Last month, North Carolina governor Roy Cooper signed legislation that creates an office within the North Carolina Industrial Commission to investigate companies who might be misclassifying employees as contractors and to discourage the practice.
This legislation doesn't change the rules regarding how to go about evaluating whether your workers are legitimate contractors or are really employees that you've misclassified as contractors. What's different is that a separate office is now funded with the sole purpose of ferreting-out those the government considers to be abusers of this practice.
Some of my workers prefer to be paid by 1099. Why does the state care?
It's all about the money! When you pay your employees on a Friday, you immediately send a check to the government for income taxes withheld and other obligations like social security and unemployment tax. An employee who makes $10 per hour may gross $400, but they actually take home less because you withheld taxes. When you pay your 1099 worker the same $400, there is a contractual obligation, or at least an implicit understanding, that the 1099 worker will file his or her own taxes. But even if they do file quarterly, the government would prefer to have its money every pay day. The reality is, most laborers paid via 1099 file at year-end, at best. Many never file at all.
I save a lot of money by paying workers via 1099 rather than W-2.
While employers who either mistakenly or intentionally pay workers by 1099 do gain some short-term cost advantage over their compliant competitors, it is generally not as much as they think. For instance, the company's workers comp carrier will often roll those 1099 workers for whom the company can't produce a workers comp insurance certificate right into the company's premium during their annual or semi-annual audit. They've paid out the employee-paid portion of the income taxes to the worker in the form of gross wages, so there's no savings there. They have saved on some of the matching taxes like FICA, SUTA and FUTA, as well the company-paid portion of employee benefits the worker might have been eligible for. But the potential costs associated with being found to be out of compliance are quite high - steep fines, back taxes (even if they worker paid them), and jail time in extreme cases. Seems like a bad risk-reward scenario to me.
What should I do?
Make sure any legitimate subcontractors you use to help during periods of peak demand have an executed subcontract agreement with your company and you have their certificates of insurance on file. Note: many one-person operators will tell you the state doesn't require workers comp on business owners, but if that "business owner" is in the field performing work on your behalf and your work comp carrier sees them as a risk, you're perfectly in your rights to say, the state might not require it but we do...
Second, identify any workers that don't really meet the IRS definition of a contractor and either find a temp agency partner to run them through or hire them as employees.
If you need assistance determining who meets the definition and who doesn't, contact The Davidson Group and we'll be happy to consult with you.
Wednesday, September 6, 2017
Wednesday, August 9, 2017
Update on the Overtime Law
Remember the new overtime regulations that were supposed to take effect on Dec 1, 2016? Remember all the headaches you went through last Fall trying to figure out the best way to handle those exempt employees who made less than the proposed new threshold? Remember how it all seemed to just go away but can't remember why and where things stand? Here's a reminder of what happened and an update on where things are today:
Just before Thanksgiving a Federal Judge in Texas issued an injunction to pause the new rules from going into effect on Dec. 1. In one of its last acts under the Obama administration, The Department of Labor appealed that injunction. The DOL, now under the new Trump administration, dragged its feet on that appeal while waiting to get the new Secretary of Labor confirmed and new top administrators in place. Finally, on June 30, the DOL officially dropped the appeal, as expected. So this means the changes are dead, right?
Not so fast! The DOL also submitted a formal Request for Information to another agency in late June signaling that the new administration and Secretary Acosta might still be considering changes. While no one expects the new salary test thresholds to be as high as the $47,476 proposed by the Obama team, even many conservatives agree that the current threshold of $23,660 is too low.
Duties test? To be compliant with the Fair Labor Standards Act, employers must consider both the salary test and the duties test in determining whether an employee is eligible to be classified as exempt (salaried). All the hoopla in 2016 was related to proposed changes in the salary test - but no changes were proposed for the duties test. The salary test has always been the easy part of the FLSA to understand and be in compliance with. The duties tests have always been where the gray areas are and where confusion lies. The Society of Human Resource Management (SHRM) and other lobbying groups have repeatedly asked the Department of Labor to review the duties tests.
Hopefully this Request for Information is the beginning of a process that will lead to a meaningful review of both the salary test AND the duties test this time around! Stay tuned to this blog for updates as they happen.
In the meantime, just because some of your employees meet the old salary test doesn't mean that a wage and hour division auditor would agree that they are exempt. We always recommend reviewing the duties test requirements that apply to each of your exempt positions to ensure that your exempt employee meets both standards.
Just before Thanksgiving a Federal Judge in Texas issued an injunction to pause the new rules from going into effect on Dec. 1. In one of its last acts under the Obama administration, The Department of Labor appealed that injunction. The DOL, now under the new Trump administration, dragged its feet on that appeal while waiting to get the new Secretary of Labor confirmed and new top administrators in place. Finally, on June 30, the DOL officially dropped the appeal, as expected. So this means the changes are dead, right?
Not so fast! The DOL also submitted a formal Request for Information to another agency in late June signaling that the new administration and Secretary Acosta might still be considering changes. While no one expects the new salary test thresholds to be as high as the $47,476 proposed by the Obama team, even many conservatives agree that the current threshold of $23,660 is too low.
Duties test? To be compliant with the Fair Labor Standards Act, employers must consider both the salary test and the duties test in determining whether an employee is eligible to be classified as exempt (salaried). All the hoopla in 2016 was related to proposed changes in the salary test - but no changes were proposed for the duties test. The salary test has always been the easy part of the FLSA to understand and be in compliance with. The duties tests have always been where the gray areas are and where confusion lies. The Society of Human Resource Management (SHRM) and other lobbying groups have repeatedly asked the Department of Labor to review the duties tests.
Hopefully this Request for Information is the beginning of a process that will lead to a meaningful review of both the salary test AND the duties test this time around! Stay tuned to this blog for updates as they happen.
In the meantime, just because some of your employees meet the old salary test doesn't mean that a wage and hour division auditor would agree that they are exempt. We always recommend reviewing the duties test requirements that apply to each of your exempt positions to ensure that your exempt employee meets both standards.
Workers Comp Landmines
One of the more risk-filled areas associated with having employees is Workers Compensation insurance and the issues that surround it. Here are a few thoughts:
1. Make Sure You Have It (if required) - in general, companies with three or more employees (part-time or full-time) are required to carry workers comp insurance. Discuss your specific situation with a licensed insurance professional as there are some exceptions. Penalties for not having it when it's required can be severe. And if you utilize 1099 workers, an injury by one of them can prompt a review of your practices and subject you to even more fines and penalties.
2. Make Sure You Report Quickly and Accurately - Bob sprains his ankle on the job. Bob says he's fine - he'll go home and put some ice on it. Bob shows up for work the next day, still limping slightly, but powers through. The company doesn't bother to report the incident to their work comp carrier because there are no medical expenses and Bob hasn't missed any time from work. Two months later, Bob's still limping. He finally goes to his doctor and discovers he has a stress fracture which will require surgery and he will be out of work for 6 weeks. Now the work comp carrier is wondering why the company is reporting an injury that happened two months ago and questioning whether the stress fracture is related to the original injury or something that may have happened since the original sprain. The owner spends a lot of time wrestling with his carrier and his broker to get the claim approved - time that he could have spent doing something productive for the business.
Had the company had Bob's injury evaluated at the time it occurred, there would be no question of liability, but the delay has now complicated the claim and, very likely, made the claim much more expensive than it would have been.
3. Make Sure You Don't Retaliate (or even appear to) - Bob is now out of work and Mike is covering his workload. Mike seems to be getting the work done much faster than Bob did and Mike has discovered several errors that Bob made in the weeks prior to his leave of absence. The business owner has decided he really doesn't need Bob anymore because Mike is doing so well. When Bob is released to return to work, the owner tells him that he's no longer needed. Bob sues for retaliation and ultimately wins a large settlement.
The owner is miffed because he thought working in an at-will state allowed him to let Bob go for any reason or no reason. Unfortunately for the owner, his state (as most states do) has legal protections for employees against various forms of retaliation that trump at-will employment statutes. In NC it's the Retaliation Employment Discrimination Act. So the owner tries to shift his argument that the termination was justified on business grounds, but Bob's lawyer has an easy time with it - Bob worked there for several years and his performance reviews were excellent and he was never written up. He got hurt, which cost the company money, so they fired Bob to punish him. Any reasonable person would agree that Bob's termination was in retaliation for his injury and all that stuff about Mike doing better is just a pretext for getting back at Bob. Slam dunk!
The owner now has to file a claim with his insurance policy to cover the settlement, driving up the cost of that insurance at the same time his work comp premiums jump up - not to mention the legal fees he paid to defend his losing position!
Employee injuries and work comp exposure is one of the riskier areas that owners must manage. Unfortunately, owners sometimes outsmart themselves by making mistakes like the ones I identified above and they end up risking dollars in an effort to save nickels.
1. Make Sure You Have It (if required) - in general, companies with three or more employees (part-time or full-time) are required to carry workers comp insurance. Discuss your specific situation with a licensed insurance professional as there are some exceptions. Penalties for not having it when it's required can be severe. And if you utilize 1099 workers, an injury by one of them can prompt a review of your practices and subject you to even more fines and penalties.
2. Make Sure You Report Quickly and Accurately - Bob sprains his ankle on the job. Bob says he's fine - he'll go home and put some ice on it. Bob shows up for work the next day, still limping slightly, but powers through. The company doesn't bother to report the incident to their work comp carrier because there are no medical expenses and Bob hasn't missed any time from work. Two months later, Bob's still limping. He finally goes to his doctor and discovers he has a stress fracture which will require surgery and he will be out of work for 6 weeks. Now the work comp carrier is wondering why the company is reporting an injury that happened two months ago and questioning whether the stress fracture is related to the original injury or something that may have happened since the original sprain. The owner spends a lot of time wrestling with his carrier and his broker to get the claim approved - time that he could have spent doing something productive for the business.
Had the company had Bob's injury evaluated at the time it occurred, there would be no question of liability, but the delay has now complicated the claim and, very likely, made the claim much more expensive than it would have been.
3. Make Sure You Don't Retaliate (or even appear to) - Bob is now out of work and Mike is covering his workload. Mike seems to be getting the work done much faster than Bob did and Mike has discovered several errors that Bob made in the weeks prior to his leave of absence. The business owner has decided he really doesn't need Bob anymore because Mike is doing so well. When Bob is released to return to work, the owner tells him that he's no longer needed. Bob sues for retaliation and ultimately wins a large settlement.
The owner is miffed because he thought working in an at-will state allowed him to let Bob go for any reason or no reason. Unfortunately for the owner, his state (as most states do) has legal protections for employees against various forms of retaliation that trump at-will employment statutes. In NC it's the Retaliation Employment Discrimination Act. So the owner tries to shift his argument that the termination was justified on business grounds, but Bob's lawyer has an easy time with it - Bob worked there for several years and his performance reviews were excellent and he was never written up. He got hurt, which cost the company money, so they fired Bob to punish him. Any reasonable person would agree that Bob's termination was in retaliation for his injury and all that stuff about Mike doing better is just a pretext for getting back at Bob. Slam dunk!
The owner now has to file a claim with his insurance policy to cover the settlement, driving up the cost of that insurance at the same time his work comp premiums jump up - not to mention the legal fees he paid to defend his losing position!
Employee injuries and work comp exposure is one of the riskier areas that owners must manage. Unfortunately, owners sometimes outsmart themselves by making mistakes like the ones I identified above and they end up risking dollars in an effort to save nickels.
Sunday, July 9, 2017
A Practical Approach to Documentation
Bob was late for work again today. It's only a few minutes, but I'm afraid if I don't say something, it'll be a few more minutes tomorrow and a few more the day after that. When do I write him up?
Front line managers face these dilemmas all the time. On the one hand, they know that bad behavior that is not condemned is condoned. On the other hand, they know that if they write people up for every minor infraction, they'll spend an inordinate amount of time processing and documenting write-ups. And the employee being written-up will likely retreat into some deeper level of disengagement - the last thing you want from an employee who is basically a solid contributor with a few flaws.
Some managers take the cautious route and document everything, to the detriment of employee engagement. On the other extreme are managers who don't document anything, then terminate their "Bobs" when they've reached a breaking point. Unfortunately these managers have nothing to use in the defense of an unemployment charge, or worse, an EEOC charge.
Here's a few tips:
1. Distinguish between a true policy violation and a manager pet peeve. Using the "Bob is late" example, the manager needs to ask, is being on-time a basic job requirement for Bob's position? For many roles, being on-time is essential. If the phones start ringing at 8:00 and Bob's the receptionist or a CSR, he needs to be at his station at 8:00 or someone else is forced to do his job. But nit-picking start and stop times with an exempt employee whose immediate presence or absence at 8:00 a.m. doesn't really impact the team or their ability to produce their assigned workload can actually be counter-productive.
2. Start with a conversation. For most relatively minor but annoying infractions where the employee is drifting from standard expectations, simply having a brief conversation with the employee may be enough to get your Bob back on the right path. But be sure to make a note to yourself that you held the conversation with Bob on this day, so that, if necessary, you can...
3. Cleverly get your verbal warning into the record. One way to do that is with a follow-up email. Sometimes the email can even be phrased positively: "Bob, I was pretty direct with you yesterday when we spoke about your struggles to get to work on time, but I want you to know that if you can get that issue under control, there's no reason why you can't have a prosperous career here. You have the skills necessary to be successful." The second way is to let the conversation suffice until the behavior appears again. Let's say two weeks after the conversation Bob is late again. The manager moves to a more formal write-up and includes language like, "On July 11 we had a conversation about your lateness to work an how it affects the team. Today you were late again..." Now, with Bob's signature, you have both the verbal warning and the written warning on the record, but only shoved one piece of paper in front of Bob to sign and it wasn't on his first offense.
Progressive Discipline
The larger the organization, the more it benefits from a formal, defined, progressive discipline process. But most of my clients are small or mid-sized and reside in right-to-work-states, so I don't recommend a formal process for them. I want my clients to legally be able to rid themselves of an employee who is bad for their organization without violating their own policies. If your progressive discipline policy is too defined, bad employees can dance around the edges for months or even years without ever crossing the final line. The company can become a victim of its own policy.
With major infractions like violence, threats of violence, sexual/racial/ethnic harassment, theft, fraud, etc., it's certainly not necessary to go through any progressive process (just make sure your handbook is clear about that), but for the types of behavioral or performance issues that tend to build frustration from management over time, you need some type of evidence that you've made a good faith effort to clarify your expectations for Bob's performance and that Bob has acknowledged that you've done so. So starting with a conversation or two, moving to a counseling form that is signed by Bob that incorporates the prior verbal conversations into the record can do that nicely. Make sure the counseling form clearly defines what policy or procedure Bob failed to follow and what your expectations are for Bob going forward.
Then, when you're finally fed-up with Bob, you have a nice paper trail to show an unemployment referee demonstrating what a patient and fair employer you've been. You might even have a shot at winning those difficult to win unemployment charges. But don't wait until you're fed-up with Bob before you start the documentation trail.
Front line managers face these dilemmas all the time. On the one hand, they know that bad behavior that is not condemned is condoned. On the other hand, they know that if they write people up for every minor infraction, they'll spend an inordinate amount of time processing and documenting write-ups. And the employee being written-up will likely retreat into some deeper level of disengagement - the last thing you want from an employee who is basically a solid contributor with a few flaws.
Some managers take the cautious route and document everything, to the detriment of employee engagement. On the other extreme are managers who don't document anything, then terminate their "Bobs" when they've reached a breaking point. Unfortunately these managers have nothing to use in the defense of an unemployment charge, or worse, an EEOC charge.
Here's a few tips:
1. Distinguish between a true policy violation and a manager pet peeve. Using the "Bob is late" example, the manager needs to ask, is being on-time a basic job requirement for Bob's position? For many roles, being on-time is essential. If the phones start ringing at 8:00 and Bob's the receptionist or a CSR, he needs to be at his station at 8:00 or someone else is forced to do his job. But nit-picking start and stop times with an exempt employee whose immediate presence or absence at 8:00 a.m. doesn't really impact the team or their ability to produce their assigned workload can actually be counter-productive.
2. Start with a conversation. For most relatively minor but annoying infractions where the employee is drifting from standard expectations, simply having a brief conversation with the employee may be enough to get your Bob back on the right path. But be sure to make a note to yourself that you held the conversation with Bob on this day, so that, if necessary, you can...
3. Cleverly get your verbal warning into the record. One way to do that is with a follow-up email. Sometimes the email can even be phrased positively: "Bob, I was pretty direct with you yesterday when we spoke about your struggles to get to work on time, but I want you to know that if you can get that issue under control, there's no reason why you can't have a prosperous career here. You have the skills necessary to be successful." The second way is to let the conversation suffice until the behavior appears again. Let's say two weeks after the conversation Bob is late again. The manager moves to a more formal write-up and includes language like, "On July 11 we had a conversation about your lateness to work an how it affects the team. Today you were late again..." Now, with Bob's signature, you have both the verbal warning and the written warning on the record, but only shoved one piece of paper in front of Bob to sign and it wasn't on his first offense.
Progressive Discipline
The larger the organization, the more it benefits from a formal, defined, progressive discipline process. But most of my clients are small or mid-sized and reside in right-to-work-states, so I don't recommend a formal process for them. I want my clients to legally be able to rid themselves of an employee who is bad for their organization without violating their own policies. If your progressive discipline policy is too defined, bad employees can dance around the edges for months or even years without ever crossing the final line. The company can become a victim of its own policy.
With major infractions like violence, threats of violence, sexual/racial/ethnic harassment, theft, fraud, etc., it's certainly not necessary to go through any progressive process (just make sure your handbook is clear about that), but for the types of behavioral or performance issues that tend to build frustration from management over time, you need some type of evidence that you've made a good faith effort to clarify your expectations for Bob's performance and that Bob has acknowledged that you've done so. So starting with a conversation or two, moving to a counseling form that is signed by Bob that incorporates the prior verbal conversations into the record can do that nicely. Make sure the counseling form clearly defines what policy or procedure Bob failed to follow and what your expectations are for Bob going forward.
Then, when you're finally fed-up with Bob, you have a nice paper trail to show an unemployment referee demonstrating what a patient and fair employer you've been. You might even have a shot at winning those difficult to win unemployment charges. But don't wait until you're fed-up with Bob before you start the documentation trail.
Is Being a Team Player Important?
We often use the term "team player" to describe an employee who gets along with others, works well on team projects, and/or is willing to contribute discretionary effort toward the organization's goals. It's important for every organization to recognize the true importance of team skills as a success factor and a selection criteria for job candidates. Here's two examples to demonstrate the subtle difference:
Jane is a commissioned outside sales rep with a defined territory. She's a hunter and spends most of her time seeking out new sales opportunities as opposed to taking orders from existing clients. She has the technical knowledge to make the sale on her own without the assistance of technical support staff and she's not dependent on marketing or back office people to prepare proposal documents or support the sales process. When she makes the sale, she turns the order over to operations personnel and moves on to the next prospect.
Sally is a sales/marketing rep and earns a straight salary. Her primary job is to get appointments with decision makers in order to bring in a technical expert to wow the client with the company's capabilities. After the sale is made, Sally works with a team of people to pull together the solution for the prospect and she remains the primary point of contact for both implementation and customer questions or concerns going forward. She is also responsible for identifying potential future sales with that same client.
If either Jane or Sally should leave their respective organizations, which company should be more concerned with whether or not potential replacements are "team players." Obviously Sally's role requires much more interaction with co-workers and the successful candidate to replace her needs to be someone who plays well in the sandbox with others. In reality, Jane could be perceived as difficult to work with and uncooperative from the perspective of her co-workers and still be a rock-star when it comes to her core job duties - making rain! Over-weighting team skills during the selection process for Jane's replacement could result in overlooking the candidate who might have delivered the strongest results.
You can apply the same logic to multiple roles in your organization - how important is it that this individual be able to work well with other people? If the role is really designed for an individual contributor, someone who sits in a back office and cranks out work without need to interact with others, the organization should look for someone who scores high for traits such as Commanding, Resourceful and Intentional. If the role is really designed for someone whose work frequently interacts with other team members, the organization should look for someone who scores high for traits like Collaborative, Selfless and Harmonious.
How do you identify those traits during the selection process? A) You ask behavioral interview questions targeted at those motivators and B) you give them a pre-employment assessment that measures those internal motivators. Don't currently use a motivators assessment? Contact me and I'll show you a great one that will help your organization make better hiring decisions.
Jane is a commissioned outside sales rep with a defined territory. She's a hunter and spends most of her time seeking out new sales opportunities as opposed to taking orders from existing clients. She has the technical knowledge to make the sale on her own without the assistance of technical support staff and she's not dependent on marketing or back office people to prepare proposal documents or support the sales process. When she makes the sale, she turns the order over to operations personnel and moves on to the next prospect.
Sally is a sales/marketing rep and earns a straight salary. Her primary job is to get appointments with decision makers in order to bring in a technical expert to wow the client with the company's capabilities. After the sale is made, Sally works with a team of people to pull together the solution for the prospect and she remains the primary point of contact for both implementation and customer questions or concerns going forward. She is also responsible for identifying potential future sales with that same client.
If either Jane or Sally should leave their respective organizations, which company should be more concerned with whether or not potential replacements are "team players." Obviously Sally's role requires much more interaction with co-workers and the successful candidate to replace her needs to be someone who plays well in the sandbox with others. In reality, Jane could be perceived as difficult to work with and uncooperative from the perspective of her co-workers and still be a rock-star when it comes to her core job duties - making rain! Over-weighting team skills during the selection process for Jane's replacement could result in overlooking the candidate who might have delivered the strongest results.
You can apply the same logic to multiple roles in your organization - how important is it that this individual be able to work well with other people? If the role is really designed for an individual contributor, someone who sits in a back office and cranks out work without need to interact with others, the organization should look for someone who scores high for traits such as Commanding, Resourceful and Intentional. If the role is really designed for someone whose work frequently interacts with other team members, the organization should look for someone who scores high for traits like Collaborative, Selfless and Harmonious.
How do you identify those traits during the selection process? A) You ask behavioral interview questions targeted at those motivators and B) you give them a pre-employment assessment that measures those internal motivators. Don't currently use a motivators assessment? Contact me and I'll show you a great one that will help your organization make better hiring decisions.
Sunday, June 18, 2017
Handling Final Pay
Many owners or managers get angry when an employee unexpectedly quits or when they are forced to fire an employee for misconduct, so they take it out on the employee by deducting as much as they can from that final paycheck. This behavior is rife with risk, so keep the following in mind before you start tallying those deductions:
First, former employees are alumni of your organization, for good or bad, so sometimes it may serve you better to let little things go and take the high road. This could reduce the chances they'll do damage to your employment brand by telling all their friends how horribly they were treated while working at your organization; and might minimize the chances that they'll file a complaint with the Department of Labor if you get too aggressive.
Second, make sure you're on solid footing when making those deductions:
1. Don't hold their check! Some employers will hold the employee's final paycheck until all their "stuff" is returned. In most states (including NC, SC and VA) employers are required to pay the employee for time-worked by the next regular pay day. But know the laws in your state, as some require final pay as quickly as immediately for terminated employees, and the rules may be different for employees who voluntarily leave versus those who are terminated or laid-off). While you can't hold their entire paycheck, it is legal to withhold any preauthorized amounts from that final check so long as they don't run afoul of certain rules.
2. Have a signed document on file allowing the deductions. The employee must authorize deductions for damaged or lost equipment and uniforms, so make sure you have a signed document on file that gives you permission to take those deductions. It is best to specify the deduction amounts in the original document that the employee signed (Cell phone deduction = $150, for example). If there is no document on-file authorizing the deductions, you can't just arbitrarily hold $50 out of their check because their truck was returned dirty.
3. Understand who benefits from the deduction. The state of NC, for example, differentiates the rules for deductions that benefit the employee (savings plans, parking fees, employee loans, uniforms that are not required, etc.) and deductions for the benefit of the employer (lost or damaged equipment, keys, uniforms which are required, etc.).
4. Watch for minimum wage and overtime. It is not permissible to take deductions to the employer's benefit that drop the employee's final pay down below minimum wage for actual time worked. Plus, you can't deduct anything to the employer's benefit from overtime wages. This makes it difficult to recover virtually any costs from minimum-wage workers, even with signed authorization forms.
5. Be reasonable. If you issue an employee a new laptop in 2017 and they quit in 2020, deducting the full purchase price of that laptop (if not returned) is not going to seem reasonable to the investigator. The state of NC allows the deduction authorization to be non-specific in the case of depreciable assets like laptops, but the company must notify the employee, in-writing, the calculated value of the deduction per their authorization. (Here's a link to a document that spells that out in more detail).
6. Vacation or PTO. Your employee who just quit had taken 5 vacation days this year but only accrued 3 per your policy, putting them 2 days in arrears. Those 2 days are considered pre-payment of wages in NC and not a deduction from wages. Therefore those two days of vacation or PTO can be adjusted on their final paycheck without regard to the minimum wage or pre-authorization limitations (at least in NC).
Final thoughts: if you are a small to mid-sized employer who makes his or her living leveraging the efforts of lower paid hourly workers, you're going to experience a certain amount of lost and damaged equipment. Some of the time you'll be able to recover the costs of an employee's negligence, but other times you won't. But don't make the mistake of going overboard in looking for ways to decrease that departing employee's final pay. When that $25 deduction for a lost tool or uniform shirt ends up costing you hundreds or even thousands because a regulator determined you were out of compliance in the way you handled it, you've really only outsmarted yourself.
First, former employees are alumni of your organization, for good or bad, so sometimes it may serve you better to let little things go and take the high road. This could reduce the chances they'll do damage to your employment brand by telling all their friends how horribly they were treated while working at your organization; and might minimize the chances that they'll file a complaint with the Department of Labor if you get too aggressive.
Second, make sure you're on solid footing when making those deductions:
1. Don't hold their check! Some employers will hold the employee's final paycheck until all their "stuff" is returned. In most states (including NC, SC and VA) employers are required to pay the employee for time-worked by the next regular pay day. But know the laws in your state, as some require final pay as quickly as immediately for terminated employees, and the rules may be different for employees who voluntarily leave versus those who are terminated or laid-off). While you can't hold their entire paycheck, it is legal to withhold any preauthorized amounts from that final check so long as they don't run afoul of certain rules.
2. Have a signed document on file allowing the deductions. The employee must authorize deductions for damaged or lost equipment and uniforms, so make sure you have a signed document on file that gives you permission to take those deductions. It is best to specify the deduction amounts in the original document that the employee signed (Cell phone deduction = $150, for example). If there is no document on-file authorizing the deductions, you can't just arbitrarily hold $50 out of their check because their truck was returned dirty.
3. Understand who benefits from the deduction. The state of NC, for example, differentiates the rules for deductions that benefit the employee (savings plans, parking fees, employee loans, uniforms that are not required, etc.) and deductions for the benefit of the employer (lost or damaged equipment, keys, uniforms which are required, etc.).
4. Watch for minimum wage and overtime. It is not permissible to take deductions to the employer's benefit that drop the employee's final pay down below minimum wage for actual time worked. Plus, you can't deduct anything to the employer's benefit from overtime wages. This makes it difficult to recover virtually any costs from minimum-wage workers, even with signed authorization forms.
5. Be reasonable. If you issue an employee a new laptop in 2017 and they quit in 2020, deducting the full purchase price of that laptop (if not returned) is not going to seem reasonable to the investigator. The state of NC allows the deduction authorization to be non-specific in the case of depreciable assets like laptops, but the company must notify the employee, in-writing, the calculated value of the deduction per their authorization. (Here's a link to a document that spells that out in more detail).
6. Vacation or PTO. Your employee who just quit had taken 5 vacation days this year but only accrued 3 per your policy, putting them 2 days in arrears. Those 2 days are considered pre-payment of wages in NC and not a deduction from wages. Therefore those two days of vacation or PTO can be adjusted on their final paycheck without regard to the minimum wage or pre-authorization limitations (at least in NC).
Final thoughts: if you are a small to mid-sized employer who makes his or her living leveraging the efforts of lower paid hourly workers, you're going to experience a certain amount of lost and damaged equipment. Some of the time you'll be able to recover the costs of an employee's negligence, but other times you won't. But don't make the mistake of going overboard in looking for ways to decrease that departing employee's final pay. When that $25 deduction for a lost tool or uniform shirt ends up costing you hundreds or even thousands because a regulator determined you were out of compliance in the way you handled it, you've really only outsmarted yourself.
Essentials of a Strong Culture
Organizational culture is defined by former MIT professor Ed Schein as the set of shared, taken-for-granted implicit assumptions that a group holds that determines how it perceives, thinks about and reacts to its environment. In other words, it determines how we dress, speak, act, interact and perform our jobs. It is often the glue that holds employees to the mission and the goals of the organization.
Peter Drucker has been attributed with saying, "culture eats strategy for breakfast," but it was Mark Fields, CEO at Ford who made the slogan popular in 2006.
There are 3 levels of organizational culture:
1. Visible Artifacts - these are the acronyms and vocabulary your organization uses, the uniforms or manner of dress that is allowed/required, your org chart, the layout and vibe of the office, the myths and stories about the organization that are repeated formally and informally, and observable rituals and ceremonies, both formal and informal.
2. Espoused vs. Enacted Values - these are the values we say are important. Words and phrases like integrity, trust, do it right the first time, always good ships, etc. Unfortunately, sometimes the espoused values conflict with enacted values or actual behavior. It's fine to have integrity on a plaque or on the first page of the employee handbook, but if the owner or a manager frequently acts in observable ways that conflict with that (such as frequently lying to customers, suppliers or employees), then the culture is going to be defined by the enacted values, not the espoused values. Enacted values are essentially defined by what managers choose to reward, condone and condemn.
3. Basic Underlying Assumptions - these are values that are taken for granted over time. These are more deeply held beliefs that employees have about their company and are the most resistant to change.
Is your culture helping you achieve your goals or is it hindering it? Can you define your culture and do your employees agree with your assumptions about what your culture really is? Is the culture that got you where you are the same culture that's going to get you where you want to go?
I once worked with a company that reached a stage where it determined it needed to significantly change its culture to achieve its next growth phase. It had grown from 4 employees to 400 as basically an adhocracy (adaptable, creative, agile, decentralized, externally focused and flexible). Many of its managers were quite entrepreneurial and had been hired because they were. But executives felt that in order to grow the company to the next level it needed to become more of a hierarchy (internally focused with more formalized and rigid systems and controls). This culture shift resulted in more than a little turbulence over several years and cost the company quite a few of its long-term, loyal employees, but the shift did position the company to achieve remarkable growth and reach the goals of the owners, which ultimately included selling the company at the right time.
There's a lot more involved in culture change than buying some tee shirts and adopting a new slogan. So if you decide you want to investigate your organization's culture, how it is helping and/or hurting, contact a professional who understands organizational behavior and how to change not only artifacts, but systematically resetting those basic underlying assumptions.
Peter Drucker has been attributed with saying, "culture eats strategy for breakfast," but it was Mark Fields, CEO at Ford who made the slogan popular in 2006.
There are 3 levels of organizational culture:
1. Visible Artifacts - these are the acronyms and vocabulary your organization uses, the uniforms or manner of dress that is allowed/required, your org chart, the layout and vibe of the office, the myths and stories about the organization that are repeated formally and informally, and observable rituals and ceremonies, both formal and informal.
2. Espoused vs. Enacted Values - these are the values we say are important. Words and phrases like integrity, trust, do it right the first time, always good ships, etc. Unfortunately, sometimes the espoused values conflict with enacted values or actual behavior. It's fine to have integrity on a plaque or on the first page of the employee handbook, but if the owner or a manager frequently acts in observable ways that conflict with that (such as frequently lying to customers, suppliers or employees), then the culture is going to be defined by the enacted values, not the espoused values. Enacted values are essentially defined by what managers choose to reward, condone and condemn.
3. Basic Underlying Assumptions - these are values that are taken for granted over time. These are more deeply held beliefs that employees have about their company and are the most resistant to change.
Is your culture helping you achieve your goals or is it hindering it? Can you define your culture and do your employees agree with your assumptions about what your culture really is? Is the culture that got you where you are the same culture that's going to get you where you want to go?
I once worked with a company that reached a stage where it determined it needed to significantly change its culture to achieve its next growth phase. It had grown from 4 employees to 400 as basically an adhocracy (adaptable, creative, agile, decentralized, externally focused and flexible). Many of its managers were quite entrepreneurial and had been hired because they were. But executives felt that in order to grow the company to the next level it needed to become more of a hierarchy (internally focused with more formalized and rigid systems and controls). This culture shift resulted in more than a little turbulence over several years and cost the company quite a few of its long-term, loyal employees, but the shift did position the company to achieve remarkable growth and reach the goals of the owners, which ultimately included selling the company at the right time.
There's a lot more involved in culture change than buying some tee shirts and adopting a new slogan. So if you decide you want to investigate your organization's culture, how it is helping and/or hurting, contact a professional who understands organizational behavior and how to change not only artifacts, but systematically resetting those basic underlying assumptions.
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