Paying “Under the Table”

“I occasionally pay people under the table when I have them participate in a working interview for 1-2 days before I decide whether or not to hire them. Once in a while, I also pay under the table when an employee is doing a different job for me on the side. Is there a better way to handle these situations to take away my risk?”

Your HR Survival Tip

Paying workers “under the table” means you are handing them cash and neither of you is reporting it (yet). There isn’t a way to take away your risk because what you are doing is illegal.

If your interview process includes having the candidate follow someone around for 1-2 days (shadowing) or actually performing the job for 1-2 days, this is compensable time. Paying this person cash instead of adding them to payroll could easily create problems for you. Yes, adding the person as an employee is more work than not doing it but that’s because you are only looking at the moment, not the long-term.

In the long-term, you need to look at a potential EDD audit because one of those people added you as an employer when they filed for unemployment. Whoops, EDD doesn’t show that person listed as one of your employees so they decide to audit you to see who else hasn’t been reported.

Your employees may have skills not needed for their usual job. However, you’ve realized one of those extra skills has value to you. The employee is happy to offer that skill in the off hours so their regular job isn’t affected with this new work. However, that other skill doesn’t make them an independent contractor… legally, it makes them an employee who is probably working more than 40 hours per week for you and isn’t being paid the overtime pay they legally deserve. Even if you pay the employee more for the extra work, unless you process the payment through payroll, it is illegal.

What happens when your employee hears from a friend that they should have been paid overtime for the off-hours work. Not one to turn down additional income, they file with the Labor Commissioner to get their money. Whoops, you just got stuck paying the employee’s taxes on that amount and then you hear from EDD and IRS about unpaid payroll taxes. You can pay an employee a different rate for hours spent working that use different skills but overtime will still apply and must be calculated based on both rates.

Don’t think your situation is a special case… EDD will win that argument. If you are not processing every penny you give a worker through your payroll, you are taking a risk. Also, pretending the person is an independent contractor adds to the risk unless they have an actual business offering that service to multiple clients. In the long-term, you’ll definitely spend a lot more time and money defending any claim than you would have spent by adding that person to your payroll and staying legally compliant. Plus, yikes, these governmental agencies might add you to their watch lists!

 

Group Health Insurance Tidbits

“I’m considering adding group health insurance for my employees. What do I need to do that the insurance broker won’t do?”

Your HR Survival Tip

It’s great you want to provide health insurance! Adding this benefit can be a big step due to the expense but you should find this will aid in recruitment and retention of employees.

You’ll want your broker to help you sign up for a Premium-Only Plan (POP) so you can take the employee’s share of any premium as a pre-tax deduction. Without a POP in place, any deductions must be made with after-tax dollars. You will always pay the full bill from the carrier and the employee’s share reimburses you.

Your broker will make a recommendation for certain plans but it will be up to you to decide how much of the premium is paid by you versus the employee. Our preference has you paying a percentage (50-100%) of the employee-only cost of the lowest level plan you offer. Employees then pay the remainder of that premium, plus the full cost of covering dependents or choosing a higher level plan. We prefer employees pay at least a small amount to save you money but to also avoid employees electing coverage just because it’s free rather than needed. You will find the amount a company might pay toward benefits will vary greatly based on your industry and ability to pay.

Reconciling the carrier’s bill every month is crucial. Insurance carriers don’t add or terminate employees as quickly as you might expect. You could see a back charge of 2 months of premiums because the bill is catching up on a new employee’s premiums. When someone’s coverage terminates, you submit their termination to the carrier but keep paying the full premium until the carrier pulls them off the plan and reimburses you for any premiums previously charged. If you try to deduct that employee’s premium off the bill, you’ll get a notice from the carrier stating you did not pay the bill in full and are now subject to cancellation. If an employee hasn’t been added or dropped by the end of 2 months, talk with your carrier or broker to ensure they received the change.

Pay stubs must list each deduction separately so the employees can easily see how much it’s costing them for each plan. Deductions on the paycheck are fairly easy to calculate once you know the employee’s premium amount for each plan they have elected and what portion the employee must pay:

  • Semi-monthly payroll (twice per month): Enter half of the employee’s monthly portion for each pay period.
  • Biweekly payroll (every 2 weeks): Multiply the employee’s monthly portion by 12 (months), then divide that amount by 26 (pay periods in a year) and you have the deduction for each pay period.
  • Weekly payroll (every week): Multiply the employee’s monthly portion by 12 (months), then divide that amount by 52 (pay periods in a year) and you have the deduction for each pay period.

When an employee’s employment terminates (voluntary or involuntary), their insurance coverage will end on the last day of the month regardless of when in that month their employment terminated. The employee will owe their share for the full month so let the employee know you will be pulling the remaining deductions from their final paycheck. Regardless of the employee’s plans for future coverage, you are legally obligated to offer COBRA (Consolidated Omnibus Budget Reconciliation Act) within 14 days of their coverage ending. If they elect COBRA, they are continuing the same insurance but paying their full premium for up to 18 months.

As a last step, create a policy that clearly states what happens to the employee’s coverage during leaves of absence. You need to decide how the employee’s share of the premium will be paid when they aren’t receiving a paycheck and how long the employee must be off before you’ll offer COBRA instead of keeping them active on your plan. This step is important because you’re potentially ending the employee’s medical coverage while they may be off work due to medical problems. Also, make sure your policy reflects the legal requirements for certain types of leaves. Having a policy in place, and signed by the employee before they begin a leave, will make this transition easier for both you and the employee.

 

Benefits Creating Loyalty

“I’d like to make my company a good place for employees but I’m not sure what that should include. How do I figure it out?”

Your HR Survival Tip

It can be difficult for small companies to provide a full benefit package to employees. However, don’t get stuck into thinking benefits are just things that cost money. Employees look at the bigger picture.

In a recent survey on employee loyalty vs. benefits (by Thomsons Online Benefits), the responses were counted in two ways that could be significant to you. This first count was based on employees stating this item HIGHLY impacts their loyalty:HR Jungle

  • 57% = Salary (offering the most money make get employees to stay but do you want them staying only for the paycheck?)
  • 52% = Career opportunities (no one dreams of doing the exact same job for the next 10 years)
  • 50% = Benefits (this is the insurance, etc.)
  • 50% = Professional development (even if you don’t have a higher level position available doesn’t mean you can’t design training for the future)
  • 48% = The job itself (they want to feel they are well-placed based on the work and their skills and knowledge)
  • 42% = Company culture (the culture determines if they are excited about coming to work because you have created a great atmosphere that is encouraging)
  • 42% = Their coworkers (employees want to like their coworkers and know everyone can work together)
  • 37% = Convenience of their commute (those long commutes add time to their total workday and you’ll need to pay very well to keep those commuters)

The rankings below shifted quite a bit when employees chose the items that SOMEWHAT impact their loyalty. You can see the thinking is a bit more about now rather than next year:

  • 47% = Convenience of their commute (employees really want to have more time with friends and family and aren’t willing to suffer long commutes most of the time)
  • 44% = Company culture
  • 43% = Their coworkers
  • 41% = The job itself
  • 36% = Benefits
  • 36% = Professional development
  • 34% = Career opportunities
  • 31% = Salary (notice how the money fell to the bottom?)

As you can see by these lists, what employees want can be very different. You can’t always do much with salary or their commute, so instead focus on the other categories.

Small companies are challenged by many of these but it helps to actually talk with your employees individually to find out what’s important to each of them… it will vary. Then start looking for ways to give them what they want. It may be in very small ways to start but any movement forward is usually viewed positively and will let them know you’re trying. Talk with us if you need ideas!

 

Confusing Wage and Sick Time Laws

“I know we have to follow the minimum wage laws and the sick leave laws but it’s very confusing. I network with other business owners and we all seem to do something different. What is the law?”

Your HR Survival Tip

Yes, it’s confusing because there is a state law and 22 California localities have added different local laws. This means you may need different rules for different employees based on where they actually perform their work. It doesn’t help that both state and local laws may also have differences based on the size of your company.

Using a federal contractor with 26 employees and located in San Diego county is a perfect example of this confusion:HR Jungle

  • First, all companies are subject to California’s law: minimum wage is $10.50/hour if you have 26+ employees ($10.00 if you have 25 or less), plus employees can use up to 24 hours of paid sick leave each plan year. A plan year is any 12-month period you designate for this purpose.
  • Next, you determine if your company is located in a locality with its own law. In this case, the company is located in Vista and they have no local laws so everyone working at your facility are only subject to California’s law.
  • Then you check to see if you have any employees who might spend more than 2 hours (in any week in the year) working within the San Diego city limits. Those employees are now subject to San Diego’s local law: minimum wage is $11.50 for all sizes of companies and employees can use up to 40 hours of paid sick leave each plan year.
  • The last step is only needed if you have federal contracts. Federal contractors must provide 56 hours of paid sick leave each plan year.

The only thing the different local paid sick leave laws seem to have in common is the accrual rate of 1 hour of paid sick leave earned for every 30 hours worked. This is a high accrual rate but you must use that rate rather than spreading it over the full plan year. If you are using a PTO plan, it must start accruing from date of hire and needs to accrue at the higher rate so you will be providing over 69 hours it if accrues over the full year.

You can try to separate your employees into different work zones (office vs. field, etc.) but most who have tried eventually gave up due to the administrative nightmare. If you don’t have the ability to keep track of where your employees are working at all times, you’ll be forced to implement the law that provides the best benefit to employees.

The company in this example would need to pay at least $11.50/hour and provide 56 hours of paid sick leave per plan year. It’s confusing when you talk with others because they may be subject to different laws than you. Since sick leave is protected time off and there are harsh consequences for not paying the correct minimum wage, it’s important to know what you must provide to be compliant.

 

New Forms for Employees

There are two new forms you need to begin using, the Form I-9 and a new notice about certain victim protections.

Updated Form I-9
This new form is now available and you must be using it no later than September 18, 2017. The Form I-9 must be completed within 3 days of an employee starting to work for you. Current employees do not complete this new form; it’s only for new hires going forward. As usual, the changes are mostly about which documents are acceptable for employees to use as proof of their eligibility to work here:HR Jungle

  • The Consular Report of Birth Abroad (Form FS-240) was added to List C;
  • All Department of State report of birth certifications (Form FS-545, Form DS-1350 and Form FS-240) were combined in List C; and
  • The List C documents were renumbered, except the Social Security card. Now, to be honest, I don’t know why renumbering was important to them but it’s done now.

Victims Notice
You must provide this notice to all new hires if you have 25+ employees, plus to anyone who might request it. While the basics of this have been law for awhile, this is the first time we’ve had to provide notice specifically about it.

The Labor Code behind this notice prohibits you from discriminating or retaliating against an employee who is a victim of domestic violence, sexual assault, or stalking for taking time off from work to obtain or attempt to obtain any relief, such as a temporary restraining order, or for seeking healthcare services needed from domestic violence, sexual assault, or stalking. You must also provide reasonable accommodations for victims of domestic violence, sexual assault, or stalking in order to ensure the safety of the victim.

 

Click these links to get the Form I-9  and the Victims Notice.

Bills That Will Test You

As we mid-year hits, we fearfully watch what California’s Assembly and Senate are doing with proposed bills relating to employment law. Nothing gets repealed so it’s always a question of what else has been added to your burden. The following bills have made it halfway through their journey:HR Jungle
AB1008 — Ban the box legislature is intended to prohibit employers from asking about a candidate’s criminal history until a conditional job offer is made. It also requires employers to consider only limited history, to disclose the reason why an offer is rescinded, and provides the candidate a 10-day time period to respond and rebut the decision. The 10-day window is a hardship on small employers who are prepared to hire quickly. This bill has passed in the Assembly and is pending in the Senate.

AB168 — The bill is intended to make hiring offers fairer by not knowing what the candidate made on previous jobs. You would be prohibited from asking about salary history. California’s Fair Pay Act makes it clear the previous salary is not a valid reason in itself for a pay difference or hiring decision. This bill has passed in the Assembly and is pending in the Senate.

AB1209 — Similar to governmental pay systems, employers with 250+ employees would be required to publish gender pay differences for exempt (salaried) employees on the company’s website by 2020. You’d publish the mean and median salary of both genders by position/title and would also need to include this information about the members of your Board of Directors. This bill has passed in the Assembly and is pending in the Senate.

SB63 — This bill puts more weight on the shoulders of small companies by requiring up to 12 weeks of protected, unpaid parental leave for baby bonding. Currently, employers with 50+ employees within a 75-mile radius are subject to CFRA (California Family Rights Act, which is CA’s version of the federal Family Medical Leave Act) but this bill will make you subject to CFRA if you have as few as 20 employees within a 75-mile radius. This bill has passed in the Senate and is pending in the Assembly.

SB563 — If this bill passes, California would cover all medical expenses for every resident (regardless of income or immigration status) as part of single-payer healthcare coverage. The bill also prohibits insurance carriers from offering these same benefits in CA. As you might imagine, there is a lot of discussion about how CA will pay for this but raising payroll taxes by 15% plus a separate tax measure has been proposed. This bill has passed in the Senate and is pending in the Assembly.

AB1565 — The federal government’s attempt to increase the minimum salary got shut down by a judge last November. Now CA is attempting to require a minimum salary of $47,472 for any exempt employee. This isn’t as big of a deal as it might first appear because the way our minimum salary is currently calculated raises each year based on minimum wage increases. We’ll hit $49,000 by 2019 even without this bill. This has passed in the Assembly and is pending in the Senate.

Several of these bills will cost small employers either time or money. Let’s hope they don’t all pass but we’ll be here to help if they do!

Better Holiday Scheduling

“I had several unhappy employees this week because they wanted a 4-day holiday weekend since Tuesday was a holiday. Can I avoid this problem in the future?”

Your HR Survival Tip

There’s a reason many holidays are officially “observed” on Mondays! When deciding which days you might want to close for holidays, there are a few things to consider but the final decision is based on your business and the calendar.HR Jungle

Decide on how many holidays you are observing each year, paid or unpaid. Most companies start with the basic six: New Year’s Day (January 1st), Memorial Day (4th Monday in May), Independence Day (July 4th), Labor Day (1st Monday in September), Thanksgiving Day (4th Thursday in November), and Christmas Day (December 25th). You’ll notice half of those holidays are date-specific and the other half are pre-scheduled.

How many of your holidays are paid versus unpaid? Paid holidays are a benefit the company chooses to provide, not a legal requirement. As we all know, every benefit has a cost. In this case, it might be loss of revenue if you close or even just the cost of paying employees for the holiday. Some businesses are busiest around certain holidays and must stay open. Look at your records to see if business was brisk on that lone day next to a holiday (like July 3rd this year or the Friday after Thanksgiving). Could you survive with a skeleton crew on that lone day? Do you have people who would eagerly volunteer to work that day? Are most of your employees close to minimum wage and more appreciative of the money from working than an unpaid day off?

If you offer paid vacation or PTO, it makes a difference on what you might do. Maybe you pay for the holiday but that extra lone day next to the holiday is unpaid and the employee chooses to use their vacation/PTO. If you do not offer paid holidays or any other paid time off, employees may want to work just because they need the pay. Other employees would still prefer the day off, even if it’s unpaid.

Holidays are celebrated differently and that should play into your decision. New Year’s Day is typically game day so people stay local… unless they took the full week off between Christmas and New Year’s. Memorial Day starts the summer and is often a time families might be heading off on vacations. July 4th is all about picnics nearby. Labor Day is often the signal for school starting so less travel is involved. Thanksgiving Day and Christmas are the travel holidays when the majority of people are traveling to celebrate with relatives.

If you can only afford to close for the six big holidays, then you’ve done what you can. If you can afford to close for 1-2 more days throughout the year, it’s time to make a plan. That extra 1-2 days this year could have been used for July 3rd and/or the Friday after Thanksgiving since Christmas is conveniently on a Monday. Rather than pick another holiday to burn up that extra day you’re willing to provide, consider sticking to the basic 6 but promising you will always provide 7-8 days off. That gives you the option each year of moving those 1-2 days around to where they work best for your business and the calendar. Even if you actually do use one day for President’s Day occasionally because the rest of the holidays that year didn’t leave any lone days around them, you had that option.

Offering a surprise extra day off a week before the holiday is rarely appreciated at the level you expected. Short notices don’t allow employees to plan and use the time off effectively… spouses don’t have time to ask for the time off, airfares are at the highest when close to the departure date, and it may be very difficult to even find a hotel for a quick getaway. Your big “surprise” benefit just fell flat and, yes, you’re surprised!

There are a few things to keep in mind when working on your policy:

  • Many sick leave laws will not let you require employees to work the day before and after the holiday for it to be paid.
  • You are not legally forced to pay for the holidays, even if you close.
  • It is legal to pay for holidays for one group of employees but not all employees (office vs. field, managers vs. lower-level employees, etc.).

Make it a practice to look at next year’s holidays in November and plan what you will offer. In December, distribute a memo with the list of next year’s holidays. If your criteria isn’t in an Employee Handbook, be clear whether the holidays are paid for some or all employees, who is eligible, what happens if they work that day, and anything else employees need to know. Then, celebrate!

Company Deadwood

“I have a few employees who are much less productive than others… or at least that’s the way it seems to me. Their manager doesn’t agree. How should I handle this?”

Your HR Survival Tip

Having employees on your payroll is expensive and can be the biggest cost center for many companies. Therefore, it’s important that you know the value of your employees.

When a company is fairly small, it’s pretty easy to see who’s producing and who isn’t. As you grow and have managers, you can lose sight of individual productivity but this doesn’t have to happen.HR Jungle

I knew a company that had a yearly “deadwood” meeting. It wasn’t actually called that publicly but that was the nickname the CEO gave it. The senior management team was called to a meeting where an org chart showing the 100 employees was put up on the screen. Each department head had to justify every person in their department for productivity, effectiveness, and value. The CEO was looking for employees who had become deadwood. Not a pretty picture but very effective.

Another company’s method includes manager-level and above employees at a meeting. Everyone talks about each employee, one at a time… while the employee in question waits outside the meeting room. The conversation is about productivity, bonus amounts, salary, etc. It’s a group decision.

There are a lot of reasons you might need another opinion about your employees. Rather than just getting the manager’s opinion, ask people that work with that employee or other managers. This doesn’t have to be a search for negative comments… you are as likely to get some raves about how great and helpful an employee has been.

If you seek feedback from others, be careful how you ask the questions. You want this process to be viewed as a positive thing so people are willing to give honest feedback. Rather than terminating the “deadwood,” consider additional training or other support to bring their performance up to the needed level.

It’s important to spend time discovering how that employee fell behind without anyone noticing or doing anything about it before now. It didn’t happen overnight.

What Were You Paid?

“When I’m trying to hire new employees, I always ask what they most recently earned. If they won’t tell me, should I end the interview?”

Your HR Survival Tip

California and a few other states are considering bills that will prevent employers from asking about previous salary history. Why? Because there are two situations where salary history has caused enough concern for states to consider making it illegal to ask.HR Jungle
Underpaid Candidates
You are looking for a new employee and expect to pay $18-$20 per hour to get what you want. A great candidate applies and you discover they have only been making $14 per hour previously. Wow, what a bargain… you can offer $16 and the candidate will be thrilled and you’ve saved money. The problem is you will eventually have to provide a significant bump to bring this person up to market value or lose them after you’ve spent time training them. It’s awkward to tell someone, “oops, we cheaped out and you’ve been underpaid the past year but now we’ll give you a 20% raise so you don’t leave.”

Disregard of Higher Paid Candidates
You’re looking for a new employee and expect to pay $45-52,000. Someone who has been earning $65-80,000 applies. Most companies would pass right by that candidate because they’ll assume this person still wants to earn that much. Some managers and executives are tired of the stress of higher level roles and want to step down or even move into a new industry… but you didn’t bother to ask questions even though they fit the role perfectly (and then some). There are times when you can find a lot of value in a higher-level hire who’s willing to take a drop in pay, even if they only stay with you a year.

The laws being considered not only prevent you from asking about previous salary history but may also force you to provide candidates with your range for that position. While we may not like being forced into this situation, the important thing to remember is you need to be clear about the job skills and knowledge necessary for your positions and what value they have on the job market. Law after law is forcing us to pay fairly so now is the time to update your hiring process.

Tears and Anger

“I have an employee who gets very emotional whenever I let them know they’ve made an error or try to tell them how to do something better. How do I deal with someone like this?”

Your HR Survival Tip

Dealing with emotional employees is often stressful for managers. It doesn’t matter whether you’re getting tears or anger, the emotion makes it hard to get your point across to the employee.HR Jungle

Often the employee is so wrapped up in their emotion, they have stopped listening to you. This means the problem is likely to occur again instead of being corrected. How do you get past this so you don’t end up repeating the situation time over time? There are two things that can help. The first thing is you stand up.

Yes, it’s true. When you are in a meeting where emotions have taken over, you stand up. Tell the employee “I can see you’re upset so I will give you a minute to collect yourself and then we will continue” and leave the room. When you return, act normal and continue the conversation, complete the paperwork, or whatever is needed. You, of course, are expected to be a complete professional throughout this meeting and not let your own emotions take control.

The second thing that helps is to ask the employee to send you an email or a memo that summarizes the conversation you just had, including what changes must be made. This will confirm whether the employee actually heard what you said and understood it. If what the employee gives you is incorrect, have another meeting… and ask them again to write it up. Eventually, you’ll get a real summary of the conversation.

Just so you know, the advice above about leaving the room was not intended to be used when an employee initiates the meeting and wants to talk with you about something that raises their emotions. You need to hear them out but, if the emotion gets too far out of control, it’s a courtesy to allow them some time to settle down. Some people can’t control strong emotions and may be embarrassed. Leaving the room for a moment here is a kindness so don’t confuse the two situations.