus Act of 2008 to provide tax incentives and rebates to businesses, in addition to providing rebates to individuals. These incentives include a special 50-percent depreciation allowance for 2008 purchases and an increase in the small business expense limitation for tax years beginning in 2008.

Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property over several years. It is an annual allowance for the wear and tear, deterioration or obsolescence of the property. Under the new law, a taxpayer is entitled to depreciate 50 percent of the adjusted basis of certain qualified property during the year that the property is placed in service.

In general, a qualifying taxpayer can elect to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. Under the new law, a qualifying business can expense up to $250,000 of property purchased by the taxpayer in a tax year beginning in 2008, replacing the previous limit of $128,000.

Early reports from the first half of 2008 indicate that the Economic Stimulus Act may have assisted corporations to slightly increase profitability and revenues.

• Corporate profits increased $5.2 billion, or 0.3 percent at a quarterly rate, in the first quarter, following a decrease of $52.9 billion in the fourth quarter.
• Domestic profits of financial corporations decreased $3.0 billion, or 0.7 percent, after decreasing $74.4 billion.
• Domestic profits of non-financial corporations increased $3.2 billion, or 0.4 percent, following a decrease of $34.3 billion.

Source: US Department of Commerce, Bureau of Economic Analysis, Q1 2008

While large corporations feel the impact of the tight economy, these factors are magnified for the small business owner and their recovery time is significantly longer. Furthermore, according to the Office of Advocacy, the annual cost per employee for small businesses was 45 percent higher than the cost for larger businesses, with 500 or more employees. As the affects of the tight economy continue to impact small business, more employers are beginning to pursue alternative solutions to alleviate their financial stress. Many are considering Human Resources Outsourcing for their business operations.

Key Outsourcing Drivers

• 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

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.

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 in 2006 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

Beyond Savings

Beyond cost-savings, a professional HRO firm can also contribute to improving employee satisfaction. This allows companies in tight economic situations to retain their staff and saves the expense of recruitment and basic training. Employees in a human resources outsourcing relationship gain access to a wide range of benefits and perks typically only offered by larger corporations. In turn, improved morale, loyalty and commitment to their employer encourage greater productivity and longevity. These plans include a variety of employee benefit options, including but not limited to:

• Health insurance options including HMO, PPO and HSAs (Health Savings Accounts)
• Dental, Vision, and Health Insurance plans
• 401 (k) and Retirement plans
• Pre-tax Cafeteria plans, including Flexible Spending Accounts and Dependent Care deductions
• Credit Unions
• Voluntary benefits, such as Cancer, Travel, and Long-Term Disability plans
• Employee group discounts and perks.

The HRO firm’s staff is generally responsible for the administration of the plans, from procuring benefits, conducting open-enrollment, answering employee questions, setting up employee deductions, and other communication activities.

Identifying the Functions to Outsource

The first step in considering an HR Outsourcing relationship is to identify those tasks that take key staff away from their prime purpose within the company. The most successful companies will be those that focus on the core business rather than spend money and use staff resources to managing unproductive tasks, such as benefits and retirement plans administration, managing HR compliance regulations, or processing payroll and taxes.

Although the same solution will not fit the needs of every company, a flexible HR outsourcing alternative can certainly help a company maximize profitability and reduce turnover. Payroll administration, recruitment and benefits administration are prime examples of specific functions that can be outsourced. Other firms may find it more productive to outsource their entire human resources function, thereby utilizing the skills of their existing HR personnel and other staff in areas more directly connected to the core business.

As stated, there is a need to compare HRO companies available, and determine the model that best suits your company’s needs. Consider whether a specific processes within your business, or a fully integrated solution is required. There are many options available that should be considered before deciding on an HRO strategy.

A Surging Industry

According to IDC, the HR Outsourcing industry grew close to 70 percent over the past 5 years, with companies worldwide spending more than $103.3 billion in 2007, up significantly from the $61.2 billion spent in 2002. In the U.S., Everest Research Institute, an independent research and analysis organization, calculates that North American HR outsourcing transactions came to $21.2 billion in 2006 and reached $25.4 billion by the end of 2007. With an increase of 19 percent over that time period, outsourcing HR services has become the fastest growing segment of the broader business process outsourcing (BPO) industry.

Source: Everest Research Institute, Human Resources Outsourcing (HRO) Annual Report: November 2007

Conclusions

Despite the sluggish economy, the trend of Human Resources Outsourcing continues to grow and is based on two principal strategies:

1. To save direct expenditure on administrative functions which do not directly contribute to the company wealth, such as payroll, reception and recruitment.
2. To focus directly employed staff on the core business, so that cash is generated through improved productivity, quality and product development.

Both of these can contribute to stabilizing profits. Many firms will find that their business is a lot stronger than they were prior to outsourcing, even during this tight economy.

Companies should evaluate their human resources needs, and consider outsourcing where it is economically sound to do so. HRO costs should be considered against the money saved and earned through improved productivity and the increased market share that comes with a well run business in the tight economy.

About CPEhr

Headquartered in Los Angeles, CPEhr is one of California’s leading Human Resources Outsourcing firms. Founded in 1982, CPEhr has assisted hundreds of clients understand and comply with California’s complex regulatory and insurance systems.

CPEhr began as a small payroll and HR provider, with 10 corporate employees. Over the past two-and-a-half decades, CPEhr has grown to employ close to 90 corporate professionals in the areas of Employment Administration, Labor Law Compliance, Management Training, Safety and Risk Management, Employee Benefits, Retirement Planning, Payroll and Accounting. CPEhr services 15,000 employees at over 300 client locations in 36 states.

CPEhr offers a flexible HR Outsourcing solution, wherein you can select from three programs, based on your company’s needs:

• A PEO Solution offers the ultimate in employer service and protection. CPEhr creates a “Co-Employment” relationship in which they share the employment liability and administration with you.
• An HRP Solution offers the complete range of services offered under the PEO, without creating a Co-Employment relationship.
• The HRO Solution enables you to pick-and-chose the exact services needed, in a completely customized relationship.

Contact CPEhr

We encourage you to contact us and schedule a complimentary HR Analysis of your California operation. In this no-obligation consultation a senior consultant will analyze your current human resources practices and offer a customized HR solution to meet your needs. Call us at 800-850-7133 or visit us on the web at www.cpehr.com.

Summary:

Following the highly publicized lawsuit brought against Isiah Thomas and the New York Knicks, sexual harassment has once again reared its ugly head. Despite strides to reduce harassment in the workplace, employers must still do more to educate themselves and their staff. Professional HR consulting and outsourcing firms such as CPEhr provide such a solution.

Articles:

The highly publicized sexual harassment lawsuit brought against Isiah Thomas and the New York Knicks has once again drawn attention to this complex legal, and emotional, issue. The $11.6 million punitive award granted to Anucha Browne Sanders, a former marketing executive for the Knicks, sends a powerful message to all employers that sexual harassment will not be tolerated.

According to the Equal Employment Opportunity Commission (EEOC), Sexual Harassment is defined as, “Unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature constitute sexual harassment when this conduct explicitly or implicitly affects an individual’s employment, unreasonably interferes with an individual’s work performance, or creates an intimidating, hostile, or offensive work environment.”

The gates holding back this oft-hidden and under-publicized problem were shattered sixteen years ago following the historic testimony of Anita Hill during the Clarence Thomas confirmation hearings in 1991. The televised hearings brought sexual harassment into the public eye to such a degree that many feminist groups considered Anita Hill to be the mother of gender discrimination awareness. In a recent article, Hill reflects how the population’s attitude has changed since that time, in light of the response she received following the Sanders/Knicks verdict:

• “In the days after the hearing, I received thousands of supportive letters, the overwhelming majority of which were from women who identified personally with my testimony. Many men who wrote characterized sexual harassment as the fantastic, vengeful invention of disgruntled employees or spurned lovers.
• “Four women and three men made up the federal jury that concluded that the harassment Browne Sanders suffered warranted $11.6 million in punitive damages. On the day of the verdict and in response to Clarence Thomas’s renewed challenges to my 1991 testimony, I received hundreds of supportive e-mails and calls from around the country. To my surprise, about 50 percent of those responses came from men who through their own observations or the stories told them by their mothers, sisters, wives, and daughters understand the problem and its harm.” (The Boston Globe, October 15, 2007)

Despite Strides, Harassment Lawsuits Continue to Rise

Despite great strides to combat sexual harassment over the past decade, the problem continues to plague the workplace, as the recent case illustrates. Over two and a half years ago, commencing January 1, 2005, a California Assembly Bill (AB 1825), was signed into law requiring all California employers with 50 or more employees to provide two hours of sexual harassment training for supervisors, managers and lead employees every 24 months. Employers also have a responsibility under California law to provide workplace harassment prevention training to non-supervisory employees as well. However, that very same year, the EEOC received close to 13,000 charges of sexual harassment, with the average costs recovered in monetary benefits increasing dramatically. In 2006, total monetary compensation paid out in sexual harassment related cases exceeded $48.8 million, which was 31% higher than the $37.1 million paid out in 2004.

While common wisdom, and the law, would dictate employers would begin training their staff on proper behavior in the workplace, the reality doesn’t match up. According to a recent study by TrainRight Solutions, 41 percent of U.S. employers still don’t provide preventive training for sexual harassment, with cost the leading factor for ignoring education in this area.

“I believe that figure is probably close, but still a little low,” says Linda Robinson, Training Manager for CPEhr, a Califonia-based HR Consulting Firm. “In the past, I have run across many excuses for an employer to hesitate or turn down an opportunity to provide training. Some include lack of budget; a belief that this will not or does not occur in their work environment; and the fear that a new awareness among employees will encourage rather than prevent lawsuits.”

Sexual Harassment Training Solutions

The Supreme Court deems training “essential” and the EEOC guidelines state that it is the responsibility of all employers to train all employees. Respect in the workplace, when properly demonstrated, can not only boost employee moral and productivity, but can greatly reduce the potential liabilities of an employer. Legal experts agree that the more pro-active an organization, the more likely they will reduce their employment liabilities.

Robinson’s company CPEhr, like many other HR consulting and outsourcing firms, provides answers and assures employers that taking preventive measures is the right approach. Helping companies establish appropriate policies and deal with complex sexual harassment issues is key to minimizing employer risk.

“CPEhr is dedicated to assisting employers in providing and maintaining a safe environment,” said Robinson. “This is accomplished through several means, including review and updating of policies, handbooks and other materials, free training, and other supervisory developmental training programs.”

The most popular of all CPEhr’s Management Training Courses is the topic of Unlawful Harassment. All clients are provided training as per the law requires, and many more request additional trainings to further educate their staff. A comprehensive Sexual Harassment training course should cover the following topics:

• The laws that prohibit unlawful harassment in the workplace
• Specific forms of harassment
• How to prevent harassment and hostile environments
• Identify retaliation and why it is illegal
• The rights and responsibilities of all staff members
• Consequences of harassment suits
• What to do in the even of a harassment charge
• How to conduct an investigation

The Future

It is unlikely that harassment in the workplace will disappear any time soon. While “Sensitivity Training” is becoming a common buzzword in the marketplace, employers are well-advised to implement a formal harassment prevention training program in their business. Recognizing the lack of internal resources in small companies, many HR firms are available to provide the proper training to satisfy the law, and educate the workforce. The growth of HR Consulting and Outsourcing has skyrocketed in the past years. While many factors have contributed to this trend, one leading consideration is the increased awareness surrounding harassment and other employment risks.

While at first glace it may appear that implementing sexual harassment guidelines may be costly, employers should recognize the higher expenses related to fines or penalties for an ill-educated workforce. And aside from protecting the business for lawsuits, training the staff on preventing unlawful harassment is just the right thing to do.

About CPEhr:

Founded in 1982, CPEhr (www.cpehr.com) is one of the largest, independently owned Human Resources and Professional Employer Outsourcing (PEO) firms in California. With 25 years experience in the California market, CPEhr has an advantage in its knowledge of statewide employment challenges. While its operations are primarily in California, CPEhr services 15,000 worksite employees at 300 locations in 35 states. CPEhr offers an array of integrated human resources services that includes: employee administration, human resources and labor law compliance, payroll and tax administration, benefits administration and compliance, workers’ compensation administration, risk management, training and development and recruitment. CPEhr is an HR partner to small to mid-sized businesses. By outsourcing their human resources, CPEhr clients are able to focus on executing strategies that deliver profitability and cost-savings.

Article Summary

Employers face new challenges following the Department of Homeland Security’s announcement it will levy larger fines against businesses that employ undocumented workers. HR Outsourcing has become a viable option for small employers to remain in compliance and avoid costly penalties.

Article

When Michael Young* received a “No Match Social Security” letter from the Social Security Administration, he discounted it, as he had always done in the past. As the owner of Growing Expectations*, a small landscape design company in Southern California, he was too busy hiring employees, processing payroll and managing his insurance obligations. “I receive letters like this [from the SSA] all the time. I just don’t have the time to verify the information they need. So, I usually just disregard them.” While this attitude may have sufficed in the past, times have changed.

Growing California Risks

With the firestorm still raging in Congress over the status of illegal immigrant workers, several new regulations have been passed by the Bush Administration to crack down against employers who violate newly enforced laws. As of September 14, 2007, The Department of Homeland Security began increasing enforcement efforts and levying larger fines against employers who employ undocumented workers. The DHS is enforcing its new guidelines for employers who receive “No Match” letters from the Social Security Administration. A No Match letter is issued when tax documents submitted for an employee do not match the information on file at the SSA. In the new guidelines, the DHS states that improper handling of No-Match letters may indicate knowledge by an employer that a worker is illegal, and may lead to civil or criminal enforcement action.

In early July, the Bush administration announced that employers who knowingly employ undocumented workers may be eligible for fines up to $12,500 and a felony prosecution. On the state level, the number of laws against illegal immigrants has more than doubled since 2006, to over 170.

These new guidelines present employers in California with an even greater challenge than employers in the rest of the nation. Consider the following statistics:

• California has the largest unauthorized population of any state—almost 2.5 million, almost a quarter of the nation’s unauthorized immigrant population
• The percentage of undocumented workers was almost twice as high in California (6.9 percent) as in the rest of the United States (3.6 percent)
• There are about 1 million unauthorized immigrants in the Los Angeles metropolitan area, almost double the number of any other metro area. In 2004, about two-fifths (41 percent) of California’s unauthorized immigrants resided in Los Angeles
• Almost all unauthorized immigrant men work. The employment rates are substantially higher for undocumented male employees than for legal immigrant or U.S.-born men.
• In California, 94 percent of unauthorized men age 18–64 were in the labor force in 2004, versus 84 percent of legal immigrants and 82 percent of native-born men.

Source: “The Characteristics of Unauthorized Immigrants in California, Los Angeles County, and the United States”. By: Randolph Capps, Karina Fortuny

It is clear that the new laws will have a greater impact on California employers than on employers in any other state.

HR Outsourcing – A Hope For California Employers

The average small to mid-sized California employer faces the greatest risks posed by the new regulations. While large corporations typically have the infrastructure in place to address No Match letters and make the proper employment decisions, small employers are less equipped to tackle these newfound liabilities. The risk of non-compliance is substantially greater for them than with their larger counterparts.

Over the past decade, a visible trend has been emerging in the small and mid-market business sector in the area of Human Resources Outsourcing. Small employers recognize their limitations when it comes to compliance in the areas of employment liabilities and human resource policies, and the new undocumented worker laws will continue to help this trend gain momentum.

In an HR Outsourcing relationship, the employer engages the services of a professional firm and hands over many aspects relating to the management of their employment responsibilities. These areas can include:

• Labor law compliance
• Employment administration
• Management training and development
• Employee health benefits
• Risk Management
• Insurance services
• Recruiting
• Payroll and Tax services.

In some instances, only specific, select functions are outsourced. In other situations, organizations see the value in outsourcing the entire human resource package and entrust the HR Outsourcing firm with all the functions.

CPEhr – A California Compliance Expert

One such firm is CPEhr, one of California’s oldest and largest independently owned HR Outsourcing and Professional Employer Organization (PEO) companies. Founded in 1982, CPEhr has over 25 years of experience assisting California-based employers in human resource and labor law compliance. In response to the new undocumented worker regulations, CPEhr has begun offering customized services to help small employers comply with the new laws and avoid non-compliance penalties.

With years of experience dealing with the SSA and the Immigration and Naturalization Service (INS), CPEhr creates and implements aggressive I9 and employment verification policies, responds to No Match Letters and corresponds with the SSA and INS on its clients’ behalf.

Peter Escalante, a Human Resources Consultant with CPEhr, summarizes CPEhr’s compliance process. “First, we check all employee files for valid I9s and confirm they are stored in a separate folder, away from their personnel file,” explains Escalante. “Then, if a client gets a notice from the SSA, they forward them to CPEhr. We check the letter against their information on file, and if the information is incomplete, we request completed documentation. If they didn’t have them we would have recommend terminating the employee if they could not provide the proper documentation in a timely manner.”

CPEhr recommends that all employers have an undocumented employee policy included in their Employee Handbook. In it, the employee acknowledges that if their Social Security Number is challenged by the SSA, they have 30 days to produce valid documentation, or be fired. This type of involvement by the employer is extremely valuable, says Escalante, when faced with an investigation or fine by a governmental agency.

“If an agency finds the employer to be proactive in any regard, they will be more forgiving and typically reduce the severity of the penalty,” he notes. “The government realizes employees have rights and employers can’t just fire them. They are understanding of employers who have policies in place and show an effort to cooperate.”

Only time will tell precisely how the new legislation and its enforcement will impact the California business climate. However, in the interim, employers must take a proactive role in addressing the new responsibilities. While the process may be complex, it is their good fortune that HR Outsourcing firms such as CPEhr are here to help them through it.

*names have been changed to protect identities.

Summary

Effectively managing Human Resources has become a daunting task for small and mid-market businesses. U.S. corporations must grapple with one of the most complicated systems of employment laws in the world. One solution is to turn to Human Resources Outsourcing which allows companies to shift nonessential jobs easily, and inexpensively, to off-site experts.

Article

Human Resources gained a permanent role in the American workplace during the 1950s, as the evolution of employment-related laws and sociological trends took shape. However, the past 20 years have witnesses an unprecedented rise of employment litigation, labor regulations, and tax laws far beyond the expectation of their originators.

Effectively managing Human Resources has become a daunting and complex task for small to mid-market business owners. U.S. corporations must grapple with one of the most complicated systems of employment laws in the world. This includes a laundry list of unfriendly policies, including laws governing hiring and termination, family leave, sexual harassment, paying employees, leaves of absence, employee benefits, and workers’ compensation. In just the first months of 2007, dozens of laws dealing with every subject from discrimination to wage deduction have been enacted.

Putting HR in Expert Hands

One solution for frustrated business owners is to turn to Human Resources Outsourcing. An HR Outsourcing firm allows companies to shift responsibility of nonessential jobs that can be handled easily, and inexpensively, by off-site experts. An HRO Firm can either specialize in a niche service, or in a wide range of management and strategic solutions. These broadly include:

• Labor Law Consulting
• Management Training and Employee Development
• Employment Paperwork Administration
• Employee Benefits Packages and Administration
• Risk Management and Safety Services
• Payroll and Tax Services
• Insurance Solutions, including Workers’ Compensation and EPLI (Employee Practices Liability Insurance)

In a recent survey by the Society for Human Resource Management, or SHRM, professionals in the industry were asked their opinions on HR outsourcing. Reasons to consider outsourcing included saving money, focusing on strategy, improving compliance, improving accuracy, lacking experience in-house, taking advantage of technological advances, and offering services they could not offer.

In that same SHRM report, HR professionals said the top function outsourced was 401k administration, along with training, health care and employee benefits administration, payroll, staffing, background checks, recruitment and policy writing.

Once HR and other operations are outsourced, many companies experience a strong return on investment, according to a recent survey of American executives. The 2006 survey of executives at the IDC Midwest Conference in Chicago showed nearly 85 percent of the respondents saved as much as they spent on outsourcing, with 26.4 percent reporting a savings of twice as much. And the savings, according to nearly 95 percent of the respondents, went toward operational performance and innovation, which improved shareholder value.

According to IDC, a market intelligence firm based in Massachusetts, companies worldwide are expected to spend more than $103.3 billion just on Human Resource Outsourcing this year, up significantly from the $61.2 billion spent in 2002. In the U.S., HR Outsourcing is the fastest-growing segment of business process outsourcing (BPO) and is expected to grow annually at a rate of 16 percent.

The frustration brought on by the government’s obtrusive standards can be offset by the value found in HR Outsourcing. As any business who has experienced the benefits of HR Outsourcing will say, they finally have the peace of mind and time to focus on the only thing in business that really matters: their bottom line.

Article Summary

In response to the growing risks and time-consuming activities related to managing employees, frustrated employers are turning to Professional Employer Organizations in record numbers. PEOs are experts in all aspects of Human Resources and help small and mid-sized employers comply with the law and offer their staff enhanced training and benefits.

Full Article

Effectively managing Human Resources has become a daunting and complex task for small to mid-market business owners. U.S. corporations must grapple with one of the most complicated systems of employment laws in the world. This includes a laundry list of unfriendly policies, including laws governing hiring and termination, family leave, sexual harassment, paying employees, leaves of absence, employee benefits, and workers’ compensation. In just the first months of 2007, dozens of laws dealing with every subject from discrimination to wage deduction have been enacted. These trends have led to an unprecedented rise of employment litigation, labor regulations, and tax laws.
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Employers continue to face fluctuating risks, and the high expense of conducting business has restricted the opportunities for business owners to remain competitive. Furthermore, it has become clear that the expertise required to manage a small to mid-sized operation has outgrown the experience and training of many entrepreneurs who started these businesses.

These complexities have led to one of the hottest business trends in the nation: Human Resources Outsourcing . Human Resource Outsourcing firms help companies reduce costs and efficiently manage HR-related issues, while navigating the complex business labyrinth, an intricate combination of policies and regulatory standards that are difficult to escape.

Outsourcing Human Resources to the Experts

HR Outsourcing enables companies to shift responsibility of non-revenue generating competencies that can be handled easily, and inexpensively, by off-site experts. These functions include the areas of labor compliance, risk and safety, payroll, benefits, and other complex workplace regulations. HR Outsourcing helps companies reduce costs by effectively managing HR functions while allowing businesses to focus on their core operations that impact profitability.

Once HR and other operations are outsourced, many companies are showing a strong return on investment, according to a recent survey of American executives, by IDC, a global provider of market intelligence. The 2006 survey of executives at the IDC Midwest Conference in Chicago showed nearly 85 percent of the respondents saved as much as they spent on outsourcing, with 26.4 percent reporting a savings of twice as much. And the savings, according to nearly 95 percent of the respondents, went toward operational performance and innovation, which improved shareholder value.

According to IDC, companies worldwide are expected to spend more than $103.3 billion just on HR Outsourcing this year, up significantly from the $61.2 billion spent in 2002. In the U.S., outsourcing HR services is the fastest growing segment of the broader business process outsourcing (BPO) industry, and is expected to grow annually at a rate of 16 percent.

In line to capitalize on those numbers are the Professional Employer Organizations, or PEOs. The increase in small businesses and the difficulty for them to manage the many facets of HR administration is leaving the door open for the PEO – the matriarch to the BPO solution.

PEOs Answer the Call

The PEO industry, formerly known as Employee Leasing, or Staff Leasing, has become a rudder for companies trying to navigate choppy seas. Taking on the responsibility of all human resource functions, the PEO can serve a multitude of functions. Primarily, the PEO creates a “co-employment” relationship with its clients, thereby sharing the risks and responsibilities of being an employer. The PEO assumes the role of the Administrative Employer, whereby the PEO pays the employees, files payroll taxes, provides health insurance, issues the workers’ compensation insurance, and manages most aspects of employment. The client maintains the role as the Administrative Employer and continues to manage and oversee all day-to-day functions relating to their internal operations. This includes hiring, firing, establishing wages, and directing the workforce.

Helping Businesses and Their Employees

Through a co-employment relationship, small organizations access the economies of scale enjoyed by large corporations. The PEO client can offer premium benefit packages and retirement plans, typically provided by their larger competitors. They can maintain a simple in-house HR infrastructure or none at all by relying on the PEO. The client also can reduce hiring overhead. Costs related to monitoring of, and compliance with, employment laws are reduced, as are the often significant costs of failure to comply with such laws. In addition, the PEO provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company’s core competency and grow its bottom line.

In addition to providing important services to their business clients, PEOs offer substantial advantages to worksite employees. In many cases, these employees would not be provided the number, or quality, of benefits that a PEO can offer. These benefits may include health insurance, retirement savings plans, disability insurance, life insurance, dependent care reimbursement accounts, vision care, dental insurance, employee assistance plans, job counseling and educational benefits. Each individual small business’s cost of establishing and administering this range of plans would be prohibitive. However, due to economies of scale, PEOs can sponsor and offer these plans at an affordable cost.

A Surging Industrya

After a decline in the number of PEOs in 2003, a strong economy has resulted in a surge over the past four years. The PEO industry serves between two and three million employees per year, with most assisting companies with less than 50 employees. The average PEO is on the rise, too, with a growth rate of more than 20 percent per year for the last six years, according to a survey by the NAPEO, the national trade association for the industry.

For an annual fee that easily trumps the cost of an HR staff, PEOs manage training and education, health benefits, payroll, benefits, workers’ compensation issues and employee relations. It is apparent that the frustration brought on by obtrusive human resource standards can be offset by the value found with PEOs, and other HR Outsourcing providers.

Small Business Health Benefit Challenges… And Solutions

Summary

After pay, health insurance is the most important inducement small businesses use to recruit and keep employees motivated. Yet many employers are finding the ability to provide cost effective health insurance more challenging as premiums continue to rise and the options available continue to decrease. Employers are looking at new ways to offer their employees benefit programs, and to keep them motivated. One of these ways is through a Professional Employer Organization.

Article

After pay, health insurance is the most important inducement small businesses use to recruit and keep employees motivated. Yet many employers are finding the ability to provide cost effective health insurance more challenging as premiums continue to rise and the options available continue to decrease. Employers are beginning to think “out of the box” and are looking at new ways to offer their employees benefit programs, and to keep them motivated.

NAPEO, the National Association of Professional Employer Organizations, conducted an employee benefits survey in November, 2007 of its members’ clients to understand the concerns of small and medium-sized employers. NAPEO is an organization that represents firms, PEOs, which specialize in providing human resources support and employee benefit packages to small and mid-sized employers nationwide. Mirroring the sentiment across the country, the trade association found that health care costs were their second-biggest worry after attracting workers.

The survey also revealed that more than half of the 365 small businesses surveyed said their premiums rose as much as 10 percent this year, and almost one in 10 told NAPEO they would dump their health coverage next year or are unsure about it. Many of these companies said they will pass at least some costs along to employees next year. One in five said they would raise co-payments for office visits or deductibles; one in four said they’d raise premiums.

California Employers Feel The Squeeze

The survey was conducted nationally, but employers in specific states, such as California, are being hit the hardest. Michael Holmes, Client Services Director of CPEhr, a Los Angeles-based PEO, is not surprised. “This is another wake-up call,” says Holmes. “Soaring health insurance costs in California are hitting small businesses especially hard and these businesses employ the vast majority of workers. This is an extremely troubling development, not just for small businesses and their workers, but for the entire economy.”

A report recently released by the California State Library, entitled, “Ninety Years of Health Insurance Reform Efforts in California” by Michael Dimmitt, Ph.D of the California Research Bureau, reviews the history of health insurance in California dating back to 1918. It reveals some startling facts, and reasons for even greater concern in California:

• Between 1961 and 2002, health care costs increased almost without interruption. No effort to contain them has proven successful over the long term.
• Federal programs provide health care coverage to over 7.4 million Californians. If the programs were not in place, the number of uninsured in the state would double.
• More than 20 percent of Californians, 6.6 million people, currently lack health care coverage over the course of the year according to research conducted for the California Healthcare Foundation.
• Of those without health insurance, an estimated 75 percent are working people and their families.
• As a consequence of the growth in premiums, the number of people covered by health insurance in California decreased from 64.6 percent to 54.7 percent between 1987 and 2005.

Some employers are content to continue along the traditional health coverage path for their staff. While premiums rise, most just consider it a cost of doing business. However, many California employers are now turning to the PEOs to provide relief for their employee insurance woes.

What is a Professional Employer Organization?

Professional employer organizations, or PEOs, pool thousands of employees under one roof and provide cost effective management of small employers’ health insurance plans. Additionally, PEOs help small businesses outsource their time-consuming human resources chores, such as payroll, HR policies and risk management, so owners can focus on making a profit. The PEO acts like an offsite human resource department, so even small employers can gain access to expertise typically reserved for larger, more established organizations. Particularly in California, where complex employment rules and difficult insurance guidelines weigh heavily on small businesses, it is highly beneficial for small California employers to connect with an expert PEO in the state, such as CPEhr.

Like most PEOs, CPEhr creates a “co-employment” relationship with its clients, thereby sharing the risks and responsibilities of being an employer. CPEhr assumes the role of the Administrative Employer, whereby it pays the employees, files payroll taxes, provides health insurance, issues the workers’ compensation insurance, and manages most aspects of employment. The client maintains the role as the Administrative Employer and continues to manage and oversee all day-to-day functions relating to their internal operations. This includes hiring, firing, establishing wages, and directing the workforce.

Through this co-employment relationship, small organizations access the economies of scale enjoyed by large corporations. CPEhr’s clients can offer premium benefit packages and retirement plans to their staff, typically provided by their larger competitors. They can maintain a simple in-house HR infrastructure or none at all by relying on the PEO. The client also can reduce hiring overhead. Costs related to monitoring of, and compliance with, employment laws are reduced, as are the often significant costs of failure to comply with such laws. In addition, the PEO provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company’s core competency and grow its bottom line.
Creative and Affordable Insurance Options
According to NAPEO, the PEO industry grew over 15% in 2007, to $61 billion in gross revenues. PEOs currently provide access to employee benefits for 2-3 million working Americans. This number continues to grow as the economies of scale offered by PEOs make them an attractive solution for small employers looking to offer a wider range of benefits to their staff, without the need to shop, administer or oversee these plans.

CPEhr maintains a fully staffed employee benefits department which is focused on finding cost effective and comprehensive benefits to make available to its clients. Because CPEhr has the manpower to tackle this daunting task, the small employer merely has to join the PEO program, and enjoy access to the benefits without the responsibility to administer the plans.

Like most employers, CPEhr offers its clients standard major medical insurances with the large insurance carriers. However, due to the size of the pool of employees, CPEhr enjoys a stronger relationship with the insurance companies which enables them to offer a wider range of plans and coverage options, with greater flexibility on enrollments and improved customer service. While a small business independently may secure a benefit plan with one or two co-pay options, a CPEhr offers as many as 8-10 options for the same employer.

In addition to major medical, a wide range of supplemental benefits, such as dental, vision, life, and disability insurances are available. CPEhr also extends its benefit offering to include additional employee programs such as such as travel, cancer and alternative health care insurances, credit unions, Flexible Spending Accounts, and robust 401 (k) plans. The Small Business Administration estimates that merely nineteen percent of employees working in a small business have access to a 401 (k). That number skyrockets to an estimated 95% in a PEO arrangement.

While it is obvious that not every small business will need, or even want, to offer this wide range of benefits to its staff, it should be comforting for them to know that alternatives exist. At the least, the small employer should recognize the extraordinary opportunity PEOs offer to help level the playing field in the complex and tough employee benefits environment.

Conclusion

Rising health insurance premiums, complex employment and benefit administration, and a weak economy are all making the task of procuring affordable, manageable health insurance more daunting for the typical small employer. Particularly in California, where 75% of the uninsured population is in the workforce, these challenges are reaching critical limits. More and more employers are turning towards alternative health insurance solutions, such as joining a PEO for their employee benefit coverages. One such firm, CPEhr, is a leader in the California marketplace and can provide these solutions efficiently and cost effectively for state-based businesses.

About CPEhr

Article Summary

California employers need to be aware that California HR Consulting Services differs from federal law in significant ways that can make life even more difficult, if not downright treacherous, for businesses with limited human resources expertise. That is why California employers are turning to HR Outsourcing experts for protection and support.

Article

Being an employer is a daunting task. Hundreds of employment regulations, insurance guidelines, Senate bills and Federal Acts (such as FMLA, FLSA, HIPAA, TEFRA and FEHA, to name a few) distract business owners from focusing on their core operations and profitability. In particular, California employers need to be aware that California Labor Law differs from federal law in significant ways that can make life even more difficult, if not downright treacherous, for businesses with limited human resources expertise.

Although the Fair Labor Standards Act sets a minimum standard of protection for employees working in the USA, individual states are permitted to extend the Act to provide a higher degree of protection to employees in that state. California has taken full advantage of that facility, and there are many aspects of this act that California has applied more liberally than practically any other state.

Take overtime law for example. California law requires an employer to pay an employee overtime after 8 hours work in one day at 1.5 times the normal rate, and after 12 hours work in any one day at twice the standard rate. However, this does not apply to ‘exempt’ employees, such as those involved in managerial or intellectual work. Federal law only requires time and a half to be paid for any time worked over 40 hours in a week.

The California Fair Employment and Housing Act (FEHA) differs profoundly from the federal law, particularly in employment discrimination law where it is much wider reaching and more rigorous than federal law. A case in point occurred recently, where an employee of a prestigious California hotel filed a discrimination lawsuit against his employer on the basis of sex, and also for retaliation, in violation of the FEHA.

The act forbids discrimination against an employee on the basis of sex, race, color, age, religion and other grounds, and illegalizes retaliation by the employer against an employee carrying out a ‘protected’ activity such as filing a charge of discrimination. There are a number of defined protected activities, and this act is likely beyond the capability of the average human resources department of most companies to handle. This is the sort of case best passed on to a human resources (HR) consulting firm.

The case, Jones v. The Lodge at Torrey Pines Partnership, had originally been heard in front of a jury, and debated whether or not an individual could be held personally responsible for proceedings relating to retaliation against an employee. The jury decided for the plaintiff and awarded compensation against the Lodge and the supervisor accused of the retaliation. However, their verdict was overruled by the judge who stated that there was insufficient evidence to prove the case against the supervisor that an adverse reaction had been carried out for reasons of discrimination or retaliation for the sexual orientation of the plaintiff.

The judge stated that individuals (the supervisor) cannot be held liable for retaliation in the same way that they can be for harassment. The case went to the Court of Appeal, which disagreed with the judge, and stated that individuals can be held responsible for retaliation. The case ultimately reached the California Supreme Court which disagreed, stating that the individual cannot be held responsible..

What chance does company human resource personnel have in correctly interpreting law if even the law courts disagree? It is next to impossible for a company in California to apply company policy when the law itself is so difficult to interpret that judges, Courts of Appeal, and the Supreme Court disagree. The labor laws of California are too difficult to understand for a company to rely on non-specialized personnel to manage their labor relations policies. The consequences of getting it wrong could be catastrophic. Many employers are feeling frustrated with this lack of clarity and constant risk of violating the law, and are turning to experts in the Human Resources Outsourcing industry for help.

While many businesses employ highly educated staff, most do not have the experience to understand the finer points of law. It is not just the understanding that matters here, it is knowing the right course of action to take in such circumstances. Perhaps things could have been done differently in the Jones v. The Lodge case to prevent it from reaching court, or perhaps the supervisor could have been better trained by the company.

Whatever the answer, you are more likely to come to the right solution with the help of professionals who manage these complex issues on a daily basis. California labor law is sufficiently complex for your company to turn to the professionalism and expertise of a Human Resources Outsourcing firm to keep you out of trouble. HR outsourcing is not as expensive as you might believe, especially when you consider the alternative.

Summary

While there are indications that the tight economy may be starting to weaken, small businesses may feel the squeeze for some time to come. In an effort to offset rising operational costs and flat revenues, many small business are turning to Human Resources Outsourcing firms as a way reduce overhead, cut costs, and improve productivity. The HR Outsourcing trend continues to gain momentum even in a tight economy as other industries contract.

An Economic Slowdown

Despite some positive trends in the fourth quarter of 2007, such as an increase in consumer spending (up 2.0%), 280,000 new jobs, and an increase in exports (up 3.9%), many other trends impacting small business continued to remain flat, or on the decline:

• The Gross Domestic Product (GDP) only rose 0.6%
• A steady decline in investment in the residential sector
• A below 50 rating in the Supply Managements’ manufacturing composite index (the lowest since April 2003), indicating the manufacturing industry was contracting
• Unemployment rose to 5.0%, the highest level since April 2005
• The National Federation of Independent Business (NFIB) found the Small Business Optimism Index down 3%

Source: Small Business Administration, Office of Advocacy, March 2008

While large corporations feel the impact of the slow economy, these factors are magnified for the small business owner. Furthermore, according to the Office of Advocacy, the annual cost per employee for small businesses was 45 percent higher than the cost for larger businesses, with 500 or more employees. As the affects of the tight economy continue to impact small business, more employers are considering Human Resources Outsourcing for their business operations.

Identifying the Functions to Outsource

The first step in considering an HR Outsourcing relationship is to identify those tasks that take key staff away from their prime purpose within the company. In a tight economy, the most successful companies will be those that focus on the core business rather than spend money and use staff resources to managing unproductive tasks, such as benefits and retirement plans administration, managing HR compliance regulations, or processing payroll and taxes.

Although the same solution will not fit the needs of every company, HR outsourcing can certainly help to maintain profitability and reduce turnover by creating a more professional business environment. Companies can make significant savings by turning to HRO for many of these administrative functions. Hence the need to identify the tasks which would be better outsourced. Payroll administration, recruitment and benefits administration are prime examples of specific functions that can be outsourced. Other firms may find it more productive to outsource their entire human resources function, thereby utilizing the skills of their existing HR personnel and other staff in areas more directly connected to the core business.

Key Outsourcing Drivers

According to Hewitt Associations, a world-wide provider of HR consulting services and research data, the most common reason for engaging an HR Outsourcing firm is to reduce overhead. Other reasons to outsource include:

• Access to outside expertise
• Improving service quality
• Ability to focus on core expertise

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 infrastructure is already in place. As small businesses join the HRO firm’s programs, they simple access these existing systems at reduced rates and minimal time investment.

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 in 2006 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.

Beyond Savings

Beyond cost-savings, a professional HRO firm can also contribute to employee satisfaction, which allows companies in tight economic situations to retain their staff and hence indirectly save through the reduced need for recruitment and basic training. Employees in a human resources outsourcing relationship gain access to a wide range of benefits and perks typically reserved for larger corporations. These include a variety of health insurance options including HMO, PPO and HSAs (Health Savings Accounts), voluntary benefit plans, retirement plans, pre-tax Cafeteria plans, Credit Unions, and other employee discounts and perks.

As stated, there is a need to compare HRO companies available, and determine the model that best suits a company’s needs. Consider whether a specific processes within your business, or a fully integrated solution is required. There are many options available that should be considered before deciding on an HRO strategy.

HRO trends in a tight economy are therefore based on two principal strategies:

1. To save direct expenditure on personnel functions that do no directly contribute to the company wealth, such as payroll, reception and recruitment, and,
2. To focus directly employed staff on the core business, so that cash is generated through improved productivity, quality and product development.

Both of these can contribute to keeping profits steady. Many firms will come out at the end of the process a lot stronger than when they entered, in spite of the tight economy, by investing in HRO when and where it is really needed.

HRO trends are towards achieving this by businesses spending more time in evaluation of their human resources needs, and outsourcing where it is economically sound to do so. The direct HRO costs should be considered against the money earned through improved productivity and the increased market share that comes with a well run business in the tight economy.

Summary

The Professional Employer Organization industry is a business model for outsourcing human resource services. PEOs, also known as employee leasing in some business circles, provide administrative services for tasks such as human resources, the handling of employee benefits, payroll, and workers’ compensations. Like any industry, there are specific guidelines and criteria that should be carefully reviewed prior to selecting a PEO with whom to work.

Article

True to form, when an emerging business trend proves itself successful with lots of room for growth and improvement, there are many factions that eventually branch out as a result of that trend. A very concrete example of this is outsourcing, with PEO as the branching faction. The establishment of PEO, or professional employer organization, is one way of stabilizing the outsourcing industry through regulations and enforced compliance.

What is a PEO?

The PEO industry is a business model for outsourcing human resource services. PEOs, also known as employee leasing or staff leasing in some business circles, provide administrative services for tasks such as human resources, the handling of employee benefits, payroll, and workers’ compensations. The industry has consistently experienced 20% annual growth over the past decade as state and federal regulations continue to grow and become more complex. Particularly in specific states such as California, were labor laws are extremely complex and differ from federal guidelines, California PEO and California employee leasing firms have sustained consistent growth in the marketplace.

In a PEO relationship, the employees of the client worksite are “transferred” to the payroll of the PEO, which in turn reports all wages, taxes and benefits under its state tax identification number. In other words, a PEO firm hires a client company’s staff on paper, thereby making the PEO the employer of record, or Co-Employer, in all legal agreements or contracts. The PEO industry is currently estimated as a $51 billion industry serving an estimated 100,000 small to mid-sized businesses and 2 million to 3 million workers. With strong annual growth rates, about 700 authorized and recognized PEOs offering a wide array of employment services and benefits are operating in North America.

What to Consider When Looking at PEOs

Since its inception, there has been a series of abuses reported in regards to fraudulent PEOs or legal PEOs not performing the agreed services, such as non-payment of employee insurance premiums or misreporting taxes and workers’ compensation rates. In 1991, several laws were passed to protect workers from these abuses. At the same time, the development of such laws opened the doors for more global provisions to be made to ensure that prospective clients are not affected adversely at the other end of the spectrum.

As such, this led to the creation of trade associations that could deal with abuses from PEO companies; associations such as the National Association of Professional Employer Organizations or NAPEO, formerly known as National Staff Leasing Association or NSLA, and the Employer Services Assurance Corporation or ESAC.

NAPEO, in particular, provides prospective clients with a few guidelines to help them seek out the services of a PEO. Some of these guidelines include:

a) Assess the needs of your company first. Since there are now several PEO companies specializing in different branches, it is imperative that you know exactly what your company needs so that you will not have to pay for services that you don’t really need. Determine your HR and risk management needs, and try to compare the services being offered by the PEO companies.

b) Meet every potential PEO provider. Although there seems to be a lot of PEO companies that are willing to provide you with internet based communication, it will be best that you try to meet these people so that you can gauge their legitimacy and their capability to perform the tasks you need. Other gauges of legitimacy may include:

i. Professional references from clients and colleagues
ii. PEO background – you can check whether the PEO has a history of business competency, actual business certification, permit to operate in the state or country they are based, affiliation to the NAPEO or ESAC, etc.

c) Review the written agreement thoroughly, and preferably have the company’s retained lawyer give you a read-through. There is a difference between a verbal agreement and a written contract. Make sure that you know exactly what you are signing, and if you have any questions about certain policies or feel that the contract should be giving you more, then ask your lawyer (or the PEO) company.

A professional employer organization can certainly be a boon to many companies, but only if yours really needs the services offered, and you have thoroughly checked the contract. Make sure that you are getting what you want and that there are no hidden costs that you are unaware of. If everything is fine, then PEOs can save you a lot of money in providing professional help in areas of employment in which you either lack the skills to carry out properly, or would cost you too much to set up a department to handle.

Article Summary

While there are indications that the tight economy may be starting to turn around, small businesses may feel the squeeze for some time to come. The government has instituted certain economic incentives, but small business must also take matters into their own hands to offset rising operational costs and flat revenues. Many have done so by turning to Human Resources Outsourcing firms as a way reduce overhead and improve productivity. While some employers may select to outsource specific functions, others have opted for a complete outsourcing solution. Despite the sluggish economy, HR Outsourcing continues to gain momentum.

An Economic Slowdown

Despite some positive trends in the fourth quarter of 2007, such as an increase in consumer spending (up 2.0%), 280,000 new jobs, and an increase in exports (up 3.9%), many other trends impacting small business continued to remain flat, or on the decline:

• A 0.6% rise in the Gross Domestic Product (GDP)
• A steady decline in investment in the residential sector
• Corporate profits fell a total of $52.9 billion
• Exports slowed to an increase of only 2.8%, down from 6.5%
• A below 50 rating in the Supply Managements’ manufacturing composite index (the lowest since April 2003), indicating the manufacturing industry was contracting
• Unemployment rose to 5.0%, the highest level since April 2005
• The National Federation of Independent Business (NFIB) found the Small Business Optimism Index down 3%

Source: Small Business Administration, Office of Advocacy, March 2008

2008 Economic Stimulus Act

In an effort to boost the economy, the government passed the Economic Stimulus Act of 2008 to provide tax incentives and rebates to businesses, in addition to providing rebates to individuals. These incentives include a special 50-percent depreciation allowance for 2008 purchases and an increase in the small business expense limitation for tax years beginning in 2008.

Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property over several years. It is an annual allowance for the wear and tear, deterioration or obsolescence of the property. Under the new law, a taxpayer is entitled to depreciate 50 percent of the adjusted basis of certain qualified property during the year that the property is placed in service.

In general, a qualifying taxpayer can elect to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. Under the new law, a qualifying business can expense up to $250,000 of property purchased by the taxpayer in a tax year beginning in 2008, replacing the previous limit of $128,000.

Early reports from the first half of 2008 indicate that the Economic Stimulus Act may have assisted corporations to slightly increase profitability and revenues.

• Corporate profits increased $5.2 billion, or 0.3 percent at a quarterly rate, in the first quarter, following a decrease of $52.9 billion in the fourth quarter.
• Domestic profits of financial corporations decreased $3.0 billion, or 0.7 percent, after decreasing $74.4 billion.
• Domestic profits of non-financial corporations increased $3.2 billion, or 0.4 percent, following a decrease of $34.3 billion.

Source: US Department of Commerce, Bureau of Economic Analysis, Q1 2008

While large corporations feel the impact of the tight economy, these factors are magnified for the small business owner and their recovery time is significantly longer. Furthermore, according to the Office of Advocacy, the annual cost per employee for small businesses was 45 percent higher than the cost for larger businesses, with 500 or more employees. As the affects of the tight economy continue to impact small business, more employers are beginning to pursue alternative solutions to alleviate their financial stress. Many are considering Human Resources Outsourcing for their business operations.

Key Outsourcing Drivers

According to Hewitt Associations, a world-wide provider of HR consulting services and research data, the most common reason for engaging an HR Outsourcing firm is to reduce overhead. Other reasons to outsource 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

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.

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 in 2006 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

Beyond Savings

Beyond cost-savings, a professional HRO firm can also contribute to improving employee satisfaction. This allows companies in tight economic situations to retain their staff and saves the expense of recruitment and basic training. Employees in a human resources outsourcing relationship gain access to a wide range of benefits and perks typically only offered by larger corporations. In turn, improved morale, loyalty and commitment to their employer encourage greater productivity and longevity. These plans include a variety of employee benefit options, including but not limited to:

• Health insurance options including HMO, PPO and HSAs (Health Savings Accounts)
• Dental, Vision, and Health Insurance plans
• 401 (k) and Retirement plans
• Pre-tax Cafeteria plans, including Flexible Spending Accounts and Dependent Care deductions
• Credit Unions
• Voluntary benefits, such as Cancer, Travel, and Long-Term Disability plans
• Employee group discounts and perks.

The HRO firm’s staff is generally responsible for the administration of the plans, from procuring benefits, conducting open-enrollment, answering employee questions, setting up employee deductions, and other communication activities.

Identifying the Functions to Outsource

The first step in considering an HR Outsourcing relationship is to identify those tasks that take key staff away from their prime purpose within the company. The most successful companies will be those that focus on the core business rather than spend money and use staff resources to managing unproductive tasks, such as benefits and retirement plans administration, managing HR compliance regulations, or processing payroll and taxes.

Although the same solution will not fit the needs of every company, a flexible HR outsourcing alternative can certainly help a company maximize profitability and reduce turnover. Payroll administration, recruitment and benefits administration are prime examples of specific functions that can be outsourced. Other firms may find it more productive to outsource their entire human resources function, thereby utilizing the skills of their existing HR personnel and other staff in areas more directly connected to the core business.

As stated, there is a need to compare HRO companies available, and determine the model that best suits your company’s needs. Consider whether a specific processes within your business, or a fully integrated solution is required. There are many options available that should be considered before deciding on an HRO strategy.

A Surging Industry

According to IDC, the HR Outsourcing industry grew close to 70 percent over the past 5 years, with companies worldwide spending more than $103.3 billion in 2007, up significantly from the $61.2 billion spent in 2002. In the U.S., Everest Research Institute, an independent research and analysis organization, calculates that North American HR outsourcing transactions came to $21.2 billion in 2006 and reached $25.4 billion by the end of 2007. With an increase of 19 percent over that time period, outsourcing HR services has become the fastest growing segment of the broader business process outsourcing (BPO) industry.

Source: Everest Research Institute, Human Resources Outsourcing (HRO) Annual Report: November 2007

Conclusions

Despite the sluggish economy, the trend of Human Resources Outsourcing continues to grow and is based on two principal strategies:

1. To save direct expenditure on administrative functions which do not directly contribute to the company wealth, such as payroll, reception and recruitment.
2. To focus directly employed staff on the core business, so that cash is generated through improved productivity, quality and product development.

Both of these can contribute to stabilizing profits. Many firms will find that their business is a lot stronger than they were prior to outsourcing, even during this tight economy.

Companies should evaluate their human resources needs, and consider outsourcing where it is economically sound to do so. HRO costs should be considered against the money saved and earned through improved productivity and the increased market share that comes with a well run business in the tight economy.

Article Summary

In response to the growing risks and time-consuming activities related to managing employees, frustrated employers are turning to Professional Employer Organizations in record numbers. PEOs are experts in all aspects of Human Resources and help small and mid-sized employers comply with the law and offer their staff enhanced training and benefits.

PEO Companies Provide Crucial Relief for Overwhelmed Businesses

Human Resources gained a permanent role in the American workplace during the 1950s, as the evolution of employment-related laws and sociological trends took shape. However, the past 20 years have witnesses an unprecedented rise of employment litigation, labor regulations, and tax laws far beyond the expectations of their originators.

Effectively managing Human Resources has become a daunting and complex task for small to mid-market business owners. U.S. corporations must grapple with one of the most complicated systems of employment laws in the world. This includes a laundry list of unfriendly policies, including laws governing hiring and termination, family leave, sexual harassment, paying employees, leaves of absence, employee benefits, and workers’ compensation. In just the first months of 2007, dozens of laws dealing with every subject from discrimination to wage deduction have been enacted.

The risks to companies remain fluid, and the high expense of conducting business has restricted the opportunities for business owners to remain competitive. Furthermore, it has become clear that the expertise required to manage a small to mid-sized operation has outgrown the experience and training of many entrepreneurs who started these businesses.

These complexities have led to one of the hottest business trends in the nation: Human Resources Outsourcing. Human Resource Outsourcing firms help companies reduce costs and efficiently manage HR-related issues, while navigating the complex business labyrinth, an intricate combination of policies and regulatory standards that are difficult to escape.

Putting HR In Expert Hands

HR Outsourcing enables companies to shift responsibility of non-revenue generating competencies that can be handled easily, and inexpensively, by off-site experts. These functions include the areas of labor compliance, risk and safety, payroll, benefits, and other complex workplace regulations. HR Outsourcing helps companies reduce costs by effectively managing HR functions while allowing businesses to focus on their core operations that impact profitability.

Once HR and other operations are outsourced, many companies are showing a strong return on investment, according to a recent survey of American executives, by IDC, a global provider of market intelligence. The 2006 survey of executives at the IDC Midwest Conference in Chicago showed nearly 85 percent of the respondents saved as much as they spent on outsourcing, with 26.4 percent reporting a savings of twice as much. And the savings, according to nearly 95 percent of the respondents, went toward operational performance and innovation, which improved shareholder value.

According to IDC, companies worldwide are expected to spend more than $103.3 billion just on HR Outsourcing this year, up significantly from the $61.2 billion spent in 2002. In the U.S., outsourcing HR services is the fastest growing segment of the broader business process outsourcing (BPO) industry, and is expected to grow annually at a rate of 16 percent.

In line to capitalize on those numbers are the Professional Employer Organizations, or PEOs. The increase in small businesses and the difficulty for them to manage the many facets of HR administration is leaving the door open for the PEO – the matriarch to the BPO solution.

PEOs Answer the Call

The PEO industry, formerly known as Employee Leasing, or Staff Leasing, has become a rudder for companies trying to navigate choppy seas. Taking on the responsibility of all human resource functions, the PEO can serve a multitude of functions. Primarily, the PEO creates a contractual relationship with its clients, thereby sharing the risks and responsibilities of being an employer. The PEO assumes the role of the Administrative Employer, whereby the PEO pays the employees, files payroll taxes, provides health insurance, issues the workers’ compensation insurance, and manages most aspects of employment. The client maintains the role as the Administrative Employer and continues to manage and oversee all day-to-day functions relating to their internal operations. This includes hiring, firing, establishing wages, and directing the workforce.

Helping Businesses and Their Employees

Through a PEO relationship, small organizations access the economies of scale enjoyed by large corporations. The PEO client can offer premium benefit packages and retirement plans, typically provided by their larger competitors. They can maintain a simple in-house HR infrastructure or none at all by relying on the PEO. The client also can reduce hiring overhead. Costs related to monitoring of, and compliance with, employment laws are reduced, as are the often significant costs of failure to comply with such laws. In addition, the PEO provides time savings by handling routine and redundant tasks for its clients. This enables the business owner to focus on the company’s core competency and grow its bottom line.

In addition to providing important services to their business clients, PEOs offer substantial advantages to worksite employees. In many cases, these employees would not be provided the number, or quality, of benefits that a PEO can offer. These benefits may include health insurance, retirement savings plans, disability insurance, life insurance, dependent care reimbursement accounts, vision care, dental insurance, employee assistance plans, job counseling and educational benefits. Each individual small business’s cost of establishing and administering this range of plans would be prohibitive. However, due to economies of scale, PEOs can sponsor and offer these plans at an affordable cost.

A Surging Industry

After a decline in the number of PEOs in 2003, a strong economy has resulted in a surge over the past four years. The PEO industry serves between two and three million employees per year, with most assisting companies with less than 50 employees. The average PEO is on the rise, too, with a growth rate of more than 20 percent per year for the last six years, according to a survey by the NAPEO, the national trade association for the industry.

For an annual fee that easily trumps the cost of an HR staff, PEOs manage training and education, health benefits, payroll, benefits, workers’ compensation issues and employee relations. It is apparent that the frustration brought on by obtrusive human resource standards can be offset by the value found with PEOs, and other HR Outsourcing providers.

Fifty-six percent of employers said that accommodations under the Americans With Disabilities Act (ADA) cost them absolutely nothing, while thirty-seven percent experienced a one-time cost averaging six hundred dollars. This is good news since the Americans’ with Disabilities Amendment Act (ADAA) of 2008 expanded the definition of the term “disability” and significantly increased the number of persons protected by the law. The new definition of disability may include such health challenges as: diabetes, obesity, back pain, and other minor ailments that may now be protected under ADAA.

Under ADAA employers are required to reasonably accommodate applicants and employees who are unable to perform the essential functions of the job, due to their disability. Additionally, employers must engage in a timely, good faith, interactive process with applicants or employees in need of reasonable accommodation.

According to the Bureau Labor Statistics, 18.4% of employees in the workforce have disabilities, as reported in September 2009. Employees with disabilities in the state of California are protected by both federal and state laws. ADA and ADAA are federal laws enforced by the Equal Employment Opportunity Commission (EEOC), with 15 or more employees. The Fair Employment and Housing Act (FEHA) is a law governed on the state-level which covers workforces with five or more employees. The two laws protect qualified individuals with disabilities and prohibit discriminatory acts with regard to: hiring, firing, advancement, training, compensation, and other terms and conditions of employment. ADA and FEHA clearly define disability as:

ADA

A person who has a physical or mental impairment that substantially limits one or more of his/her major life activities (which includes working), has a record of such an impairment, or is regarded as having such an impairment.

FEHA

A person who has a physical or mental disability that limits one or more major life activities, has a history of such, is incorrectly regarded as having had such, or is regarded or treated as having or having had an impairment.

The broader definition under ADAA means that employers are required to ensure the practice of “reasonable accommodations,” while being aware that the term “regarded” may lead to increased EEOC charges and lawsuits.

Interactive DialogueFEHA

Interactive dialogue is a process under the reasonable accommodation clause where the employee and employer have an open exchange of information. The goal is to ascertain the precise job-related limitations, how the limitations may be overcome with a reasonable accommodation, to identify potential accommodations and to assess their effectiveness. The examples of reasonable accommodation are as follows:

• Making existing facilities accessible
• Job restructuring
• Part-time or modified work schedules
• Acquiring or modifying equipment
• Reassignment to a vacant position

Here are examples of what is not required under reasonable accommodation:

• Removing of essential job functions
• Creating of new jobs
• Providing personal need items such as eye glasses and mobility aids
• Maintaining same pay and benefits for accommodating a change from full-time to part-time
• Tolerating violation of company conduct rules

As an employer there are six steps of the interactive process:

Step 1: Analyze the job and essential job functions

Step 2: Indentify job-related limitations

Step 3: Indentify possible accommodations

Step 4: Assess the feasibility of accommodations

Step 5: Implement the accommodation that is the most appropriate

Step 6: Follow up regularly

Under the ADA Amendment Act, employers are hard-pressed to find an employee who is not going to require an accommodation. It is important to practice the Interactive Process and to make reasonable accommodations for employees with disabilities. Information in this article is from November, 2009’s webinar entitled, Americans With Disabilities Act- Interactive Dialogue. If you have any further questions regarding ADAA compliance, please contact your CPEhr Human Resources Representative.