If you’re following the continuing saga of the financial meltdown, you might be under the impression that many employers are doling out seven-figure bonuses like Goldman Sachs, Bank of America, AIG and the rest.

In reality (as has become crystal-clear over the past year or so), Main Street isn’t Wall Street, and operates on much more traditional principles.  So as you would expect, the number of employers that are still paying out bonuses during this recession has dropped substantially ...as has the relative size of the average bonus.  But there are still companies doing well enough to use this vehicle to reward their top employees;  and if yours is among them, we wanted to provide you with a cautionary note on the subject.

Most companies want to maximize the psychological impact on their bonus-eligible employees;  and some do so by skipping withholding Federal income tax on the bonus,
thereby making the take-home portion appear as large as possible.  It’s probably no surprise that Uncle Sam doesn’t much care for that approach.  Further, you risk putting your top employees in a serious crack come April 15th, when at best they may owe a penalty and at worst may be unable to pay their tax due.  Few wage workers have the discipline required to make an estimated payment, or minimally to sequester the sizable amount out of that windfall bonus that isn’t really theirs.

The right way
What you should do is withhold Federal income tax from bonuses at the supplemental tax rate of 25.00% (in fact, 35% for those fortunate enough to be receiving a 7-digit bonus);  or else the withholding should be calculated as if the latest pay check and the bonus were on the same paycheck.

It doesn't provide employees with quite as big a holiday surprise, but it also doesn’t set them up for a potential shortfall in April.  And in fact, come April they’ll probably get yet another nice surprise ...because in all likelihood they’ll be over-withheld, and will thus get a nice “mini-bonus” in the form of their Federal tax refund.

Businesses which sometimes overlook procedures (especially if written) may sometimes face a U.S. and / or state Department of Labor (DOL) notification for an audit. Is this a time to panic?  No. It is a time stay calm and be organized.

If managed effectively, DOL audits provide a productive opportunity for employers to review and analyze past practices and improve on future practices. Audits involve financial operations, employment law compliance, and evaluation of operational efficiencies. In fact, periodic (internal or external) audits are integral to the needs of management and it's the company's business processes.

To best prepare, consider the following items:

1. Determine which division of the U.S. or state DOL is investigating your business.
2. Contact an HR professional or attorney specializing in employment law to discuss the audit and to get information about your rights and responsibilities.
3. Contact the DOL to confirm or reschedule the appointment.
4. Determine which member(s) of your management team will participate in the initial meeting with the auditor.
5. If the notification letter requests documents, be sure to make copies for your records, since the auditor may take the original records off-site.
6. Meet with the auditor in a confidential, quiet area.
7. If the auditor requests to interview employees, be prepared to provide a private room for such interviews.
8. Respond only to questions that the auditor directly asks. Do not offer additional information unless requested to do so.
9. Stick closely to any follow-up requests and / or deadlines required by the auditor.

While maintaining respect and cooperation with the auditor, you may discover important resolutions critical to the continued success of your business.

Most employees, and even many business owners, are under the impression that a company has great latitude in deciding whom it will designate as salaried employees.

Well, the US Department of Labor would beg to differ ...and of course, its opinion is what really matters.  The Department’s concern - arising from the Fair Labor Standards Act (FLSA), first enacted in 1938 - is rooted in the issue of overtime pay.  Salaried employees are exempt from the requirement that overtime pay be fairly compensated ...which is why they are also referred to as “exempt” employees.  Apparently the New Dealers believed that – absent this law – every employer would classify all of its employees as exempt, and thus never pay overtime ...although that logic overlooks the fact that you need to pay a salaried employee for a full day if they work even one hour.

The Labor Department has very specific regulations as to who can be a salaried (or exempt) employee;  and it draws that distinction on the basis of the characteristics or duties of the jobs themselves ...not, as many believe, from the job title or employee’s education.  Under their rules, a position may be classified as exempt if it: 

• is directly related to the management of the employer's business; or
• is directly related to the general business operations of the employer or the employer's clients; or 
• requires specialized academic training for entry into a professional field; or 
• is in the computer field and paid at least $27.63 per hour; or 
• requires making sales away from the employer's place of business; or 
• is in a recognized field of artistic or creative endeavor.

Oh, yes... and the position generally must pay no less than $455 per week on a salary basis.

You’ll note that some of the criteria (e.g., the first two points above) are rather broad and open to interpretation.  This of course has the effect of enabling the government to bust you, even though you believed you were in the clear;  and it also helps sustain a thriving cottage industry of employment law – which you are well advised to make use of, should you have jobs with any possibility of going either way.

Should you elect to proceed without legal counsel, your government as usual is there to help:  the Overtime Security Advisor is a guided website provided by the DOL that will help you properly classify each jobspec you may be uncertain about.  (A snapshot overview of the law is also available.)  If those tools don’t quite do it, you can also get personalized assistance by calling 1-866-4USWAGE. 

As if this weren’t enough... most of the states also have analogous laws, which will supercede the Federal law to the extent that they are more beneficial to the employee;  so you’ll also need to be aware of those for each state in which you have facilities.
 
In case you’re tempted to take this matter less than seriously, thinking "Hey, who’s to know?" ...well, there are a couple of ways for classification errors to come to light:

• One of your employees might file a complaint under the Act (the instructions are right there on DOL’s website) ...as some 23,000 employees did in 2008. 
• The DOL could single out your company for inclusion in one of its future audits ...especially since it has announced it is hiring 250 more investigators to look for overtime pay, minimum wage or other violations (per a recent Management Moxie, the newsletter of Foley & Foley PC, Workplace Attorneys).

You may be thinking, - OK, so I might get caught;  but it would only be a wrist-slap, right? - Actually, if you are found to have incorrectly classified someone as salaried, you may have to pay that person overtime back to when (s)he started in your employ ...along with everyone else who is found to be misclassified, also.  Clearly that could be quite a sizable number, and that’s before talking about possible fines.

The DOL estimates that 70% of US businesses are in some way out of compliance with its regulations, and hence subject to its enforcement actions.  That’s definitely not the group you want your company to be in.

The Deparment of Labor is staffing up for its push for wage and hour compliance.  In a recent budget discussion, U.S. Secretary of Labor Hilda L. Solis says that the Wage and Hour division plans to hire 250 additional field investigators in 2010.  They will concentrate primarily on Fair Labor Standards Act minimum wage, overtime, and child-labor violations.

Seems like it’s in the news every couple of weeks... some company fesses up to having "lost" or compromised a mind-boggling amount of personal information about individuals ...sadly, most often its customers.  Usually what follows some time later is news of a class-action settlement running well into the millions of dollars.  You see these stories and think, “Boy, am I glad we’re not in banking or retail or any of those industries that have to collect personal information.

• And now for the bad news:  other than a matter of scale, you are in one of those industries ...as long as you have employees.  Why?  Because personal information (PI) is defined as an individual’s name, in combination with any of the following:
• social security number 
• state-issued ID number (such as a driver’s license number) 
• financial account number
• credit/debit card number

You’re required to collect and maintain several of those items for tax and other reasons;  and if you offer payroll direct deposit, then you have bank-account information as well.

Making matters worse... if you employ Massachusetts residents, you now have more to worry about than a class-action lawsuit from your employees.  A new Massachusetts law aimed at combating identity theft requires strict protection of personal information for residents of MA.  The law especially targets electronic information, but covers paper documents as well.  If your business holds, licenses, stores or maintains PI on any MA resident, it is covered under the law.  For HR, this includes I-9s and W-4s, plus insurance, retirement plan and direct deposit information.

Unlike many business regulations, this law has teeth!  Both civil and criminal penalties are provided for.  Civil penalties may include $5,000 per violation, and up to $50,000 for improper disposal of PI (old hard drives or paper documents).

What you need to do
The law’s compliance deadline was recently pushed back two months to March 1, 2010 ...but that will be upon us before we know it.  Here are the steps you need to take: 

• Develop and maintain a Written Information Security Plan (WISP). 
• Train employees;  define consequences for employees who do not adhere to the plan.
• Don't share passwords, and don't make them simplistic. 
• Encrypt any portable devices that contain personal information (laptops, PDAs, external hard drives, backup tapes, etc). 
• Don't transmit or receive data via unprotected email, websites or wireless. 
• Limit access to PI to people within your company with a genuine need to know. Keep written PI in locked file cabinets.

The WISP referenced in the first bullet above must address... 

• the measures adopted to safeguard information;
• designation of at least one person to manage the security program; 
• disciplinary measures imposed for violations of the program;
• how it will prevent terminated employees from accessing information;
• monitoring of electronic records for unauthorized access and security risks;
• documentation of incidents involving breach and resulting corrective actions;
• use of user ID / password protocols for electronic PI documents;
• access restriction to electronically stored information; and 
• upgraded safeguards and protection (firewalls, encryption software) as needed.

If 3rd parties that you do business with have access to your PI, "the new regulations require companies to take reasonable steps to ensure that their third-party service providers are capable of maintaining appropriate security measures," according to Management Moxie, a newsletter from Foley & Foley, PC.

Even if your company doesn’t employ Massachusetts residents, it’s probably a good idea to get out ahead of the curve on this issue;  because it’s fairly likely that your state(s) will implement similar regulations in the relatively near future.

Effective November 21, 2009, the Genetic Information Nondiscrimination Act of 2008 (GINA) was enacted in recognition of developments in the field of genetics. Genetic tests now exist that can indicate whether individuals may be at risk for developing a specific disease or disorder. The concerns focus on whether employees may be at risk of losing access to health coverage or employment if insurers or employers have their genetic information.

To address these concerns, GINA prohibits discrimination based on genetic information and restricts acquisition and disclosure of such information. Genetic information includes information about an individual's genetic tests, genetic tests of a family member, and family medical history. Genetic information does not include information about the sex or age of an individual, the individual's family members, information that an individual currently has a disease or disorder, and tests for alcohol or drug use.

GINA includes Title I and Title II amendments:

• Title I amends portions of the Employee Retirement Income Security Act (ERISA), the Public Health Service Act, and the Internal Revenue Code, and addresses the use of genetic information in health insurance.
• Title II applies to private, state, and local government employers with 15 or more employees, employment agencies, labor unions, and joint labor-management training programs. Title II also prohibits use of genetic information in making decisions related to any terms, conditions, or privileges of employment, prohibits covered entities from intentionally acquiring genetic information about applicants and employees, requires confidentiality with respect to genetic information (with limited exceptions), and prohibits retaliation.

"Covered entities" (subject to Title II as noted above) may not use genetic information in making employment decisions under any circumstances. The general rule states that covered entities may not request, require, or purchase genetic information with respect to an employee/applicant or family member of an employee/applicant. Covered entities in possession of genetic information about applicants or employees must treat it the same way they generally treat medical information. (Note: GINA also amends the privacy provisions of HIPAA to include genetic information in the definition of protected health information.) Covered entities also must keep the information confidential and, if the information is in writing, they must keep it apart from other personnel information in separate medical files. Employers need to exercise caution when it comes to the GINA law to avoid penalties.
 

Users of traditional payroll service providers (ADP and Paychex being two of the better-known examples) often literally don’t realize how much the service is costing them.

It’s common for these providers to charge on an a’ la carte basis for their services.  Which means that the only charge you’re likely to be really aware of is that big one, for the periodic payroll run.  So when you actually add up your charges for the year, you’re often taken aback to find separate, itemized charges for things such as...

• quarterly reporting
• check and report delivery
• check signing
• W-2s
• direct deposit
• extra pay runs
• support phone calls (that’s right: your vendor may charge you for the time it spends fixing even problems that it created!)
  ...even though many of those items are as much a part of “payroll” as the regular run itself.

Then there are a host of less tangible – but still very real – costs, such as:

• cost of resolving an error on an employee's paycheck caused by the payroll service provider (plus the likely cost of that same error occurring again, before the first one got fixed)
• cost in employee goodwill/loyalty of a late delivery, requiring employees to wait for their checks
• cost of time spent when employees question you about an old check, W-2 or vacation balance because they can't find the information for themselves
• time spent calling and calling your service provider to get problems resolved

This is the appeal of an Internet-based, “Software-as-a-Service” payroll service provider.  In some cases, you pay a single flat rate for access to all functions of the application, so your costs are level and very predictable.  In addition...

• the employee/hours/rate data used for payroll runs is totally under your control, not batched in and subject to key-entry errors;
• employees can access (authorized portions of) the same data, so they’ll rarely need your time to answer questions about old checks, W-2s or vacation time;
• you can print checks locally (if you wish), so there’s no such thing as a check/report delivery charge (never mind a late delivery);  and
• you can preview payroll prior to the regular run, greatly reducing the incidence of re-runs.  

We’ve looked at only the cost differences in this post;  in an earlier one, we outlined additional benefits of going with an online payroll service provider.  Hopefully, you’ll look carefully at all the dimensions before going with the provider type that’s best for you.  To make it even easier, we’ve also included a side-by-side comparison charts on our website.

In a down economy like the present one, everyone does a little belt-tightening.  Unable to grow revenue easily (if at all), most businesses seek to maintain profitability as long as possible by shaving costs wherever possible.

In that spirit, here are 7 simple things that small businesses can do to save money...

• Switch your phone service to Voice over IP.  After a few dicey years when VOIP was a challenge even for bleeding-edge pioneers, it’s now well tested and works largely as promised.  And it’s far cheaper than wireless or traditional landline.
• Utilize open source software to eliminate license-purchase payments and ongoing update fees to traditional software vendors.  Open Office (from OpenOffice.org) and Google Docs are good examples that both provide word processing, spreadsheets and presentation software.  They maybe don’t have all the bells and whistles of Microsoft Office, but more often than not they do what you need them to do ...and they’re free.
• Use Software as a Service (SaaS) wherever possible.  SaaS is advantageous because you can get the productivity of top-level software, better than what you could probably afford to buy flat-out.  The SaaS model provides access to traditional software over the Internet for a monthly fee.  Popular examples are Salesforce.com and Netsuite.  Clients do need servers, up-front licensing and system knowledge.  But the vendor maintains the software and performs all the system maintenance, reducing your need for costly in-house IT support.
• Switch to a free email service from AOL or other traditional provider.  There are enough free choices around these days (Yahoo! Mail, Gmail from Google, etc.) that it’s essentially become a commodity.  If you have a website, of course, your developer can easily set you up with email capability on your own www.mybusiness.com domain;  that may not make it quite free, but at least it will be painlessly bundled with other substantial value ...and probably still less than the subscription services.
• Consider bartering some of your products or services for those of similar value that your business requires.  Of course, this gimmick doesn’t save real economic value (your people are tied up producing the good that’s being bartered), but it does husband cash.  And if it happens to come at a time when some of those people are less than fully loaded with client work, it may save them from unpaid “holidays” or even a layoff. 
• Seek out blanket discounts on everything possible.  Your Chamber of Commerce is an excellent information source for member-to-member discounts on insurance, workers' compensation and similar deals offered by other members.  Your business category or ownership makeup may make you eligible for still more discounts or subsidies that are essentially “hiding in plain sight” ...but you will need to flush them out.

And last, but perhaps most substantial...

• Switch to an payroll service provider.  We spilled a bit of ink on this subject in our recent post, “Top nine reasons to go with an online payroll service”, so we’ll mention only those that directly impact cost here...
  • You will typically pay less than you would for either a traditional batch-oriented service or for acquiring commercial application software.  (Compared to the latter, it could save you the cost of an in-house IT department!)
  • You should have the option of printing checks locally (generally not available with a traditional service), thus saving on shipping expense.
  • Because the system is truly online, you should be able to preview your entire payroll before actually running it;  this can eliminate re-runs, which most traditional service vendors charge for.

By implementing these hints, your business may not only weather this recession intact;  you may be able to continue funding marketing and product development to a level that will enable you to leapfrog your competitors, once we all come out on the other side.

All employees will discover and learn aspects about their jobs and about your company that may become a particularly sensitive issue when an employee leaves the company.  While depending on state laws, employers can add a certain amount of protection through the use of properly written non-compete agreements.

It is generally understood that a former employee may eventually be in a new job position that could be in competition with the former employer.  For example, an electrician may not necessarily prevent a former apprentice from opening up his or her own business in the same neighborhood. However, an employer may restrict the former employee from entering into a certain scope of competition through a covenant not to compete.  Since specific restrictions and steps can apply, such agreements and covenants should be reviewed by an attorney.

In determining whether or not entering a non-compete arrangement makes sense for your business, the agreement should:

• Be crucial to protect the interests and survival of the business.
• Not limit the employee in a manner that goes beyond what is reasonable to protect your business interests. (Example: If your CPA firm focuses on clients in Arizona, then restricting the former employee from practicing in Florida would be deemed unreasonable.)
• Not subject the public with a loss of access to the former’s employee’s service or skill.
• Be a legitimate binding contract such that the former employee receives something in return by signing such an agreement (i.e. monetary compensation).

How do you make sure your workplace is free of harassment? Getting socked with an employee sexual harassment claim is not only bad for your business, it could also be bad for you! 

Depending on state law, managers and supervisors may have individual liability when it comes to sexual harassment claims made by an employee. Here are a few examples of suit actions on which you can be named along with your company:

• Not taking quick and appropriate action for harassment situations that were known or should have been known;
• Aiding, abetting, or engaging in sexual harassment; or
• Retaliating against an employee for making a complaint

To help ensure a workplace environment that is free of harassment, consider applying and establishing the tips set forth in the HRAdvisor newsletter this month. I've posted some of the tips here for your reading pleasure. 

• Establish a written Employee Handbook policy specifically addressing a hostile work environment.
• Update the company's electronic assets usage (i.e. Internet, texting) policies specifically addressing sexual harassment issues.
• Train Management and employees on what sexual harassment is and how to avoid it.
• Investigate each complaint and report immediately.
• Document all information gathered in the investigation of a complaint.
• Don't overreact and stick to the facts. Managers and supervisors who do overreact and jump to unfounded conclusions toward an accused employee are held accountable as likely as those who do nothing.
• Communicate with involved parties while emphasizing protection of confidentiality and privacy as appropriately as possible.
• Keep aware whether following-up on specific cases or monitoring the workplace in general.