Common HR Audit Fails

One of the pleasures of my job is conducting HR audits for small and mid-sized companies. No, I don't derive pleasure from saying, gotcha. I derive pleasure from helping small and mid-sized business owners have a realistic assessment of any employment risks they are facing and how their management practices stack up against best practices.

Most small business owners want to do things correctly. But it's difficult to create momentum for their business through sales and marketing, manage operations so they deliver on their promises, and keep track of things like labor laws, tax laws, and other government rules and regulations. The smart owners surround themselves with specialists who can help keep an eye on those things so that they can keep their eyes on their customers.

So, in doing these audits, I find many organizations make the same errors.  Here's a few:

1.  Exempt/Non-exempt - in the second half of last year everyone was scrambling to make sure they had a plan for the new overtime rules. Unfortunately for many, the procrastinators were the winners as a judge put a halt on the rules at the 11th hour. Furthermore, the election results cast doubt on the rules' future. However, the audits I performed during that time revealed that many employers were misclassifying employees based on the duties test (not the salary test) and many remain misclassified today. The courts put the new salary test on hold, but the duties tests still apply. Just because you're paying that employee more than $24k doesn't mean he or she is legally exempt.

2. Use of 1099 Contractor Status - I have many clients and receive 1099s from quite a few of them. I invoice those clients through a corporate entity that maintains its own insurance. No auditor from the departments of labor or revenue is going to question the legitimacy of those 1099s - I meet the standard. But that guy you have working for you 40 hours per week, driving your truck, wearing your uniform, using your tools and working when you tell him to...not so much. That same agency representative is going to have heartburn over that guy and it could turn out to be very expensive for you. And you're probably shifting a lot less risk than you think you are. 

3. Forms I-9 and e-verify - I'm still surprised at how many small companies are not using e-verify.  The penalties for hiring unauthorized workers or failing to properly document work authorization through an I-9 are significant (see here). E-verify is required for all employers in NC with 25+ employees (see FAQ here), and is required for all employers in SC, but is only required for certain government agencies and contractors in VA. However, even though it is not always required in VA, the system is free and is a useful supplement to form I-9 - I recommend that my VA clients use it voluntarily.

If you haven't had a fresh set of eyes on your HR compliance platform recently, contact The Davidson Group for a free consultation.

On-boarding - The Secret Sauce

Buyer's remorse is real. Think back to your last major purchase. If, after you got the new "thing" home, you had little pangs of doubt as to whether you made the right choice, you're not alone - many people experience this. And many people feel the same emotion a few days (or even hours) into a new job. That new employee who just quit a job to come work for you or took themselves off the job market to accept a position with your organization may be wondering if they might have been better off staying where they were or waiting on the next offer instead of taking yours.

The primary, number one purpose of an on-boarding program is to combat buyer's remorse. Once a new hire starts to regret their decision to join your team, it's easy to lose them. A 2014 study by a division of Equifax found that 40% of employees who voluntarily leave a job do so in the first six months. Another 16% quit before their one-year anniversary. So more than half of all voluntary terminations occur during the first year.

Here are some tips to make your new hires' experience one that resists buyer's remorse:

1. Realistic Job Preview - if your description of the job duties and the job environment is all rainbows and unicorns during the interview phase, but the reality of the day-to-day is much different, your candidate is likely to experience buyer's remorse. Show the candidate the actual office they'll be in or the actual vehicle they'll be driving, not your best-in-show office or van. If they're gonna be on-call - tell them. If they're gonna get dirty - tell them. If they're gonna frequently talk with disgruntled customers - tell them. If the sales department and the operations department are often in conflict - tell them. You will be much better off if you sound almost like you're trying to talk them out of taking the job rather then into it. 

2. Deliver on Your Promises - the most common complaint I hear in this area is frustration over training. One guy I know loves to tell the story of how the President of a company he worked for told him all about the great training program his company has. He took the job and was basically shown an office and told to get to work - sink or swim. He's still waiting on that training. If you say you're going to train them, then train them - it's the best investment you'll make. If you say they'll get a review in 90 days or 6 months and their compensation will be reviewed at that time, make sure you do it. No bait and switch maneuvers!

3. Have a Plan and Execute - for many organizations, on-boarding is a two hour administrative process - fill out all the HR forms, issue an employee handbook and a badge, and watch a safety video. You're likely to have better success if you think of on-boarding as a much longer management process - 90 to 180 days for most jobs and as much as a year for higher level positions. Script out what is going to happen on day 1, day 2, etc., then week 3, 4, 5 and 6. Be sure the on-boarding plan accounts for:
- learning the technical skills needed to be successful
- learning the written rules/policies
- learning the unwritten rules, those non-policy things that will get the new employee crossways with the bosses or co-workers (such as: we don't have assigned parking, but Jane always parks in that spot and she's been here 27 years).
- learning what gets you recognized and rewarded and what will get you in the doghouse
- getting socialized - meeting people, making friends
And don't make these mistakes:
- waiting till the employee's first day to order uniforms or business cards. Have their business cards ready on day 1.
- making a new hire spend their first day cleaning up the last person's mess. Issue them an office, cube, workspace or vehicle that is clean, neat and ready to go.

In short - want to improve your employee retention rate?  Improve your on-boarding process.

Can I really go to jail?

Paul Boone of Hillsborough, NC, owner of Boone Audio, was recently sentenced to 15 months in prison for failing to pay employment taxes. "Paul Boone's prison sentence serves as a reminder to employers that willfully failing to comply with employment tax obligations is a crime," said Acting Deputy Assistant Attorney General Stuart Goldberg. "We are committed to investigating, prosecuting, and seeking incarceration of employers who use their employees' funds to line their own pockets."

Boone was also hit with three years' probation and must pay restitution to the IRS of over $385,000.

Failing to pay employment taxes is not the only HR related issue that can land an owner or even an HR manager in jail. Here are a couple of other scenarios where the penalties for willful violations can be pretty severe:

I-9 Violations - everyone from the supervisor to the plant or operations manager, the HR manager, the CFO, CEO and the owner faces possible prosecution when the organization knowingly and willfully hires individuals who are not authorized to work in the U.S. Penalties can range from 6 months to 10 years in prison, fines from $3,000 to $500,000, and asset forfeitures (yes, ICE can seize property in some cases, just like the DEA).

1099 Misclassifications - penalties for misclassifying workers as contractors when they should be employees start at 1.5% of wages, plus interest, plus 100% of the FICA tax the employer should have paid (no matter whether the contractor paid his/her taxes or not). That's if you properly filed the 1099s. If you messed that up, the fines are even more substantial. If the IRS determines you knew the rules but you intentionally violated them to avoid taxes, it can file felony charges with fines up to $100,000 and a year in prison.

The keys to avoiding these risks are to have basic HR practices in order:

Use the I-9 as intended and use e-verify. Follow those procedures and the likelihood that you'll be fooled by a fake social security card are low. Having these properly filed and ready for a regulator will demonstrate good faith. And don't knowingly hire undocumented workers - it's not worth it!

Don't use the 1099 incorrectly.  Many employers see using a 1099 for workers during their 90 day probation period or for summer temp workers as being a minor issue - like driving 7 miles over the speed limit. The IRS and the DOL don't see it that way. If you don't want to put folks on your payroll, the best approach is to engage them through a temp agency. Many agencies offer reduced pricing for workers that you found on your own, but don't want to hire directly. 

Form 1099 is designed for "true" contractors. Here's a list of what the IRS looks for. Don't knowingly pay workers via 1099 when they don't meet those criteria just to avoid workers comp or payroll taxes. You run the risk of sharing a cell with Mr. Boone!

The Right Rewards for your Workforce

Not all people are motivated by money.

Some business owners don't understand this because most business owners are motivated by money and wealth attainment. Because financial incentives work for them, they assume that cash rewards are the most motivating "carrot" available to them. So they offer cash bonuses for attendance, cash bonuses for safety performance, cash bonuses for productivity, etc.

These incentives can work extremely well when the employee is also motivated by money. Unfortunately, not all employees are. Some would happily forego a bonus or an overtime assignment in order to be home with the family or spend time doing their favorite hobby.

Rewards of any kind can have 3 possible outcomes:  they can produce more of the behavior your want; they can have no effect on outcomes at all; or they can backfire and produce behaviors you didn't anticipate and don't want.

An example of this last outcome might occur when a company rewards customer service reps on preventing cancellations. The behavior the company desires is for the CSR to help the customer realize that staying a customer is the better choice. But some CSRs might discover that being rude, evasive and throwing up barriers that make it difficult for customers to cancel might achieve the same result (in the context of their reward system). If the customer hangs up in disgust and cancels service on-line or by calling back later, the first CSR has protected his/her performance metric at the expense of the the company's reputation.  

An example of a reward having no effect at all on outcomes might include safety bonuses in an organization that already has a strong safety culture, provides thorough safety training and addresses safety issues quickly and decisively. Paying out a modest monthly or quarterly safety bonus that is virtually always earned may have negligible actual impact on the employee's behaviors or the organization's safety record.

When implementing monetary rewards, review them to make sure that the pay-for-performance structure rewards the behaviors you want without causing unintended unhealthy behaviors. But more importantly, don't forget other categories of rewards that might be even more valuable to the employee, such as:

- Time off with pay. This is one of the most requested benefits and one that is often forgotten by management.  "You did a great job on that project, take Friday afternoon off." This may have more impact for a lower cost than the cash bonus you were planning on paying for the same performance.
- Training and Development. "You've been doing a great job. We want to send you to earn your XYZ certification." What an ego boost this might be to an employee who wants to grow.
- Praise and Recognition.  A McKinsey survey of over 1,000 executives showed that three non-cash motivators (praise from immediate managers, one-on-one conversations with organization leaders, and the opportunity to lead committees and task forces) scored as high or higher than the three highest rated financial incentives (bonuses, increased pay and stock options). So don't forget to say "thanks" a little more often and take an employee or two to lunch occasionally and listen to their feedback.

The bottom line is, know your employees. And offer a variety of rewards that meet the needs of individuals. And don't assume everyone is motivated by the same things you are. If you really want to know what motivates your key people, have them take a Driving Forces assessment. Contact me for more information.

Communicating at the Right Level

A manager gets frustrated because Bob, one of his technicians, is continually out of uniform. One day he wears sneakers when the policy requires work boots. The next day he has on boots, but his name badge is missing. All the other techs generally follow the guidelines without issue. The manager decides to make the company dress code a topic for the next team meeting.

This is a classic example of communicating at the wrong level. There are three levels of communication:

Organization Level. Information that needs to be communicated to the entire organization should be announced through appropriate organization-wide channels. Examples might include upcoming benefits enrollment meetings or deadlines, a new company-wide policy change, introduction of a new senior executive on the management team, or company performance news. 

Appropriate methods for disseminating organization level information might include an e-mail blast, an all-hands meeting, a letter or newsletter, an internal social-media board, or some other type of electronic portal easily accessible by all employees and commonly used for organization-wide announcements.

Team Level. Information that is unique but appropriate for every member of a team should be communicated to the team through appropriate channels. A team could be a division, department, cross-functional team working on a specific project, or two guys in service truck who work together everyday.

Appropriate methods for disseminating team level information might include a formal team meeting or an informal huddle to discuss the issue at hand.

Individual Level. This seems to be the level of communication that managers work hard to avoid. When an individual, like Bob, has a performance issue, managers frequently decide to address it at the team or organization level. They justify it by convincing themselves that everyone needs to be reminded, but in reality they are just avoiding a one-on-one meeting because they perceive a group setting to be a safer environment.

Here are some problems that arise when you address individual level communication at the team or organization level:

1.  It wastes time - spending 10 minutes in an all-hands meeting reviewing a policy that is only being broken by one or two individuals is 10 minutes that could have been spent talking about something that affects everyone in the room or on the conference call.

2.  It is demotivating - I shouldn't have to sit through a reprimand that is really aimed at Bob. I follow the rules but I'm still listening to a lecture.

3.  It may miss the mark - Bob could be looking at his phone the entire time the manager is reviewing the policy during the meeting. After all, Bob is not a highly engaged individual.

So the next time you have an individual or a team with a performance issue, make sure you're communicating at the right level. "Bob, you're out of uniform - clock out, go home and get yourself dressed according to our standard, come back and clock back in!"

OSHA 300A and New I-9

OSHA
If you have 10 or more employees and unless your organization is on the exempt/partially exempt list (see the list here), your OSHA 300A form should be posted in a common area (from February 1) through April 30. You can access the OSHA forms here.

If your organization has 250 or more employees or has 20-249 employees in certain high risk industries (see the list here), you must submit your OSHA 300A electronically by July 1.

If your organization is seeing a rise in workplace accidents and a rise in your EMR (workers comp modification rate), this is may be a symptom of other organizational issues rather than a disease in and of itself. Those organizational issues might include poor employee selection, poor on-boarding and training, low employee engagement, poor supervision or executive management that is not committed to safety. Some of these can't be fixed with a new safety manual, so take a comprehensive look at your organization if your safety metrics are headed in the wrong direction.

I-9
The USCIS has revised the I-9 form and employers were required to begin using it by January 22. The list of approved documents and the basic process haven't changed, they've just updated the form to make it a little easier to use. 

It is not a fully electronic form, but it is a "smart" pdf form that includes error checking and prompts. You still need to print the form and obtain real signatures and monitor the forms for reverification in the cases of work authorizations that expire (like certain work visas). 

Don't store I-9s in your employees' individual personnel files - store them in separate folder or binder and make sure they are stored securely. 

"Yes, but.." Management

I graduated from a university well-known for its basketball program. After a recent game a reporter asked the coach about his star player's 15 point-12 rebound performance. Coach's response was something like, "It was OK, but he didn't..."

This is classic "yes, but.." management. Other familiar examples include:
- the kid who brings home her report card with four A+ and one A-. The parent makes no comment about the A+ grades but immediately asks what went wrong in the A- class. 
- the sales rep who makes a huge sale only to have the sales manager say something to diminish the accomplishment, "good thing your competitor botched their proposal.."
- the ops manager who had a great year but is told by his VP during the performance review, "You're doing a great job, but I don't believe in giving 5s - nobody is a 5."

A burning desire for continuous performance improvement is a great trait in entrepreneurs, owners and managers. But when that desire manifests itself as a reluctance to praise or to praise only with disclaimers, that management behavior becomes an impediment to the ultimate goal - to get better! 

I suspect that they fear employees are either going to immediately ask for raises or they're going to become complacent if praised too much. Both academic research and business surveys don't support those assumptions. 

A recent example is a LaSalle Network survey that determined that the number one trait of a bad boss is noticing only negative things about a worker's performance. "Yes, but..." management is a version of this - begrudgingly acknowledging good performance, but qualifying it with an observation about a performance flaw. Unfortunately the praise is drowned out by the disclaimer and the power of positive reinforcement is lost or compromised.

When I talk about how much more powerful positive reinforcement is than punishment or extinction (withholding feedback altogether), some managers think I'm espousing a touchy-feely, "everybody gets a trophy even when we lose" management style. But that is not the goal. Poor performance must be addressed. But once it's addressed, acknowledging and reinforcing the improvement is the step many managers miss. Here's a simple example:

Bob is a competent service tech who dresses sloppily. Bob's manager meets with Bob and explains to Bob why his appearance is a problem and specifically tells him what is expected. The next day Bob shows up and looks much better. A "yes, but.." manager might say something like, "it's a big improvement, Bob, but your shoes could be a little shinier." Bob's now thinking, "what's the point of trying?" 

A manager who understands the power of positive reinforcement might say, "much better, Bob, thanks." Then a week later the manager might follow-up with, "thanks again, Bob, for taking the time to press your uniform, you look so much more professional than you did before. I've noticed and I'm sure your customers have noticed." Simple, effective positive reinforcement. 

So the next time you catch one of your employees doing something right or doing something better, just say, "nice job" and shut up. Anything that follows is not likely to increase motivation - it's more likely to decrease it.