Top Five Employment Pitfalls to Avoid in Today's Business Climate

by Kathryn Gray

The majority of business owners are currently focused on one thing: finding and maintaining business. Unless someone has a crystal ball - and if he/she does, please share! - we are all struggling with how we go forward in this business climate. Will things get better? What should/will our business look like in the future? Operating in this uncertain environment, it's easy to overlook some of the fundamentals we need to keep in the forefront while we try to define or re-define the future of our companies.

One constant that we have to contend with in this environment is that our legislative bodies are motivated to 'protect' employees (read: voters) who may feel disenfranchised. Both in rhetoric and in pending legislation, state and federal bodies do not have the business owner's best interest at heart. So for those of us with employees, it is prudent to review some aspects of how we relate and communicate with our employees, and make sure we mitigate risk as much as possible. Here are the top five employment pitfalls to avoid:

1. Your employee handbook
   Have you recently had your handbook audited to make sure you have the maximum legal protection against risk as well as the greatest operating flexibility? Do you not only reflect the current legal wordings in your policies and procedures, but also reiterate your company's culture in your wordsmithing? Do you have a succinct, complete 'at-will' statement; a strong solicitation policy; clearly established behavior standards; and entertainment policies for sales people? A signed, witnessed acknowledgement of receipt from every employee who receives the policy?
   
   
2. Overtime practices
   Many of us are working with fewer employees and relying on overtime costs to be less expensive than additional hires. A hot button, especially in California, has become who is eligible for overtime (just saying someone is exempt doesn't make it so) and how you determine that overtime. As an example, how you handle 'furloughs' for exempt employees can immediately redefine their status and make them eligible for a minimum of two years of back pay and overtime, while risking substantial fines for your company and yourself. Even allowing hourly employees to come in to work early and hang out before clocking in, or allowing them to hang out in the break room after clocking out at the end of shift can subject you to additional overtime liabilities. Check your policies and practices to minimize your risk.
   
   
3. Legal meal and rest periods
   Currently in California, this is a baited-breath issue before the court of appeals that could re-define employers' responsibilities under the laws governing meals and breaks. Under the standing law, one paid 10 minute break must be given for every 4 hours worked and one unpaid thirty minute meal period for every 5 hours worked. But there is a case in Appeals (Brinker Restaurants vs. Superior Court of San Diego) that could make how employers account for meal and break times subject to onerous record keeping. Make sure your policies are current and enforced. And keep an eye on this case
   .
4. Use care in designating Independent Contractors
   Many employers, in a bid to retain the knowledge needed for providing efficient and effective products and services to customers and to provide some level of income for their employees, are shifting employees to independent contractors. This can be a huge risk if the only thing that changes is the employer is no longer on the hook for benefits and taxes - if all other job content, definition and responsibilities are the same - the employer could face huge liabilities in back pay, benefits and fines. Google 'IRS 20 rule test to establish relationship' to define an independent contractor status and you will get a good idea of the criteria for a true 'independent contractor.' Auditors are honing in on this one.
   
   
5. Reductions in force
   Should you need to narrow your workforce, call the action what it is: job eliminations or reductions in force. Particularly in Michigan and California, where contract language is taken very seriously, to call it a 'lay-off' throws the action into the old lay-off/recall verbiage that means when and if you hire again, that 'laid off' employee has first rights to be re-called to the job if it is filled within 3-4 years. One labeling error could put restrictions on your future actions that could be costly and onerous.

Lastly, all employers need be aware of Senate Bill 910 (Healthy Families Act) that has the sponsorship of Ted Kennedy and others. This bill forces employers with more than 15 employees to provide 7 days of paid sick leave each year for all employees who work over 30 hours a week, 1,000 hours a year. For employees who average between 20 and 30 hours per week, the number of days will be pro-rated. If you currently have a Paid Time Off (PTO) policy, these 7 days will be in addition to your PTO accruals. This one has support on both sides of the aisle and it would be prudent to plan for it - while you are writing your congressional representatives in Washington to protest this one.

Being an employer has never been more complicated or confusing. However, with some prior planning and fore warning, you can avoid many employment pitfalls and not be a victim of legal action.

Kathryn Gray is an Associate and an Interim Executive with Cerius Interim Executive Solutions, the largest provider of Interim Management services. She specializes in working with small to mid-sized employers and company owners to develop their organizations by maximizing their human assets, and minimizing owner/operator risk.

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