Avoiding these common HR pitfalls can prevent an employer from costly lawsuits.
As many in the industry enter the annual budgeting process there are key areas of human resources (HR) that companies often think are uncontrollable fixed costs. In reality, executing a proper HR strategy can reduce these overhead costs.
Following are four common pitfalls and best practices to help companies hit budget by keeping employer costs low, shared at “Get Ready for a Costly Lawsuit” during the 2017 NAA Education Conference & Exposition in June in Atlanta.
One of the biggest employer costs includes the fluctuating state unemployment rate. Surprisingly, this cost is actually controlled by employers. While many budget for “employer taxes” as a non-negotiable fixed cost of doing business that is not always the case for state unemployment.
To improve the management of unemployment claims to reduce business rates significantly year-over-year:
- Ensure that there are clear documented policies for employee performance, such as job descriptions and handbooks;
- Make sure there is documentation to support the disciplinary action when an employee is terminated for cause;
- Dispute an unemployment claim when it is filed and keep your explanation simple (cause for termination should be all that is listed) and
- Always dispute resigned employees’ unfounded claims for unemployment.
Bonus and OT Calculations for Payroll
One of the largest expenses for any business budget is the cost of labor. When adding unpredictable overtime fees to standard wages a budget can quickly go out of control. Additionally, bonuses and commissions commonly help to motivate and to recognize employee performance, but also add to the unpredictability of what a business’ true labor cost will be. Don’t forget that increased wages also lead to increased employment tax and workers’ compensation liability.
The No. 1 pitfall that all Department of Labor (DOL) auditors know to look at is how overtime is calculated for the staff. A common assumption is that payroll software correctly calculates wages for bonuses, overtime and commissions on the company’s behalf. In reality, it is left to the business owner to review the payroll to ensure overtime rates have been calculated correctly once bonuses and commissions have been paid. No software program can accurately track the proper overtime rates to be paid when bonuses and commissions are also paid out to employees. This is a manual retro calculation that must be performed and the DOL knows it.
With maintenance employees, Workers’ Compensation insurance can be costly. Misclassified workers are a common HR mistake. Most states and most communities typically have the code 9012 for leasing and management and code 9015 for maintenance. This is important because a typical insurance agent may have just renewed a policy year-over-year without thoroughly looking to see if the codes are accurate for that business. Once a claim is filed for a misclassified worker, the employer could be subject to insurance fraud, re-classified and owe back premiums on paying at the wrong rate.
Each community needs to be listed on the policy. As you buy and sell new properties, send the updated list of locations to the carrier to be endorsed onto the policy.
There are current changing laws and positions on post-accident drug testing. Here are the recommended best practices from Occupational Safety and Health Administration (OSHA):
- Have a safety policy and abide by it.
- Have a policy that requires all injuries to be reported.
- The policy should state that no employee will be retaliated for reporting injuries.
- Post-accident drug testing should not deter employees from making a claim.
OSHA is trying to prevent employers from scaring their employees from reporting claims in fear they will be drug tested. This is a very fine line, causing employer confusion on what to do. It is not illegal to conduct post-accident drug testing; it is illegal to threaten employees to not report claims.
Another important policy consideration is implementing a light duty return-to-work policy. If injured on the job, compassion, communication and pay go a long way with keeping the employee from filing a suit. Reasonable accommodation will limit how far the employee can drive to do a light duty job. Paying the one employee to do “light duty” is far less in overall corporate cost for workers’ compensation than dealing with a lawsuit that will affect workers’ compensation rates for at least three years on all covered employees.
Each year, the United States Equal Employment Opportunity Commission (EEOC) releases the areas in which they plan to have a devoted task force. These are usually areas producing a high volume of complaints and lack of compliance. Following are focus areas along with proactive compliance tips.
1. Accurate exempt vs. non-exempt.
- To be exempt from overtime the employee must currently be earning $455 per week and meet the duties test, such as being the manager.
- This pay threshold is likely to go up this year. A large employee population in the apartment sector will be eligible for overtime pay regardless of how much money they make according to the duties test.
2. Inconsistent enforcement of polices.
- Do not write-up one employee for being late and let another get away with it. Set polices, ensure all employees sign-off on the handbook and then treat them all the same.
- Discrimination suits are No. 1 and are hard to defend, even with the best of intentions.
3. As mentioned on the I9s, audit, audit and audit.
- Using the “I didn’t know” excuse will not prevent the audit, fines and penalties.
4. Treat all complaints seriously.
- This doesn’t mean they will end up being justified. But accept complaints in a respectful, professional manner and conduct the investigation.
- If unfounded, do not retaliate against the employee who reported the complaint.
5. Pay the last check.
- Ensure having employee signatures stating the employer can withhold their pay if company policy states that all equipment must be returned.
It is critical to understand how to reduce exposure to lawsuits. Understanding these four common industry HR pitfalls will help avoid claims leading to morale issues and costly settlements. Following these tips, companies have seen budgeted items such as workers’ compensation, payroll and employer taxes significantly decrease. Additionally, being proactive with these compliance measures will reduce risk and overhead costs. And, ultimately, if there is more top line to spend, a company can attract and retain the best talent over its competitors.
Erica Brune, President of Lever1
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