Context
As smaller companies grow into bigger companies there is an imperative to pay attention to certain specific personnel management issues. The listing below is intended to identify some of the more critical ones.
The comments and suggestions given here are not intended to be complete solutions and may not even be applicable in certain situations. JWC Recommendation: Seek out qualified assistance before taking action in any personnel management situation where you are not sure of your rights as an employer or your worker’s rights as an employee or contractor. Don’t guess; it could be costly.
1. Know About The Fair Labor Standards Act (FLSA - http://www.dol.gov/whd/flsa/ )
Employment law in the United States is set at the Federal level and embodied in the FLSA. The following is a list of items, among others, contained in the FLSA that may be of particular interest to small business owners and managers:
a. Employee or Contractor? The FLSA gives specific guidelines regarding when a worker is to be treated as an employee versus when they qualify as a contractor. The differences are more than just what forms get filed out as employers pay federal and state employment taxes on employees but not on contractors. The cost difference is a minimum of 7.65% and can run as high as 10% of pay for the average employee. Employees receive W-2s and contractors receive 1099s. Check out what the FLSA says about all this: click here.
b. Overtime. The FLSA is very clear on what constitutes overtime and who qualifies to receive overtime pay. JWC Recommendation: Read what the FLSA defines as overtime and those qualified to receive overtime pay, understand it and implement it if you haven’t already. Do this today.
c. Vacation, Sick & Holiday Time. Paid time off for a vacation, sickness or holidays is not a requirement of the FLSA. It is part of the employment agreement between employer and employee, “You come to work for me and I will give you x days of paid vacation every year plus pay you for certain Federal holidays,” but it is not required. From the FLSA web site:
“The FLSA does not require payment for time not worked, such as vacations, sick leave or holidays (Federal or otherwise). These benefits are matters of agreement between an employer and an employee (or the employee's representative).”
Also, check the Family & Medical Leave Act (FMLA - http://www.dol.gov/whd/fmla/) requirements for those eligible for unpaid, job-protected, 12 weeks of leave for family or medical reasons, including maternity.
d. Other Regulations. There are a plethora of other Federal and state laws and regulations that pertain to employment and pay, many of which are unique to specific industries or types of work. As always, consult with a qualified professional when the need arises, not once it’s too late to avoid problems.
2. Have Written Policies & Procedures. Should certain situations ever arise, an employment judge will ask you to produce the written policies that your employee or contractor was given while working for the company. Your ability to produce such documents will serve you well when that need arises.
In the meantime, having written, comprehensive and well-organized personnel policies and procedures will also serve your business well, in two ways:
a. It will force you to define certain policies and procedures that have to-date been poorly understood and inconsistently applied, and
b. It will give employees and contractors a clear sense of the rules.
3. Conduct Annual Performance Reviews. Annual reviews are a great opportunity to communicate to employees and contractors how they are doing, and to help set goals for improvements in the future. They are also the last thing that most small business owners and managers want to do, for a variety of reasons, all of which make sense but none of which are valid.
It may be easier to do all of the reviews during a slow time each year as opposed to doing them on the employee’s or contractor’s anniversary date or other logical milestone, but they are not an optional component of successful, risk-averse personnel management. The employment judge will want to see these as well.
4. Document Pertinent Conversations. While protecting yourself as an employer in the event of future difficulties with an employee or contractor is always a worthy goal, all of these practices have practical value when managing employees and contractors. Having ad hoc, official and constructive conversations about a worker’s actions, good or bad, can be healthy for the relationship. Workers need to know more than once a year if they are not meeting expectations, and should be told when they outperform the goals set for them.
The documentation should be clear as to why the conversation occurred, what was discussed and what changes in behavior are expected, if any. It should also contain an acknowledgement from the worker that they agree with the conversation as documented.
5. Use a Comprehensive Payroll Service. The internet age has brought a number of online payroll services to the market and that has driven the prices down to where they are very competitive. Given the time consuming nature of completing forms and making payroll tax deposits along with the risk of incurring a penalty and/or interest for an inadvertent mistake, it makes good sense to use a service that will do it all for you, including draft your account for payrolls and tax deposits, and make direct deposits to your workers’ accounts.
There are different types of payroll services that offer different types of arrangements and different add-ons, such as health, life and disability insurance. Some are better than others so shop around, check reviews online and ask existing and former customers for their input.