The Americans with Disabilities Act (ADA) has a three prong test for disability:
- Individuals with a physical or mental impairment which substantially limits one or more major life activities,
- Individuals who have a record of such an impairment, or
- Individuals who are regarded as having such an impairment.
It is the last prong that prompts this post.
Even if there is NO Disability:
The EEOC states "The inclusion of persons regarded as having a substantially limiting impairment reflects Congressional intent to protect all persons who are subjected to discrimination based on disability, even if they do not in fact have a disability. It also reflects a recognition by Congress that the reactions of others to an impairment or a perceived impairment can be just as disabling as the limitations caused by an actual impairment."
(http://www.eeoc.gov/policy/docs/902cm.html#902.8, Italics added for emphasis).
In other words, if the employer takes action based upon a perception that the individual is disabled, the employer has ensured the individual is covered under the ADA, and thus created liability for the company, even when it is determined that the employee is not disabled.
Regarding Regard:
The rule focuses on negative reactions, prejudiced attitudes, ignorance, and fears that cause an employer to take action against an individual as opposed to sound business based reasoning.
The EEOC provides the example that a person with severe burns or with cosmetic disfigurement may be regarded as having a disability based upon employer fears about negative reactions of customers or co-workers.
(http://www.eeoc.gov/policy/docs/902cm.html#902.8)
Another example may be not hiring an individual because of a perception that his or her weight would prohibit them from completing the job properly or that it may result in the employee taking too much time off.
Real Life Example:
In 2005, Joan Eshelman won a case against her former employer Agere Systems, Inc. because they regarded her as having a disability. In short, Ms. Eshelman was having trouble with her memory following treatment for cancer. She had found various ways to work around this problem and her performance was not impacted.
Agere was forced to layoff 18,000 employees and utilized a ranking system to make the determination of who was to be laid off. Initially Ms. Eshelman was ranked highly by her supervisors. Once the supervisors learned that her new position with the company would require her to engage in certain activities they believed would be hard for her, they altered her scores so that she ranked very low on the scale.
Despite the fact that Ms. Eshelman proved fully capable of performing her job and despite the fact that there were several options available to help accommodate her, the company made a decision based upon its perception that she would be incapable. It regarded her as being disabled and took action based upon that disability.
(http://www.paed.uscourts.gov/documents/opinions/05D1278P.pdf)
The Take-Away:
The best way to avoid discrimination is to make sound business decisions based upon all the information available.
The ADA does not require employers to employ disabled individuals. It does not prohibit employers from hiring the most qualified individuals. It does prohibit employers from making employment decisions solely on the basis of a disability.
As the focus of this blog is on the "Regarded As" prong of the definition of disability, the most important take away is that the employer should not presume the applicant/employee will be incapable of meeting the requirements of the position.
If you are concerned about the applicant/employee's ability to fulfill the duties of the position, you can ask if he or she can perform the functions of the job.
Works Cited:
http://www.eeoc.gov/policy/docs/902cm.html#902.8
http://www.paed.uscourts.gov/documents/opinions/05D1278P.pdf
Wednesday, April 20, 2011
Tuesday, April 19, 2011
I-9s on My Mind
I-9s are a common point of liability for companies. While seemingly easy to complete, few employers pay appropriate attention to the details of the form and the requirements placed on employers to complete it.
One of the most common mistakes I have seen made is having the employee complete the form more than three days after he or she starts working. The cost of this violation could be $110 per I-9 form.
I recently audited a client who had 14 errors on the 4 forms I reviewed. The cost of that could be more than $1,400. Of course, one would suspect a similar number of errors on the remaining forms, potentially costing the employer thousands of dollars if she is audited.
Combine that with the United States Citizenship and Immigration Services's (USCIS) strategic plan of cracking down on I-9 noncompliance through 2014, and employers should be paying attention.
As part of a broader effort to reduce illegal immigration, Georgia passed SB 40/HB 87, which requires employers with 10 or more employees to start using E-Verify as soon as July 1, 2011. The law would also require new businesses to verify that they are authorized to utilize E-Verify before obtaining the necessary licenses and certificates to do business.
And now to the News:
On April 15, 2011, the USCIS published a Final Rule relating to I-9 forms.
The main focus is on prohibiting employers from accepting expired documents. The reasoning behind this rule is that expired documents may not demonstrate the correct status of the bearer, are prone to tampering and fraudulent use, and may create confusion among employers.
In addition, the USCIS expressly states that Forms I-688, I-688A, and I-688B are removed from the list of acceptable documents because the USCIS no longer issues these documents, and all document issues would be expired at this time.
The USCIS added the new U.S. passport card and temporary Form I-551 "Permanent Resident Card" with a printed notation on a machine readable immigrant visa, as well as documentation for certain citizens of the Federated States of Mirconesia (FSM) and the Republic of the Marshall Islands (RMI) to List A.
The Take Away:
The final rule takes effect on May 16, 2011.
A copy of the current form is available at: http://www.uscis.gov/files/form/i-9.pdf
If you have not audited your I-9 files for compliance, let HR Consult Team do it for you! Contact us today to schedule your audit.
Also, if you need assistance with E-Verify, HR Consult Team is in the process of becoming an E-Verify Employer Agent and can assist employers with establishing an account and utilizing E-Verify.
One of the most common mistakes I have seen made is having the employee complete the form more than three days after he or she starts working. The cost of this violation could be $110 per I-9 form.
I recently audited a client who had 14 errors on the 4 forms I reviewed. The cost of that could be more than $1,400. Of course, one would suspect a similar number of errors on the remaining forms, potentially costing the employer thousands of dollars if she is audited.
Combine that with the United States Citizenship and Immigration Services's (USCIS) strategic plan of cracking down on I-9 noncompliance through 2014, and employers should be paying attention.
As part of a broader effort to reduce illegal immigration, Georgia passed SB 40/HB 87, which requires employers with 10 or more employees to start using E-Verify as soon as July 1, 2011. The law would also require new businesses to verify that they are authorized to utilize E-Verify before obtaining the necessary licenses and certificates to do business.
And now to the News:
On April 15, 2011, the USCIS published a Final Rule relating to I-9 forms.
The main focus is on prohibiting employers from accepting expired documents. The reasoning behind this rule is that expired documents may not demonstrate the correct status of the bearer, are prone to tampering and fraudulent use, and may create confusion among employers.
In addition, the USCIS expressly states that Forms I-688, I-688A, and I-688B are removed from the list of acceptable documents because the USCIS no longer issues these documents, and all document issues would be expired at this time.
The USCIS added the new U.S. passport card and temporary Form I-551 "Permanent Resident Card" with a printed notation on a machine readable immigrant visa, as well as documentation for certain citizens of the Federated States of Mirconesia (FSM) and the Republic of the Marshall Islands (RMI) to List A.
The Take Away:
The final rule takes effect on May 16, 2011.
A copy of the current form is available at: http://www.uscis.gov/files/form/i-9.pdf
If you have not audited your I-9 files for compliance, let HR Consult Team do it for you! Contact us today to schedule your audit.
Also, if you need assistance with E-Verify, HR Consult Team is in the process of becoming an E-Verify Employer Agent and can assist employers with establishing an account and utilizing E-Verify.
Friday, April 15, 2011
FLSA Day Three: Rounding Rule and Hours Worked
A colleague contacted me a couple of days ago regarding an issue he was having at work. One of his clients utilizes time rounding but always in favor of the employer. My colleague knew this was a violation of the Fair Labor Standards Act (FLSA), but was facing opposition from the client and from his supervisor with regard to forcing a change. To my colleague's credit, he has taken all of the appropriate steps to rectify it, notifying the company, providing the client with the pertinent rules and regulations, and documenting his efforts to ensure compliance.
Vicki Lambert wrote a white paper for ADP that outlines the three most common FLSA violations. Number two on the list is time tracking, which includes incorrect rounding practices. (http://tinyurl.com/ADP-FLSA)
The Rule:
The FLSA does allow for time rounding practices, as outlined in DOL 29 CFR Sec. 785.48(b):
“Rounding” practices. It has been found that in some industries, particularly where time clocks are used, there has been the practice for many years of recording the employees' starting time and stopping time to the nearest 5 minutes or to the nearest one-tenth or quarter of an hour. Presumably, this arrangement averages out so that the employees are fully compensated for all the time they actually work. For enforcement purposes this practice of computing working time will be accepted, provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.
(http://tinyurl.com/FLSA-Regs) Italics added for emphasis.
How to Abide:
The question becomes, if you choose to round, how do you ensure compliance?
Presuming the employer chooses to round to the nearest quarter hour, the Department of Labor (DOL) recommends utilizing the seven (7) minute rule. Using the seven minute rule, employee time from 1 to 7 minutes may be rounded down and thus not counted as hours worked, but employee time from 8 to 14 minutes must be rounded up and counted as a quarter hour of work time.
The DOL believes this method to balance out over time and that it ensures employees are paid for all of their hours worked. Employers can use this method in comfort knowing that the DOL has recommended it.
Other Options:
Employers who utilize timekeeping systems can actually track time to the nearest second. Given this capability, employers should track time to the second. This ensures the employee is only paid for the hours he or she actually work. This is the best option in my opinion.
Another option is to always round in favor of the employee. Personally, I see little value in this option, outside of erring on the side of caution. The benefit of this method is that it is hard to accuse the company of violating the FLSA. The detriment is that the company is always paying for more hours than the employee worked. If the company can afford to do this, then I am all for it. However, for most companies, this is not a viable option.
I do not have practice with the third option, but I am aware that some companies always round starting times in the employee's favor and quitting times in the employer's favor. In theory this would balance out as well, although I am not totally comfortable with the method.
A Note on Automatic Deduction of Meal Times:
While not exactly pertinent to the rounding rule, I want to note that automatically deducting meal times can create liability under the FLSA. In order to be considered a bona fide meal time, the break must be at least 20 minutes. This is based upon DOL 29 CFR Sec. 785.18, which states:
Rest periods of short duration, running from 5 minutes to about 20 minutes, are common in industry. They promote the efficiency of the employee and are customarily paid for as working time. They must be counted as hours worked. Compensable time of rest periods may not be offset against other working time such as compensable waiting time or on-call time.
(http://tinyurl.com/FLSA-Regs)
A bona fide meal break under the FLSA is generally 30 minutes and need not be compensated. However, the employee must be fully relieved of duty for the entire break. An employee eating at his or her desk and answering phones would not be considered to be on a meal break. If the employer automatically deducts 30 minutes for a meal break from his or her time, the employer is technically violating the FLSA.
Take Away:
The goal of the FLSA is to ensure that employees are paid fairly. Employers should revisit all pay policies to ensure that they are aligned with FLSA standards. When in doubt, the rule of thumb is to ensure that employees are at least properly paid for all the hours they worked.
Where there is a rounding rule, the employer must ensure it does not always favor the employer.
The best practice is to pay to the minute. Current timekeeping software has this capability and requires little or no additional work for the employer. When this cannot be done, then utilizing the 7 minute rounding rule (noted above) is the best option.
Works Cited:
http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=48d6ee3b99d3b3a97b1bf189e1757786&rgn=div5&view=text&node=29:3.1.1.2.44&idno=29#29:3.1.1.2.44.3.436.10
http://www.adp.com/workforce-management/docs/whitepaper/FLSA_White_Paper.pdf
Vicki Lambert wrote a white paper for ADP that outlines the three most common FLSA violations. Number two on the list is time tracking, which includes incorrect rounding practices. (http://tinyurl.com/ADP-FLSA)
The Rule:
The FLSA does allow for time rounding practices, as outlined in DOL 29 CFR Sec. 785.48(b):
“Rounding” practices. It has been found that in some industries, particularly where time clocks are used, there has been the practice for many years of recording the employees' starting time and stopping time to the nearest 5 minutes or to the nearest one-tenth or quarter of an hour. Presumably, this arrangement averages out so that the employees are fully compensated for all the time they actually work. For enforcement purposes this practice of computing working time will be accepted, provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.
(http://tinyurl.com/FLSA-Regs) Italics added for emphasis.
How to Abide:
The question becomes, if you choose to round, how do you ensure compliance?
Presuming the employer chooses to round to the nearest quarter hour, the Department of Labor (DOL) recommends utilizing the seven (7) minute rule. Using the seven minute rule, employee time from 1 to 7 minutes may be rounded down and thus not counted as hours worked, but employee time from 8 to 14 minutes must be rounded up and counted as a quarter hour of work time.
The DOL believes this method to balance out over time and that it ensures employees are paid for all of their hours worked. Employers can use this method in comfort knowing that the DOL has recommended it.
Other Options:
Employers who utilize timekeeping systems can actually track time to the nearest second. Given this capability, employers should track time to the second. This ensures the employee is only paid for the hours he or she actually work. This is the best option in my opinion.
Another option is to always round in favor of the employee. Personally, I see little value in this option, outside of erring on the side of caution. The benefit of this method is that it is hard to accuse the company of violating the FLSA. The detriment is that the company is always paying for more hours than the employee worked. If the company can afford to do this, then I am all for it. However, for most companies, this is not a viable option.
I do not have practice with the third option, but I am aware that some companies always round starting times in the employee's favor and quitting times in the employer's favor. In theory this would balance out as well, although I am not totally comfortable with the method.
A Note on Automatic Deduction of Meal Times:
While not exactly pertinent to the rounding rule, I want to note that automatically deducting meal times can create liability under the FLSA. In order to be considered a bona fide meal time, the break must be at least 20 minutes. This is based upon DOL 29 CFR Sec. 785.18, which states:
Rest periods of short duration, running from 5 minutes to about 20 minutes, are common in industry. They promote the efficiency of the employee and are customarily paid for as working time. They must be counted as hours worked. Compensable time of rest periods may not be offset against other working time such as compensable waiting time or on-call time.
(http://tinyurl.com/FLSA-Regs)
A bona fide meal break under the FLSA is generally 30 minutes and need not be compensated. However, the employee must be fully relieved of duty for the entire break. An employee eating at his or her desk and answering phones would not be considered to be on a meal break. If the employer automatically deducts 30 minutes for a meal break from his or her time, the employer is technically violating the FLSA.
Take Away:
The goal of the FLSA is to ensure that employees are paid fairly. Employers should revisit all pay policies to ensure that they are aligned with FLSA standards. When in doubt, the rule of thumb is to ensure that employees are at least properly paid for all the hours they worked.
Where there is a rounding rule, the employer must ensure it does not always favor the employer.
The best practice is to pay to the minute. Current timekeeping software has this capability and requires little or no additional work for the employer. When this cannot be done, then utilizing the 7 minute rounding rule (noted above) is the best option.
Works Cited:
http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=48d6ee3b99d3b3a97b1bf189e1757786&rgn=div5&view=text&node=29:3.1.1.2.44&idno=29#29:3.1.1.2.44.3.436.10
http://www.adp.com/workforce-management/docs/whitepaper/FLSA_White_Paper.pdf
Thursday, April 14, 2011
FLSA Exempt vs Non-Exempt
During a conversation I had yesterday, I was informed about a company which was paying several employees on a salaried basis, even though the employee was non-exempt. As noted in my blog from yesterday, this practice is fine.
The problem is, this company does not pay these salaried non-exempt employees overtime, which is not fine.
A professor of mine pointed out that many students fail to recognize the double negative of non-exempt. Non-exempt means not not subject to the rules. Specifically with regard to the Fair Labor Standards Act (FLSA), when we speak of exempt or non-exempt, we are talking about the overtime provisions of the law.
The DOL provides the following language in their overview of the overtime requirements of the FLSA:
Unless exempt, employees covered by the Act must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay.
http://www.dol.gov/whd/overtime_pay.htm
The Common Mistake:
"But when I pay someone a salary, I am paying that for all hours worked. I don't have to pay overtime for those individuals," one might say.
In theory, paying someone on salary means that you are paying them to complete work, as opposed to paying them to work for a certain number of hours. It does not matter if the employee works 30, 40, 50, or 60 hours in a week. They are paid a flat salary for that time period.
The common mistake made by employers is the presumption that by paying an employee on salary, they don't have to worry about overtime. This is, unfortunately, incorrect.
While most exemptions require that the employee be paid on a salaried basis, there are other requirements for the position to meet an exemption. A full review of the position responsibilities and employee credentials is necessary to determine if an exemption is applicable.
Here is a link to the DOL fact sheet on exemptions: http://www.dol.gov/whd/regs/compliance/fairpay/fs17a_overview.pdf
Fluctuating Work Week:
Salaried non-exempt is a strange beast. I have recommended the structure for companies that are looking to save money on overtime, but usually recommend avoiding it. However, the fluctuating work week method of calculating overtime for salaried non-exempt employees can result in cost savings for the company.
The concept is that the employee's salary compensates the employee for all hours worked. So, if the employee is paid $400 a week and works 40 hours, their hourly rate is $10. If the employee works 50 hours, their hourly rate drops to $8.
The company is still required to pay overtime, but the fluctuating work week provides an alternate calculation for overtime. The steps are as follows:
Step 1: Determine the hourly rate.
The formula for this is - Salary/Hours Worked = Hourly Rate
Step 2: Determine the overtime due
The formula for this is - Hourly Rate x Overtime Hours x .5 = Overtime due
Example:
Fluctuating Work Week Overtime Calculation:
Salary: $400
Hours Worked: 50
Hourly Rate: $400/50 = $8
Overtime Due: $8 x 10 (hours over 40) x .5 = $40
Total pay for that week: $440
Standard Overtime Calculation:
(Hourly Rate x Regular Hours) + (1.5 Hourly Rate x Overtime Hours) = Weekly Pay
($10 x 40)+ ($15 x 10) = $400 + $150 = $550
Comparison:
Fluctuating work week method of calculating overtime saves the company $110.
The savings comes in the overtime premium. The standard method of calculating the overtime premium is 1.5x the hourly rate. The fluctuating work week presumes that the 1x the hourly rate was paid in the salary, thus leaving only .5x the hourly rate for the overtime premium.
A Note about Salaried Pay:
In order to take advantage of paying an employee on a salaried basis the company may not reduce the salary level if the employee works less than 40 hours.
The idea is that the employer gains benefit by paying on a salaried basis if the employee works more than 40 hours (decreasing the hourly rate), so there must be an equivalent benefit for the employee by maintaining the same level of pay for fewer hours (increasing the hourly rate).
This is why I rarely recommend paying employees on a salaried non-exempt basis. In short, it creates obligation to pay the employee a fixed amount, which may or may not work out in the company's favor.
Back to the Problem:
The point is that while there is potential value in utilizing the salaried non-exempt/fluctuating work week method of calculating overtime, paying someone on a salaried non-exempt basis is not a method of avoiding overtime payments.
Failure to properly pay the non-exempt employee overtime is perilous for the company.
The Peril:
There are two elements of liability with regard to violating the FLSA.
The first is based on the employee's right to file suit. Generally the employee is allowed to seek back pay for the previous two years (three years in the case of a willful violation) and an equal amount as liquidated damages, plus attorney's fees and court costs.
The company mentioned above has created a large level of exposure. An estimated 20 employees are impacted by their current pay policy. Presuming these employees average $30,000 a year and work an average of 5 hours of overtime per week and presuming that the violations are not found to be willful, the company faces exposure of $150,000 in back pay, plus an equal amount in liquidated damages. This is in addition to attorney's fees and court costs.
The second area of liability is with regard to penalties assessed by the DOL. Even if the employee does not bring suit, the DOL will require the payment of back wages. In the example above, $150,000.
If the violation is found to be willful, employers may be criminally prosecuted and fined up to $10,000. A second violation may result in imprisonment.
Employers who repeatedly or willful violate the minimum wage or overtime provisions are subject to civil money penalties of up to $1,100 per violation.
Ignorance is Risk:
As you can see, even if the company can claim ignorance, it faces large costs for violations of the FLSA. The "head in the sand" approach to human resources is not fruitful. It may save some costs in the short-term, but in the long-term the exposure is too large to ignore.
The Take Away:
If you are paying non-exempt employees in a salaried basis, review your practices to ensure that you are abiding by the FLSA regulations. Periodic payroll audits are always a good idea and it may be time to start one. If you don't have the in-house capacity to do it, HR Consult Team can help.
Works Cited:
http://www.dol.gov/whd/overtime_pay.htm
The problem is, this company does not pay these salaried non-exempt employees overtime, which is not fine.
A professor of mine pointed out that many students fail to recognize the double negative of non-exempt. Non-exempt means not not subject to the rules. Specifically with regard to the Fair Labor Standards Act (FLSA), when we speak of exempt or non-exempt, we are talking about the overtime provisions of the law.
The DOL provides the following language in their overview of the overtime requirements of the FLSA:
Unless exempt, employees covered by the Act must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay.
http://www.dol.gov/whd/overtime_pay.htm
The Common Mistake:
"But when I pay someone a salary, I am paying that for all hours worked. I don't have to pay overtime for those individuals," one might say.
In theory, paying someone on salary means that you are paying them to complete work, as opposed to paying them to work for a certain number of hours. It does not matter if the employee works 30, 40, 50, or 60 hours in a week. They are paid a flat salary for that time period.
The common mistake made by employers is the presumption that by paying an employee on salary, they don't have to worry about overtime. This is, unfortunately, incorrect.
While most exemptions require that the employee be paid on a salaried basis, there are other requirements for the position to meet an exemption. A full review of the position responsibilities and employee credentials is necessary to determine if an exemption is applicable.
Here is a link to the DOL fact sheet on exemptions: http://www.dol.gov/whd/regs/compliance/fairpay/fs17a_overview.pdf
Fluctuating Work Week:
Salaried non-exempt is a strange beast. I have recommended the structure for companies that are looking to save money on overtime, but usually recommend avoiding it. However, the fluctuating work week method of calculating overtime for salaried non-exempt employees can result in cost savings for the company.
The concept is that the employee's salary compensates the employee for all hours worked. So, if the employee is paid $400 a week and works 40 hours, their hourly rate is $10. If the employee works 50 hours, their hourly rate drops to $8.
The company is still required to pay overtime, but the fluctuating work week provides an alternate calculation for overtime. The steps are as follows:
Step 1: Determine the hourly rate.
The formula for this is - Salary/Hours Worked = Hourly Rate
Step 2: Determine the overtime due
The formula for this is - Hourly Rate x Overtime Hours x .5 = Overtime due
Example:
Fluctuating Work Week Overtime Calculation:
Salary: $400
Hours Worked: 50
Hourly Rate: $400/50 = $8
Overtime Due: $8 x 10 (hours over 40) x .5 = $40
Total pay for that week: $440
Standard Overtime Calculation:
(Hourly Rate x Regular Hours) + (1.5 Hourly Rate x Overtime Hours) = Weekly Pay
($10 x 40)+ ($15 x 10) = $400 + $150 = $550
Comparison:
Fluctuating work week method of calculating overtime saves the company $110.
The savings comes in the overtime premium. The standard method of calculating the overtime premium is 1.5x the hourly rate. The fluctuating work week presumes that the 1x the hourly rate was paid in the salary, thus leaving only .5x the hourly rate for the overtime premium.
A Note about Salaried Pay:
In order to take advantage of paying an employee on a salaried basis the company may not reduce the salary level if the employee works less than 40 hours.
The idea is that the employer gains benefit by paying on a salaried basis if the employee works more than 40 hours (decreasing the hourly rate), so there must be an equivalent benefit for the employee by maintaining the same level of pay for fewer hours (increasing the hourly rate).
This is why I rarely recommend paying employees on a salaried non-exempt basis. In short, it creates obligation to pay the employee a fixed amount, which may or may not work out in the company's favor.
Back to the Problem:
The point is that while there is potential value in utilizing the salaried non-exempt/fluctuating work week method of calculating overtime, paying someone on a salaried non-exempt basis is not a method of avoiding overtime payments.
Failure to properly pay the non-exempt employee overtime is perilous for the company.
The Peril:
There are two elements of liability with regard to violating the FLSA.
The first is based on the employee's right to file suit. Generally the employee is allowed to seek back pay for the previous two years (three years in the case of a willful violation) and an equal amount as liquidated damages, plus attorney's fees and court costs.
The company mentioned above has created a large level of exposure. An estimated 20 employees are impacted by their current pay policy. Presuming these employees average $30,000 a year and work an average of 5 hours of overtime per week and presuming that the violations are not found to be willful, the company faces exposure of $150,000 in back pay, plus an equal amount in liquidated damages. This is in addition to attorney's fees and court costs.
The second area of liability is with regard to penalties assessed by the DOL. Even if the employee does not bring suit, the DOL will require the payment of back wages. In the example above, $150,000.
If the violation is found to be willful, employers may be criminally prosecuted and fined up to $10,000. A second violation may result in imprisonment.
Employers who repeatedly or willful violate the minimum wage or overtime provisions are subject to civil money penalties of up to $1,100 per violation.
Ignorance is Risk:
As you can see, even if the company can claim ignorance, it faces large costs for violations of the FLSA. The "head in the sand" approach to human resources is not fruitful. It may save some costs in the short-term, but in the long-term the exposure is too large to ignore.
The Take Away:
If you are paying non-exempt employees in a salaried basis, review your practices to ensure that you are abiding by the FLSA regulations. Periodic payroll audits are always a good idea and it may be time to start one. If you don't have the in-house capacity to do it, HR Consult Team can help.
Works Cited:
http://www.dol.gov/whd/overtime_pay.htm
Wednesday, April 13, 2011
Fair Labor Standards Act (FLSA) Update
My in-house editor is out-of-the-house for a few days, so this blog post comes with a warning: Grammar and spelling may be incorrect.
On April 5, 2011, the DOL issued the publication titled: Updating Regulations Issued Under the Fair Labor Standards Act; Final Rule. (sometimes referred to as the Update)
Many of the changes are based on statutory amendments to the FLSA over the past few years. A good example is the The U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, which included an amendment to the FLSA that increased the applicable Federal minimum wage over the course of three years, bringing it to the current rate of $7.25.
There were a few changes which were not merely a formality. This post focuses on the Fluctuating Work Week and Tip Wage Credit provisions of the FLSA.
Fluctuating Work Week:
Fluctuating Work Week, which is known to some as Salaried Non-Exempt, is based upon the employee receiving a set salary per week, regardless of the total number of hours worked. If the employee works less than 40 hours, they get their straight salary. If the employee works over 40 hours, then the total hours worked is divided by the total salary to determine the hourly rate. The overtime rate is then calculated as .5x the hourly rate and paid on all hours over 40.
The DOL did not implement proposed changes which would have made it clear that an employee may be paid bonuses or other non-overtime premiums without invalidating the fluctuating workweek pay method.
The DOL received many opinions from both sides of the argument. In the end, the DOL felt that:
"unless such payments are overtime premiums, they are incompatible with the fluctuating workweek method of computing overtime under section 778.114. As several commenters noted, the proposed regulation could have had the unintended effect of permitting employers to pay a greatly reduced fixed salary and shift a large portion of employees' compensation into bonus and premium payments, potentially resulting in wide disparities in employees' weekly pay depending on the particular hours worked."
(http://edocket.access.gpo.gov/2011/2011-6749.htm)
So, in short - there is no change here, but it is interesting to note that the DOL recognizes the difference in salaried exempt and salaried non-exempt payments, and is striving to ensure the the non-exempt employees are ensured a relatively consistent method of payment.
Tip Credit:
For those employers taking advantage of the Tip Wage Credit, which allows an employer to pay below the standard minimum wage, the Update provides that the employer must inform an employee of the tip credit provisions or explain how the provisions work in order to take advantage of the credit. The Update indicates that the notice does not need to be in writing.
I want to stress that employers are well served by providing this information in writing and having the employees sign as having received the information. You will recall the three edicts of HR, Fair Treatment, Consistency, and Documentation.
In order to use the tip credit, the employer must inform the tipped employee of the following items PRIOR to utilizing the tip credit:
(1) The direct cash wage the employer is paying a tipped employee, which can
be more than, but cannot be less than, $2.13 per hour;
(2) the additional amount the employer is using as a credit against tips received, which cannot exceed the difference between the minimum wage specified in section 6(a)(1) of the FLSA and the actual cash wage paid by the employer to the employee;
(3) that the additional amount claimed by the employer on account of tips as the tip credit may not exceed the value of the tips actually received by the employee;
(4) that the tip credit shall not apply with respect to any tipped employee unless the employee has been informed of the tip credit provisions of section 3(m) of the Act; and
(5) that all tips received by the tipped employee must be retained by the employee except for the pooling of tips among employees who customarily and regularly receive tips. Furthermore, the current FLSA recordkeeping regulation, at 29 CFR 516.28(a)(3), expressly requires that the amount per hour that the employer takes as a tip credit shall be reported to the employee in writing each time it is changed from the amount per hour taken in the preceding week.
(http://edocket.access.gpo.gov/2011/2011-6749.htm)
Employers utilizing the tip credit (I am looking at you, Restaurant Industry) should be aware of the new requirements and ensure they are abiding by it in order to take advantage of the credit.
While not required by law, documentation of compliance is key to being able to defend your actions.
Other Topics:
Employee Commuting:
In short - commuting that occurs before the first principle workday activity or after the last principle activity in the workday is excluded from regular time, even if the employee utilizes an employer's vehicle (provided the use of the vehicle is subject to an agreement).
Meal Credit:
A proposed rule allowing employers requiring employees to accept a meal provided by the employer as a condition of employment and to take credit for no more than the actual cost of the meal, even if the acceptance is not voluntary, was not included in the Update.
The DOL determined that it needed further study regarding the extent to which dietary and religious restrictions impacted employees decision to consume the meal as well as whether or not adequate time is allowed for the employee to eat. While not weighing in this time, the DOL has not ruled out future guidance on the matter.
Compensatory Time:
The short and sweet is that the DOL states that public employers must grant compensatory time on the specific date requested by the employee, unless doing so would unduly disrupt the agency.
Given that this relates to public agencies, it is probably not all that interesting to most of you.
Works Cited:
http://edocket.access.gpo.gov/2011/2011-6749.htm
On April 5, 2011, the DOL issued the publication titled: Updating Regulations Issued Under the Fair Labor Standards Act; Final Rule. (sometimes referred to as the Update)
Many of the changes are based on statutory amendments to the FLSA over the past few years. A good example is the The U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, which included an amendment to the FLSA that increased the applicable Federal minimum wage over the course of three years, bringing it to the current rate of $7.25.
There were a few changes which were not merely a formality. This post focuses on the Fluctuating Work Week and Tip Wage Credit provisions of the FLSA.
Fluctuating Work Week:
Fluctuating Work Week, which is known to some as Salaried Non-Exempt, is based upon the employee receiving a set salary per week, regardless of the total number of hours worked. If the employee works less than 40 hours, they get their straight salary. If the employee works over 40 hours, then the total hours worked is divided by the total salary to determine the hourly rate. The overtime rate is then calculated as .5x the hourly rate and paid on all hours over 40.
The DOL did not implement proposed changes which would have made it clear that an employee may be paid bonuses or other non-overtime premiums without invalidating the fluctuating workweek pay method.
The DOL received many opinions from both sides of the argument. In the end, the DOL felt that:
"unless such payments are overtime premiums, they are incompatible with the fluctuating workweek method of computing overtime under section 778.114. As several commenters noted, the proposed regulation could have had the unintended effect of permitting employers to pay a greatly reduced fixed salary and shift a large portion of employees' compensation into bonus and premium payments, potentially resulting in wide disparities in employees' weekly pay depending on the particular hours worked."
(http://edocket.access.gpo.gov/2011/2011-6749.htm)
So, in short - there is no change here, but it is interesting to note that the DOL recognizes the difference in salaried exempt and salaried non-exempt payments, and is striving to ensure the the non-exempt employees are ensured a relatively consistent method of payment.
Tip Credit:
For those employers taking advantage of the Tip Wage Credit, which allows an employer to pay below the standard minimum wage, the Update provides that the employer must inform an employee of the tip credit provisions or explain how the provisions work in order to take advantage of the credit. The Update indicates that the notice does not need to be in writing.
I want to stress that employers are well served by providing this information in writing and having the employees sign as having received the information. You will recall the three edicts of HR, Fair Treatment, Consistency, and Documentation.
In order to use the tip credit, the employer must inform the tipped employee of the following items PRIOR to utilizing the tip credit:
(1) The direct cash wage the employer is paying a tipped employee, which can
be more than, but cannot be less than, $2.13 per hour;
(2) the additional amount the employer is using as a credit against tips received, which cannot exceed the difference between the minimum wage specified in section 6(a)(1) of the FLSA and the actual cash wage paid by the employer to the employee;
(3) that the additional amount claimed by the employer on account of tips as the tip credit may not exceed the value of the tips actually received by the employee;
(4) that the tip credit shall not apply with respect to any tipped employee unless the employee has been informed of the tip credit provisions of section 3(m) of the Act; and
(5) that all tips received by the tipped employee must be retained by the employee except for the pooling of tips among employees who customarily and regularly receive tips. Furthermore, the current FLSA recordkeeping regulation, at 29 CFR 516.28(a)(3), expressly requires that the amount per hour that the employer takes as a tip credit shall be reported to the employee in writing each time it is changed from the amount per hour taken in the preceding week.
(http://edocket.access.gpo.gov/2011/2011-6749.htm)
Employers utilizing the tip credit (I am looking at you, Restaurant Industry) should be aware of the new requirements and ensure they are abiding by it in order to take advantage of the credit.
While not required by law, documentation of compliance is key to being able to defend your actions.
Other Topics:
Employee Commuting:
In short - commuting that occurs before the first principle workday activity or after the last principle activity in the workday is excluded from regular time, even if the employee utilizes an employer's vehicle (provided the use of the vehicle is subject to an agreement).
Meal Credit:
A proposed rule allowing employers requiring employees to accept a meal provided by the employer as a condition of employment and to take credit for no more than the actual cost of the meal, even if the acceptance is not voluntary, was not included in the Update.
The DOL determined that it needed further study regarding the extent to which dietary and religious restrictions impacted employees decision to consume the meal as well as whether or not adequate time is allowed for the employee to eat. While not weighing in this time, the DOL has not ruled out future guidance on the matter.
Compensatory Time:
The short and sweet is that the DOL states that public employers must grant compensatory time on the specific date requested by the employee, unless doing so would unduly disrupt the agency.
Given that this relates to public agencies, it is probably not all that interesting to most of you.
Works Cited:
http://edocket.access.gpo.gov/2011/2011-6749.htm
Monday, April 11, 2011
E-Verify
On March 21, the U.S. Department of Homeland Security announced a new service that will allow individuals to check their own employment eligibility status. E-Verify Self-Check will be helpful in correcting errors before seeking employment. The program is slated to be nationwide within the next 12 months, but is currently active in Arizona, Colorado, Idaho, Mississippi, Virginia, and the District of Columbia.
(http://www.dhs.gov/ynews/releases/pr_1300711524714.shtm)
It is an interesting program that may help employers through reduced errors in the system. As it stands, if an employee receives a tentative non-confirmation (meaning there are issues found during the check, but not definitive enough to provide a final non-confirmation) the employee is allowed to contest and must remain employed until the final non-confirmation is supplied. By allowing employees to self-check, the hope is that employers will not be faced with employing individuals for a few weeks only to find that they are not eligible for employment.
The news release cited above combined with the likelihood of the Georgia Legislature passing House Bill 87/Senate Bill 40, requiring employers in GA to utilize the E-Verify System, prompted this blog post.
What is E-Verify:
As the United States Citizenship and Immigration Services (USCIS) describes it, E-Verify is an Internet-based system that compares information from an employee's Form I-9, Employment Eligibility Verification, to data from U.S Department of Homeland Security and Social Security Administration records to confirm employment eligibility.
USCIS indicates that nearly a quarter of a million businesses are currently using E-Verify with about a thousand more signing up each day.
Why Do It?
It is a simple way of ensuring that you don't have employees who are trying to cheat the system. Unfortunately, I have been on the receiving end of a call regarding an employee who wanted to "update her information" because she was now legal.
The Executive Director of a facility with which I worked informed me that one of her employees brought her a social security card and told her she was legal now and needed her information changed. The employee had been employed by the facility for nearly two years. She had provided falsified documentation that appeared sufficient for the purposes of the I-9. Of course, we had to terminate the employee.
Losing an employee who had worked for two years is problematic on many fronts. We had invested in this employee, and she had become a member of the organization only to be terminated. We were then required to start looking for her replacement, costing us time and money.
Additionally, Georgia employers should be aware that House Bill 87/Senate Bill 40, if passed, will require employers to utilize the system. As noted above, passage is likely, and it is better to be prepared by enrolling in E-Verify now.
What HR Consult Team Can Do:
HR Consult Team is in the process of becoming an E-Verify Employer Agent. This means that HR Consult Team will be able to assist employers with the following:
- Enrolling companies and updating their profile information
- Registering new users
- Creating user accounts for other Program Administrators and General
Users
- Creating and managing cases
- Viewing reports
- Updating profile information for other Program Administrators and
General Users
- Unlocking user accounts
From the looks of things it is only a matter of time until House Bill 87/Senate Bill 40 will pass and employers will be obligated to utilize the E-Verify system. HR Consult Team will help companies with the transition and administration of E-Verify.
(http://www.dhs.gov/ynews/releases/pr_1300711524714.shtm)
It is an interesting program that may help employers through reduced errors in the system. As it stands, if an employee receives a tentative non-confirmation (meaning there are issues found during the check, but not definitive enough to provide a final non-confirmation) the employee is allowed to contest and must remain employed until the final non-confirmation is supplied. By allowing employees to self-check, the hope is that employers will not be faced with employing individuals for a few weeks only to find that they are not eligible for employment.
The news release cited above combined with the likelihood of the Georgia Legislature passing House Bill 87/Senate Bill 40, requiring employers in GA to utilize the E-Verify System, prompted this blog post.
What is E-Verify:
As the United States Citizenship and Immigration Services (USCIS) describes it, E-Verify is an Internet-based system that compares information from an employee's Form I-9, Employment Eligibility Verification, to data from U.S Department of Homeland Security and Social Security Administration records to confirm employment eligibility.
USCIS indicates that nearly a quarter of a million businesses are currently using E-Verify with about a thousand more signing up each day.
Why Do It?
It is a simple way of ensuring that you don't have employees who are trying to cheat the system. Unfortunately, I have been on the receiving end of a call regarding an employee who wanted to "update her information" because she was now legal.
The Executive Director of a facility with which I worked informed me that one of her employees brought her a social security card and told her she was legal now and needed her information changed. The employee had been employed by the facility for nearly two years. She had provided falsified documentation that appeared sufficient for the purposes of the I-9. Of course, we had to terminate the employee.
Losing an employee who had worked for two years is problematic on many fronts. We had invested in this employee, and she had become a member of the organization only to be terminated. We were then required to start looking for her replacement, costing us time and money.
Additionally, Georgia employers should be aware that House Bill 87/Senate Bill 40, if passed, will require employers to utilize the system. As noted above, passage is likely, and it is better to be prepared by enrolling in E-Verify now.
What HR Consult Team Can Do:
HR Consult Team is in the process of becoming an E-Verify Employer Agent. This means that HR Consult Team will be able to assist employers with the following:
- Enrolling companies and updating their profile information
- Registering new users
- Creating user accounts for other Program Administrators and General
Users
- Creating and managing cases
- Viewing reports
- Updating profile information for other Program Administrators and
General Users
- Unlocking user accounts
From the looks of things it is only a matter of time until House Bill 87/Senate Bill 40 will pass and employers will be obligated to utilize the E-Verify system. HR Consult Team will help companies with the transition and administration of E-Verify.
Wednesday, April 6, 2011
Not Employing the Unemployed
One of the hot topics of the few months has been the trend of discriminating against the unemployed. On February 16, 2011, the EEOC held a public meeting on the matter.
There are many pitfalls in the approach of a blanket ban on hiring the unemployed.
Being Employed Does Not Imply A Good Work Ethic:
In the EEOC's press release following the public meeting, Helen Norton, Associate Professor at University of Colorado School of Law, is cited as testifying that the correlation between current employment and a quality job performance is weak.
It is easy to recall dealing with bad employees. Consider any time you have been subject to poor service, costly mistakes, or a lackadaisical attitude from an employee of a company with which you do service. The point is, even looking at the proposition anecdotally, one can see the lack of correlation between having a job and being a good employee.
If the correlation between being employed and being a good employee is weak, then there is little benefit in limiting the pool of applicants strictly to the employed. Likewise, this makes the practice arbitrary and thus subject to scrutiny by the EEOC. Employers are better served utilizing tools such as pre-employment testing to identify strong candidates for a position. As with any selection measure, it should be job related.
Unemployment is Costly to Society:
Consider the fact that unemployed individuals result in costs to society. Fatima Gross Graves, Vice President for Education and Employment of the National Women's Law Center, noted the negative impact to the government efforts to get people back to work.
The unemployment rate is certainly a measure of the state of the economy. While the rate is known to be a lagging indicator of economic success, it is one that is widely watched by the public. By actively denying employment to the unemployed, companies create an extra burden to the government and propagate high unemployment.
Disparate Impact:
The reason the EEOC held a public meeting on the matter is that a ban on hiring the unemployed creates potential for disparate impact. In case you missed my blog covering unintentional discrimination, disparate impact occurs when an employment practice excludes minorities at a higher rate than non-minorities.
Consider the statistics reported by the Bureau of Labor Statistics in the March 2011 Employment Situation report.
Click to enlarge
(http://www.bls.gov/news.release/pdf/empsit.pdf)
Note that in March of 2011 Hispanics (11.3%) and Blacks (15.5%) have significantly higher unemployment rates than whites (7.9%). Older workers and the disabled are also minority groups that are likely to be negatively impacted by this type of policy.
By denying employment to the unemployed, the company could be excluding minorities at a significantly higher rate and thus face exposure either to a law suit or a discrimination claim.
The Take Away:
Basing hiring decisions on current employment does not create value but does create exposure for a company. Companies should avoid implementing such procedures. If a company wishes to improve the selection process, it should focus on validated and reliable tests that have been shown to have a strong correlation to success in employment.
Works Cited:
http://www.eeoc.gov/eeoc/newsroom/release/2-16-11.cfm
http://www.bls.gov/news.release/pdf/empsit.pdf
There are many pitfalls in the approach of a blanket ban on hiring the unemployed.
Being Employed Does Not Imply A Good Work Ethic:
In the EEOC's press release following the public meeting, Helen Norton, Associate Professor at University of Colorado School of Law, is cited as testifying that the correlation between current employment and a quality job performance is weak.
It is easy to recall dealing with bad employees. Consider any time you have been subject to poor service, costly mistakes, or a lackadaisical attitude from an employee of a company with which you do service. The point is, even looking at the proposition anecdotally, one can see the lack of correlation between having a job and being a good employee.
If the correlation between being employed and being a good employee is weak, then there is little benefit in limiting the pool of applicants strictly to the employed. Likewise, this makes the practice arbitrary and thus subject to scrutiny by the EEOC. Employers are better served utilizing tools such as pre-employment testing to identify strong candidates for a position. As with any selection measure, it should be job related.
Unemployment is Costly to Society:
Consider the fact that unemployed individuals result in costs to society. Fatima Gross Graves, Vice President for Education and Employment of the National Women's Law Center, noted the negative impact to the government efforts to get people back to work.
The unemployment rate is certainly a measure of the state of the economy. While the rate is known to be a lagging indicator of economic success, it is one that is widely watched by the public. By actively denying employment to the unemployed, companies create an extra burden to the government and propagate high unemployment.
Disparate Impact:
The reason the EEOC held a public meeting on the matter is that a ban on hiring the unemployed creates potential for disparate impact. In case you missed my blog covering unintentional discrimination, disparate impact occurs when an employment practice excludes minorities at a higher rate than non-minorities.
Consider the statistics reported by the Bureau of Labor Statistics in the March 2011 Employment Situation report.
Click to enlarge
(http://www.bls.gov/news.release/pdf/empsit.pdf)
Note that in March of 2011 Hispanics (11.3%) and Blacks (15.5%) have significantly higher unemployment rates than whites (7.9%). Older workers and the disabled are also minority groups that are likely to be negatively impacted by this type of policy.
By denying employment to the unemployed, the company could be excluding minorities at a significantly higher rate and thus face exposure either to a law suit or a discrimination claim.
The Take Away:
Basing hiring decisions on current employment does not create value but does create exposure for a company. Companies should avoid implementing such procedures. If a company wishes to improve the selection process, it should focus on validated and reliable tests that have been shown to have a strong correlation to success in employment.
Works Cited:
http://www.eeoc.gov/eeoc/newsroom/release/2-16-11.cfm
http://www.bls.gov/news.release/pdf/empsit.pdf
Tuesday, April 5, 2011
NELP's Case for Reforming Background Checks for Employment
The National Employment Law Project (NELP) released an interesting publication titled "The Case for Reforming Background Checks for Employment" (hereafter The Case). The Case can be found here
http://www.nelp.org/page/-/SCLP/2011/65_Million_Need_Not_Apply.pdf?nocdn=1
The publication focused on employers expressly excluding any applicants with a criminal record, thereby creating exposure relative to Title VII. Following are highlights from several sections of the publication.
Shutting Workers with Criminal Records Out of the Job Market Compromises the Economy and Public Safety:
The article cites a study completed in Illinois which concluded recidivism (multiple criminal offenses) is decreased when individuals are engaged in a steady employment relationship. The study followed 1,600 individuals released from state prison. Those individuals who were employed for a year had an 8% recidivism rate, compared to the state average of 54%. While certain positions should require the applicant to pass a criminal background check, blanket restrictions could have a negative impact on public safety by increasing the likelihood of repeat offenses.
Beyond the public safety argument, this section of The Case draws attention to the economic impact of creating a large population of unemployable citizens. The authors of the report note the strain on the economy in terms of the cost of incarceration and the reduced productivity of these individuals.
Overly Broad Hiring Restrictions Run Afoul of Federal Laws Regulating Criminal Background Checks for Employment
The EEOC has been explicit about the disparate impact of utilizing criminal records as a means of employment selection. While the EEOC has not prohibited the use of criminal records, it has provided guidelines regarding the use of those records.
The EEOC recommends that employers complete an individualized assessment of each case, focusing on the nature and gravity of the offense(s), the time that has passed since the conviction and/or completion of the sentence, and the nature of the job held or sought.
To add to the constraints from the EEOC, the publication cites that FBI background checks are out of date 50% of the time. The article goes a step further to point out that commercially produced background checks have been found to be rife with inaccuracies.
The Case cites a statement from the EEOC's Policy Statement on the Issue of Conviction Records under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e et seq. (1982), Feb. 4, 1987, which provides clear guidance that, "an absolute bar to employment based on the mere fact that an individual has a conviction record is unlawful under Title VII"
Wave of Lawsuits Documents Routine Civil Rights and Consumer Protection Violations:
The publication cites five major cases filed in 2010 regarding the misuse of criminal background checks to deny employment. One of the employers cited was the US Census Bureau.
Another case cited was the investigation of RadioShack for denying employment to an applicant who answered "yes" to a question about being convicted of a crime in the previous 7 years. The sobering part of this case is that ChoicePoint, a leader in the background check industry accounting for 20% of the market share, helped RadioShack establish the discriminatory practices.
What to do?
The Case goes on to recommend legal changes to help eliminate the issues brought up in the publication. In the meantime, employers should avoid blanket rules with regard to background checks. At a minimum, keep the EEOC guidance in mind and review each case based on the following:
- The nature and gravity of the offense(s);
- The time that has passed since the conviction and/or completion of sentence; and
- The nature of the job held or sought.
Of those three, the easiest place to start is the nature of the job held or sought. By eliminating background checks for those positions where it would be unnecessary, the employer can prevent much of the exposure associated with criminal background checks.
After establishing a case for completing criminal background checks on specific positions, the employer should review each applicants criminal history to determine if the record is sufficient to support prohibiting employment.
Works Cited:
http://www.nelp.org/page/-/SCLP/2011/65_Million_Need_Not_Apply.pdf?nocdn=1
http://www.nelp.org/page/-/SCLP/2011/65_Million_Need_Not_Apply.pdf?nocdn=1
The publication focused on employers expressly excluding any applicants with a criminal record, thereby creating exposure relative to Title VII. Following are highlights from several sections of the publication.
Shutting Workers with Criminal Records Out of the Job Market Compromises the Economy and Public Safety:
The article cites a study completed in Illinois which concluded recidivism (multiple criminal offenses) is decreased when individuals are engaged in a steady employment relationship. The study followed 1,600 individuals released from state prison. Those individuals who were employed for a year had an 8% recidivism rate, compared to the state average of 54%. While certain positions should require the applicant to pass a criminal background check, blanket restrictions could have a negative impact on public safety by increasing the likelihood of repeat offenses.
Beyond the public safety argument, this section of The Case draws attention to the economic impact of creating a large population of unemployable citizens. The authors of the report note the strain on the economy in terms of the cost of incarceration and the reduced productivity of these individuals.
Overly Broad Hiring Restrictions Run Afoul of Federal Laws Regulating Criminal Background Checks for Employment
The EEOC has been explicit about the disparate impact of utilizing criminal records as a means of employment selection. While the EEOC has not prohibited the use of criminal records, it has provided guidelines regarding the use of those records.
The EEOC recommends that employers complete an individualized assessment of each case, focusing on the nature and gravity of the offense(s), the time that has passed since the conviction and/or completion of the sentence, and the nature of the job held or sought.
To add to the constraints from the EEOC, the publication cites that FBI background checks are out of date 50% of the time. The article goes a step further to point out that commercially produced background checks have been found to be rife with inaccuracies.
The Case cites a statement from the EEOC's Policy Statement on the Issue of Conviction Records under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e et seq. (1982), Feb. 4, 1987, which provides clear guidance that, "an absolute bar to employment based on the mere fact that an individual has a conviction record is unlawful under Title VII"
Wave of Lawsuits Documents Routine Civil Rights and Consumer Protection Violations:
The publication cites five major cases filed in 2010 regarding the misuse of criminal background checks to deny employment. One of the employers cited was the US Census Bureau.
Another case cited was the investigation of RadioShack for denying employment to an applicant who answered "yes" to a question about being convicted of a crime in the previous 7 years. The sobering part of this case is that ChoicePoint, a leader in the background check industry accounting for 20% of the market share, helped RadioShack establish the discriminatory practices.
What to do?
The Case goes on to recommend legal changes to help eliminate the issues brought up in the publication. In the meantime, employers should avoid blanket rules with regard to background checks. At a minimum, keep the EEOC guidance in mind and review each case based on the following:
- The nature and gravity of the offense(s);
- The time that has passed since the conviction and/or completion of sentence; and
- The nature of the job held or sought.
Of those three, the easiest place to start is the nature of the job held or sought. By eliminating background checks for those positions where it would be unnecessary, the employer can prevent much of the exposure associated with criminal background checks.
After establishing a case for completing criminal background checks on specific positions, the employer should review each applicants criminal history to determine if the record is sufficient to support prohibiting employment.
Works Cited:
http://www.nelp.org/page/-/SCLP/2011/65_Million_Need_Not_Apply.pdf?nocdn=1
Monday, April 4, 2011
The Value of Calculation: Return on Investment
Cost of Turnover blah blah blah blah blah. There is no shortage of articles and blog posts (including my own) touting the ridiculously high cost of turnover. Well, ok, fine, we know that turnover is costly and should be avoided. We know that better hiring practices will help. We know that retention efforts will help as well.
From a business perspective, we should always look at the cost of any action we take. Engaging in a good old cost benefit analysis will help us determine which action is likely to be the most efficient and effective.
For example, how does the cost of improving hiring results and/or the cost of improving retention measure up against the cost of turnover? What is our Return on Investment (ROI)?
Of course, strictly bottom-line thinking may miss the subtleties of the cost of turnover, such as loss of institutional knowledge, reduced productivity, etc. Still, any analysis is better than none. So let's get to analyzing.
Cost of Turnover:
The cost of turnover is generally viewed as anywhere from 33% of the employee's annual salary to 300% of an employee's annual salary. Part of the discrepancy is the inability to strictly account for the costs utilized in determining the cost of turnover. Other discrepancies come in to play as well, like the hourly rate of the employee creating the advertisements, reviewing resumes, and conducting interviews.
The Sasha Corporation looked at the cost of turnover for an $8 employee as reported by 15 different organizations, including the Society for Human Resource Management and Cornell University. Their meta-analysis revealed that the average cost was $9,444.47. When they removed the highest 5 estimates, that number fell to $5,505.80. (http://www.sashacorp.com/turnframe.html)
Considering an $8 an hour employee would earn about $16k annually, working 40 hours a week with no overtime, means that the average fell between 33% and 56% of the employee's annual wage. Of course, this should be balanced against the fact that replacing an $8 an hour employee is generally less costly than replacing a $30 an hour employee.
JDA Professional Services calculates the cost of replacing an employee earning $60,000 a year as being $150,000 or 250% of the employee's annual salary. The chart below shows the calculation:
(Click image to enlarge)
(http://www.jdapsi.com/Client/articles/coh)
For the purposes of this blog post, let's presume the average cost of replacing a professional employee earning $60,000 a year to be closer to 150% of his or her annual salary. I arrived at 150% by removing the cost of pre-employment testing, recruiter fees, salary increases, sign-on bonus, relocation, training, and consulting fees from the JDA Professional's estimate.
The Cost of Hiring:
Really, the cost of hiring is included in the cost of turnover. It would be foolish to account for this cost twice. Any increase in the cost of hiring will equally increase the cost of turnover.
The way to view the cost of hiring is by looking at the increase in the cost of hiring as it impacts the turnover rate. For example, if you have 100 employees who all earn $60,000 a year, and you have 20% turnover, your annual cost of turnover (presuming 1.5x annual salary) would be $1.8 million (20 employees terminated x $60,000 (salary) x 1.5 (cost of turnover) = $1,800,000).
Again, presuming the cost of turnover to be approximately $90,000 per employee, let's consider a 10% increase in the cost of turnover due to spending more on pre-employment testing. This would result in the cost of turnover increasing to $99,000.
If the result were a 20% drop in turnover (16% turnover vs 20%), the annual cost of turnover would drop to $1,584,000.
The additional cost of hiring would equal $144,000, and the savings due to reduction in turnover would be $216,000. The net savings would be $72,000 or a 50% ROI.
The Cost of Retention:
So, through attrition and better hiring practices, you can help reduce your turnover rate. The idea is that in hiring employees who are better suited to be long-term hires, you reduce turnover.
What about the current staff who were hired before the implementation of pre-employment testing? Are you subject to waiting for them to leave before they can be replaced with long-term hires?
The truth is, I did not even want to ask the last question, given how obvious of a set-up it is. Of course you are not subject to waiting for them to leave.
The cost of retention includes factors like incentive programs, recognition programs, training, wage increases, better working conditions, better equipment, improved benefits, and creating clear career paths for employees.
The cost of these will vary, but JDA Professional Services calculates the cost in the following chart:
(Click image to enlarge)
(http://www.jdapsi.com/Client/articles/coh)
JDA Professional Services concludes that the cost of keeping an employee is significantly less than the cost of replacing that employee. Even compared to the lower cost I proposed ($90,000 for a $60,000 employee), JDA's estimate of the cost of retention is less than 1/4 of the cost of turnover.
Retention via Employee Relations:
Simply showing employees that they are valued and recognizing their contribution to the organization is a cost effective way of reducing turnover.
Recognition programs and Employee Problem Resolution policies are extremely helpful in decreasing the number of disgruntled employees. Employees want to know they are valued. This can be achieved through simple recognition programs, such as giving a pat on the back or acknowledging the employee at a company meeting.
Similarly, keeping an open door policy and encouraging employees to discuss any workplace problems with management is helpful in resolving the inevitable issues that do arise. It is important to keep the lines of communication open and to encourage employees to take advantage of their ability to improve their working conditions.
Of course, one could assign costs to these measures (time to resolve complaints x hourly value of employee resolving complaints, etc.), but even including those costs, the cost/benefit analysis is amazing.
Utilizing the figures above, if an employee whose hourly worth is $200 an hour spent 50 hours a year dealing with employee complaints and providing recognition, the cost would be $10,000. If these efforts resulted in one less termination of a $60,000 a year employee, the savings would be $80,000. That is an 800% ROI.
The Take-Away:
The cost of retention, turnover, and hiring vary by company and by position. The actual cost of each individual termination could vary even if the individuals worked at the same company in the same position. Outside factors such as the labor market can impact the amount of money necessary to replace an employee.
Knowing the cost of hire/turnover and retention helps business owners make educated decisions on how to best spend their time and money to reduce the turnover and thus improve organizational outcomes. With consistent long-term employees, organizations are better suited to obtain new customers and keep current customers.
Of course, while it is valuable to calculate on the front end to help in decision making, take heed of James Barlament's plea to review what you have done and to determine whether or not it was successful.
In the calculation above regarding increasing the cost of hire, we presumed what the impact to turnover was. Once you implement the program, you can measure the actual impact. If the reality shows that the cost does not provide a return, then the program should be revisited in order to improve outcomes.
Works Cited:
http://www.sashacorp.com/turnframe.html
http://www.jdapsi.com/Client/articles/coh
From a business perspective, we should always look at the cost of any action we take. Engaging in a good old cost benefit analysis will help us determine which action is likely to be the most efficient and effective.
For example, how does the cost of improving hiring results and/or the cost of improving retention measure up against the cost of turnover? What is our Return on Investment (ROI)?
Of course, strictly bottom-line thinking may miss the subtleties of the cost of turnover, such as loss of institutional knowledge, reduced productivity, etc. Still, any analysis is better than none. So let's get to analyzing.
Cost of Turnover:
The cost of turnover is generally viewed as anywhere from 33% of the employee's annual salary to 300% of an employee's annual salary. Part of the discrepancy is the inability to strictly account for the costs utilized in determining the cost of turnover. Other discrepancies come in to play as well, like the hourly rate of the employee creating the advertisements, reviewing resumes, and conducting interviews.
The Sasha Corporation looked at the cost of turnover for an $8 employee as reported by 15 different organizations, including the Society for Human Resource Management and Cornell University. Their meta-analysis revealed that the average cost was $9,444.47. When they removed the highest 5 estimates, that number fell to $5,505.80. (http://www.sashacorp.com/turnframe.html)
Considering an $8 an hour employee would earn about $16k annually, working 40 hours a week with no overtime, means that the average fell between 33% and 56% of the employee's annual wage. Of course, this should be balanced against the fact that replacing an $8 an hour employee is generally less costly than replacing a $30 an hour employee.
JDA Professional Services calculates the cost of replacing an employee earning $60,000 a year as being $150,000 or 250% of the employee's annual salary. The chart below shows the calculation:
(Click image to enlarge)
(http://www.jdapsi.com/Client/articles/coh)
For the purposes of this blog post, let's presume the average cost of replacing a professional employee earning $60,000 a year to be closer to 150% of his or her annual salary. I arrived at 150% by removing the cost of pre-employment testing, recruiter fees, salary increases, sign-on bonus, relocation, training, and consulting fees from the JDA Professional's estimate.
The Cost of Hiring:
Really, the cost of hiring is included in the cost of turnover. It would be foolish to account for this cost twice. Any increase in the cost of hiring will equally increase the cost of turnover.
The way to view the cost of hiring is by looking at the increase in the cost of hiring as it impacts the turnover rate. For example, if you have 100 employees who all earn $60,000 a year, and you have 20% turnover, your annual cost of turnover (presuming 1.5x annual salary) would be $1.8 million (20 employees terminated x $60,000 (salary) x 1.5 (cost of turnover) = $1,800,000).
Again, presuming the cost of turnover to be approximately $90,000 per employee, let's consider a 10% increase in the cost of turnover due to spending more on pre-employment testing. This would result in the cost of turnover increasing to $99,000.
If the result were a 20% drop in turnover (16% turnover vs 20%), the annual cost of turnover would drop to $1,584,000.
The additional cost of hiring would equal $144,000, and the savings due to reduction in turnover would be $216,000. The net savings would be $72,000 or a 50% ROI.
The Cost of Retention:
So, through attrition and better hiring practices, you can help reduce your turnover rate. The idea is that in hiring employees who are better suited to be long-term hires, you reduce turnover.
What about the current staff who were hired before the implementation of pre-employment testing? Are you subject to waiting for them to leave before they can be replaced with long-term hires?
The truth is, I did not even want to ask the last question, given how obvious of a set-up it is. Of course you are not subject to waiting for them to leave.
The cost of retention includes factors like incentive programs, recognition programs, training, wage increases, better working conditions, better equipment, improved benefits, and creating clear career paths for employees.
The cost of these will vary, but JDA Professional Services calculates the cost in the following chart:
(Click image to enlarge)
(http://www.jdapsi.com/Client/articles/coh)
JDA Professional Services concludes that the cost of keeping an employee is significantly less than the cost of replacing that employee. Even compared to the lower cost I proposed ($90,000 for a $60,000 employee), JDA's estimate of the cost of retention is less than 1/4 of the cost of turnover.
Retention via Employee Relations:
Simply showing employees that they are valued and recognizing their contribution to the organization is a cost effective way of reducing turnover.
Recognition programs and Employee Problem Resolution policies are extremely helpful in decreasing the number of disgruntled employees. Employees want to know they are valued. This can be achieved through simple recognition programs, such as giving a pat on the back or acknowledging the employee at a company meeting.
Similarly, keeping an open door policy and encouraging employees to discuss any workplace problems with management is helpful in resolving the inevitable issues that do arise. It is important to keep the lines of communication open and to encourage employees to take advantage of their ability to improve their working conditions.
Of course, one could assign costs to these measures (time to resolve complaints x hourly value of employee resolving complaints, etc.), but even including those costs, the cost/benefit analysis is amazing.
Utilizing the figures above, if an employee whose hourly worth is $200 an hour spent 50 hours a year dealing with employee complaints and providing recognition, the cost would be $10,000. If these efforts resulted in one less termination of a $60,000 a year employee, the savings would be $80,000. That is an 800% ROI.
The Take-Away:
The cost of retention, turnover, and hiring vary by company and by position. The actual cost of each individual termination could vary even if the individuals worked at the same company in the same position. Outside factors such as the labor market can impact the amount of money necessary to replace an employee.
Knowing the cost of hire/turnover and retention helps business owners make educated decisions on how to best spend their time and money to reduce the turnover and thus improve organizational outcomes. With consistent long-term employees, organizations are better suited to obtain new customers and keep current customers.
Of course, while it is valuable to calculate on the front end to help in decision making, take heed of James Barlament's plea to review what you have done and to determine whether or not it was successful.
In the calculation above regarding increasing the cost of hire, we presumed what the impact to turnover was. Once you implement the program, you can measure the actual impact. If the reality shows that the cost does not provide a return, then the program should be revisited in order to improve outcomes.
Works Cited:
http://www.sashacorp.com/turnframe.html
http://www.jdapsi.com/Client/articles/coh
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