Your Employee Matters

Every month we receive dozens of calls from employers asking whether they can terminate an employee with an attendance problem. In most circumstances, they have every right to do so — especially if there’s a well-defined attendance policy and the company holds other employees to a similar standard. Employers get in trouble when the attendance problem results from a work injury, disability, serious medical condition, pregnancy, or other protected category that impacts the employee or a family member. All too often, employers don’t ask why somebody missed work. In one case, an employer told us the employee was late for work on a repeated basis because she had been having flu-like symptoms and getting sick. The employer never asked what might be causing the problem. It turns out that the employee was pregnant. Terminating her would have been a huge, and costly, mistake.

The law does not expect employers to be doctors or psychiatrists. However, it does create a standard of liability that requires managers to determine, if there is a disability, serious medical condition, or pregnancy involved. In the end, a judge or jury will determine whether the employer met this standard.

In most circumstances, employers don’t face lawsuits for their compliance failures. But bear in mind that it only takes a single employee bringing a claim to expose you to hundreds of thousands of dollars in damages (not to mention legal costs). This is another good reason to make sure that your company purchases Employment Practices Liability Insurance. HR That Works Members should take advantage of the training modules and other tools on leave management.

An excellent article in the October Backpacker Magazine discussed five emotional aspects of preventing deadly threats. Although the “threats” facing human relations professionals might not be as extreme as dangling from a cliff, we’re certainly guaranteed a turbulent future. Here’s how the five emotional intangibles in the article might apply to the survival of HR:

1. Assess risk — As the article asks, “What’s the worst thing that could happen if I do this?” Another good question to consider is “Whose judgment would I be concerned about if things didn’t work?” You should also ask, “What’s the worst thing that could happen if I don’t do this?” This gives a broader understanding of the risk. For example, the real risk that our economy can go south again would affect your entire company, as well as you. If the risk of the economy going south is greater than the risk of improvement — and the downside is extreme — have a contingency plan. How would HR help to manage a 15%-30% drop in revenue?
2. Stay calm — The article recommends that you “Take control by forcing yourself to slow down.” When you’re used to running 75mph, it’s important to stop, breathe, and think. Give yourself the opportunity to find that safe, calm place for observation and reflection.
3. Set priorities — According to the article, “You need to be able to survive the conditions you’re in. Assess your situation and determine your most pressing needs.” Not all HR risks are equal. For example, the risk of making a poor hire is perhaps the most serious in terms of frequency and severity. Another significant risk is failing to get rid of a poor performer or an employee who is sabotaging your brand on social media. What are the three greatest risks your company faces and what plan do you have for addressing them?
4. Be a leader — In risky times, resist groupthink by discussing possible scenarios up front. Give each employee a specific assignment to focus on in risky times. What tasks can you assign to HR subordinates, other managers, or employees?
5. Stay positive — According to the article, “A powerful desire to keep living leads directly to successful survival stories. You don’t have to be comfortable to survive this situation.” I can supplement this statement by adding “A powerful desire to be a strategic HR executive leads directly to successful career stories.”

Risk management is an exercise in logic and emotion. To reduce their exposures, HR professionals must use both.

According to insurance industry estimates, fewer than 50% of companies carry EPLI — and the smaller the employer, the lower the percentage. Although the cost of coverage varies, a $1 million policy with a $5,000 deductible usually costs from $50 to $250 a year per employee. When you think about obtaining EPLI, weigh the cost of this protection against the likelihood of a claim, settlement, verdict, etc.

Check out the cost figures on claims, derived from Jury Verdict Research and other sources:

• Median award (2004-2010:) $199,600
• Mean award (2004-2010): $632,589
• Median settlement (2004-2010): $85,000
• Mean settlement (2004-2010): $515,816
• Nearly two in four plaintiffs’ verdict (39%) ranged from $100,000 to $500,000 range; 12% of verdicts were $1 million or more. Note: Verdicts tend to be higher in state cases than in federal ones.
• Legal fees, stress, additional exposures, etc. — a minimum of $25,000 per claim and going up from there.
• Loss of pre-claim non-productivity due to the fear of not letting a poor performer go because you might get sued — hard to quantify.
• Impact on the company’s loss of reputation among all stakeholders — priceless.

Note: The mean is the arithmetical average of a group of scores. The mean is sensitive to extreme scores when population samples are small. Means are often used with samples of larger sizes. The median is the middle score in a list of scores; it’s the point at which half the scores are higher and half the scores are lower. Because medians are less sensitive to extreme scores, they’re probably a better indicator with smaller samples.

That’s the potential exposure. What’s the potential of getting hit with it? According to CNA, an employer is more likely to face an EPLI claim than a Property or General Liability claim. Almost 75% of litigation against corporations involves employment disputes. Nearly 100,000 sector charges were filed in 2011 against private employers under EEOC statutes, leading to more than $450 million in settlements and charges. This does not include statistically-based claims or settlements that never see the EEOC, state agency or courtroom. More than 40% of Employment Practices claims are filed against companies with 15-100 employees.

Doing some rough math, there are about 6 million companies in the U.S. Although many of these firms are too small to bother suing, some 2.5 million businesses have 15 or more employees. My experience tells me that tripling the number of EEOC claims give a fairly realistic number of total claims filed. Dividing 2.5 million companies by 300,000 claims comes to roughly a one in eight chance of experiencing a claim during a given year — which means the firm can expect to face at least one employment-related claim over an eight-year period (of course, this probability depends on the size of the company, location, compliance practices, culture, etc.).

By purchasing EPLI, you not only cap your risk at $5,000 to $10,000 a year, but you allow yourself the freedom to let go of poor performers without the threat of litigation. Let’s say a 50-person company pays $7,200 a year (an average of $120 per employee) for EPLI coverage. Over an eight-year period, this comes to a total cost of $57,600, plus the time value of those dollars. The chances are that the company will face a claim at some time during those eight years, which will cost an average of $85,000 just to settle, plus another $25,000 in legal fees, for a total of $110,000 (see the average premium cost and settlement figures above). You’d still come out $52,400 ahead — not to mention eliminating the hassle. If the case goes to verdict, those numbers can easily triple. Bear in mind that there is no way you can amortize this expense! Of course, you might easily face more than one claim during the policy term.

The bottom line: Not getting EPLI is a gamble that could significantly impact or even wipe out your cash flow at any time.

If you’re interested in a checklist for purchasing EPLI, please contact me at don@hrthatworks.com.

A recent California case, DeLeon v. Verizon Wireless, involved an attack on the company’s commission program for alleged violation of a labor code section that prohibits the secret underpayment of wages. Basically, the complaint was that the Verizon employees who were paid both a wage and a commission should not have been charged back against those commissions for customers who did not fulfill their agreements.

Verizon prevailed for these reasons:

1. The commission was clearly defined as such, and the employees already received a wage that satisfied minimum wage standards.
2. Employees knew that the commissions were not final until the customer completed their contract period, and that anything paid was considered an advance on commissions.
3. Employees underwent training which included the chargeback feature.
4. The court reminded employees that “the essence of an advance is that at the time of payment the employer cannot determine whether the commission will eventually be earned because a condition to the employee’s right to the commission has yet to occur or its occurrence as yet is otherwise unascertainable.” In this case, an advance was not a wage because all conditions for performance have not been satisfied.
5. The court reminded employers that a chargeback based on “unidentified returns” from the wages of all sale associates violates the law. There are also cases in which the employee cannot be charged with business losses i.e. work comp claims, theft, etc.

Settling commission claims can be costly — so get the agreement right!

Because so few companies have inspired HR practices, those that do enjoy an enormous competitive advantage. Unfortunately, all too many businesses don’t take advantage of this opportunity. Here’s why:

1. Cultivating great HR practices must be an “inside-out” job. I’ve reached this conclusion after coaching and working with hundreds of HR executives over the years. Those who believe, achieve. There are a number of reasons why someone might not believe that they’re capable of producing great HR practices:
   • They don’t have the skill set. If that’s the case, they can learn one critical aspect of HR at a time and implement this expertise. Most people can only do things one step at a time anyway.
   • They don’t feel they have the time it takes to improve HR practices. The solution is to make the time. Great HR practices offer a cost-effective return on investment. I advise HR executives to save at least five hours a week by outsourcing or delegating these activities, so they can in turn devote this time to strategic activities.
   • They don’t believe they have the support of top management. When it comes to business owners, nothing is more important than demonstrating the potential ROI of good HR practices. This is why we’ve created the HR Cost Calculator. I start my CEO workshops with an hour-long review of this form so that participants understand the math surrounding their HR practices.
2. Private companies, unlike their publicly held counterparts, aren’t required to have anything but basic compliance. There’s no Board of Directors demanding that they get their HR act together; as a result, most privately-held firms do little or no real HR.
3. HR professionals don’t get managers on their side. Begin by surveying them. HR That Works members can use the HR Department Survey to have managers rank specific practices and comment on opportunities for improvement.
4. Failing to educate everyone in the company about the opportunities that a good HR program offers them. Learn to let people know the progress you’ve made every month and how this impacts best practices and the bottom line. Show that your HR practices are better than those of the competition.

There’s been plenty of HR press about the use of social media in doing background checks on job applicants. Some attorneys have gone so far as to recommend that employers should ignore social media completely. I think that’s poor advice. If people are willing to do stupid things on their social media sites, they’ll be just as willing to do stupid things when working for you. According to a Career Builder/Harris Interactive survey, more than one in three employers rejected job candidates because of their social media activity. The four top reasons were that candidates: 1) Had posted inappropriate photos or information, 2) showed evidence of drinking or drug use, 3) demonstrated poor communication skills, or 4) badmouthed a previous employer.

Risk management is not about eliminating risk. As Walter Olson once stated, “There’s no such thing as the golden shore of legal compliance.” Ask yourself: Which is the greater risk — facing a potential discrimination claim because they showed one of the bad behaviors discussed above, or hiring them and allowing them to damage your company? You get the idea of where I think the real risk lies. The bottom line: Don’t hire a candidate until you learn everything you legally can about them.

According to a report from ADP, the companies that we help with HR That Works usually have fewer than 500 employees — a size category that produce 97% of the jobs added in the private sector during April 2012! Although most of these companies intend to maintain their current level of employment, 31% expect to add more workers, compared with only 13% that expect to reduce their head count.

Interestingly, according to a Simply Hired survey, 39% of college graduates would prefer to work for a small or medium-sized business (compared with 27% at a large corporation, 19% in the public sector, 11% for nonprofits, and 4% with a start -up). The respondents see job security as their No. 1 priority (33%) followed by salary (23%), benefits (23%), and company culture (18%).

The Catch-22 is that smaller companies often offer less job security, benefits, and salary. Looks like the greatest opportunity then is to focus on building a great culture!

Where’s your edge? This is the question Sounds True founder, Tami Simon, asks her New Age guests. Their answer is usually the most interesting part of the interview.

So I ask you the same question. What are you doing in HR at your company that excites you? What are you doing that’s cool, different, outrageous, experimental, and otherwise, really edgy?

If your answer is silence, you have a serious problem. What do you think will happen if your competition is focused on creating an “edge” and you’re not? Kind of like Southwest Airlines vs. American, United, etc.

Pushing for the edge helps keep us going here at HR That Works. Sure we focus on doing the HR blocking and tackling as well as we can — but we also want to make sure that our clients keep looking for their edge. For example, what if you distributed the Creativity Checklist and Employee Suggestion forms to your entire workforce? I’ll bet that you can discover a lot of edge lying dormant at your company. Trust me. Just do it. One good idea can more than repay your investment in HR That Works for years to come! It can also do wonders for your career.

Here’s what we’re doing to build our edge at HR That Works:

• We recently produced the Job Security Program and book. You can find it in the Training Modules. There’s a lack of literature or programs on how to be a great employee. This program fills that void. I would encourage you to allow all your employees to spend the 90 minutes it takes to watch the program — and then task them to complete the exercises in the book.
• We’ve released the Time Management Program, a project that was years in the making. We did the Webinar months ago, got great feedback from our Members, and have produced a program that I believe all your employees and executives should watch. In today’s “squeezed” economy, time is your most precious asset.
• We’ve upgraded our website and are revamping our social media platforms to be managed by a new partner. We realized that although we knew what we wanted to do with social media, we just weren’t implementing it fast enough. So we brought on third-party experts to do the job for us. If your social media platform is in the same spot we were in, using a third party can help take you to the edge.
• We’re providing cutting-edge Webinars. We’ll continue to push the edge with who we bring in to help educate you on growing your managers and company. HR is not, and should not, be viewed primarily as a way to avoid getting sued. We’re convinced that cultivating great employee relationships and a high level of trust helps minimize lawsuits. Last year we did 20 excellent webinars that you can now watch at any time. We’ll produce an equal number this year — giving us a library of more than 100 great stored webinars
• We’ve upgraded site navigation. By now, you’ve been able to view the latest version of HR That Works. We’ve added the ability to attach documents to the audits, quizzes, and surveys. We’ll also be making it easier to upload your own documents to the SharePoint portal.

I could go on, but that’s plenty for now. I encourage you to keep asking yourself, “Where’s my edge?” To compete in today’s crazy business environment, you need to be creative, proactive, and ahead of the curve. Playing catch-up will guarantee the failure of your business — and your career.

About one in five Americans still smoke. Most employers want to eliminate smokers not only from their workplace, but from their payrolls as well. In researching this article I found statistics estimating the annual additional cost to a company of a smoker at $3,000 to more than $12,000 — a costly proposition! On the other hand, trying to terminate, or not hire, smokers raises three questions: 1) Will state laws prevent you from doing so? 2) Does your policy follow the guidelines of such federal laws as ADA and HIPAA? 3) Will it really be worth the effort?

Not hiring, or terminating employees who smoke offers companies these advantages:

• Lower incidence of heart disease, asthma, lung cancer, and other diseases among employees, thus lowering company Group Health insurance rates.
• Less absenteeism and shorter breaks, increasing productivity.
• Reducing conflict between smokers and non-smokers.

The cons:

• You’ll reduce the job applicant pool by 20% to 25%.
• You might offend some of your best workers.

What’s more, state law might prohibit this practice. Twenty nine states and the District of Columbia have laws that prevent employers from discriminating against employees for using tobacco products. (A number of these states exempt people in the firefighting and health professions). Although California, Colorado and New York don’t specifically prohibit this practice, they do protect workers against discrimination for engaging in any lawful activity outside the workplace.

According to the website www.ash.org, which I highly recommend, many of these laws are “toothless and easily avoided.” I encourage you to check out this site, which does an excellent job of identifying relevant state statutes, as well as the loopholes in them.

Although smoking and alcohol use are not protected per se, the health impacts they generate might be. For example, you might be able to terminate an employee for smoking, but not for having lung cancer as a result of smoking. HIPAA allows you to “penalize” smoking employees, but limits the penalty to 10%-20% of their Health insurance premiums.

There’s the argument that this is Big Brotherism at its worst: Creating a slippery slope that can lead to restrictions against the food we eat, the beverages we consume, having high cholesterol counts, etc. Plenty of smokers who abide by the company’s policy not to smoke in the workplace are highly effective employees. Do you really want to terminate workers of this caliber? Finally, this quote from a woman about how many people feel about smoking hits the nail on the head. She said, “It’s a stupid choice, but it’s a personal choice.”

HR has an exciting future with incredible opportunities — yet most companies undervalue it. As Kevin Cope’s Business Acumen Webinar stresses, if you want to have a more profitable HR operation, you’ll have to be unique. To meet this goal, you’ll need HR managers that have these 10 characteristics (listed in alphabetical order):

1. Adaptable. We’re going through a period of accelerating, meaning that change is happening faster than ever. This means we need to adopt new practices quickly. Chances are that if you’ve been doing anything in the same way for the past 10 years, it’s out of date today. Adaptability happens in real time. You can’t think on it, plan on it, have a committee, produce a plan, etc. You just have to adapt, now! For example, have you adapted to today’s performance management realities — or are you using the same ridiculous performance management approach that didn’t work 10 years ago?
2. Collaborative. None of us are as smart as all of us; we need the IQ and EQ of the entire team. Today we collaborate around projects and activities, rather than job titles. To collaborate, we have to communicate, produce vigorous dialogues that result in action. Collaboration does not mean consensus — it means input from all.
3. Constant Learner. To earn more, you must learn more. To learn more, you must train more. Whether you’re in an organization with five employees or 5,000, you must out-educate the competition. How do you make it easy for everyone from the owner to the rank-and-file to educate themselves? Do you provide employees with on-demand access to training materials? Do you give them CDs that they can listen to in the car or MP3s they can upload to their players? Have you taught them about the factors that drive profitability at the company?
4. Cross-disciplinary. Don’t limit collaboration to your own circle of influence — reach out beyond that. To what extent have you collaborated with your marketing director to help with internal branding? Have you spoken with the CFO to help understand the bottom-line impact of HR practices? Zappos requires new HR executives to start out by working in the warehouse taking customer orders and support calls, so that all of their executives have a cross-disciplinary view of the workplace.
5. Designer. Daniel Pink’s book, A Whole New Brain, which discusses how we’re moving to the right side of the brain, includes design as one of the factors. Think about it: One reason why Apple products are so popular is because of their design, not just their functionality. To what extent can you be a designer of your environment, your internal brand, your culture, and workflow? Pick up a few design magazines and ask yourself how you can apply this thinking to human resource practices. You’ll never know the answer until you go through this exercise.
6. Expert in time management. Most executives and employees get zero time management training and yet it’s the greatest stressor they face. Make sure you that you, and your workforce, get time management training (HR That Works has an excellent Training Module). Good time management involves 1) knowing where your time goes; 2) identifying where it should be going; and 3) determining how to replace low-value work and bring on higher value work. Although this isn’t rocket science, it requires discipline to implement. For example, how much time do you lose to distractions (an e-mail from a friend, an article in the New York Times or a Facebook page)? Because the amount of information is doubling approximately every 500 days, without time management discipline you’ll be twice as distracted as ever!
7. Innovator. When you think of human resources, does innovation jump to mind? Of course not! To become an innovator, you need be a good observer of your current environment and “think outside the box.” As mentioned earlier, pick up a magazine on design, sales, or business in general and ask how any of the principles discussed could apply to HR. Dr. Deming taught that profound knowledge comes from outside a system because the system can’t understand itself. Your breakthrough thinking in HR will come from outside the HR field, not within it. HR That Works members should take a look at the Creativity Checklist and Employee Suggestion Form. HR also has the opportunity to get everybody else to the company engaged as innovators as well.
8. New-media savvy. To what extent are you using social media tools to help empower the HR function? To what degree do you use social media outlets such as Facebook, LinkedIn, and Twitter to help build a dialogue at your company? How do you employ tools such as YouTube videos to attract, retain, and motivate workers?
9. Motivator. The last thing HR needs is to manage an endless series of dramas. A better approach would be to find a way to empower, engage, and motivate the workforce. For example, how effective are your retention policies? Are you getting the biggest bang for the buck? Are you addressing people’s psychological needs? Have you surveyed workers to determine what their emotional drivers are?
10. Technologist. It has become easier and easier to build database management programs, whether it’s for sales, finances, operations, or human resources management. Years ago there were a dozen or fewer human resource information systems (HRIS); today, there are hundreds and they’re increasingly available to smaller companies. How can you use technology to manage data more effectively? In an information society, well-managed data is essential. What tools can help drive performance management and what tools will you use for strategic HR purposes (of course we think HR That Works is the best!).