Your Employee Matters

Here’s what I’m doing with my employees to manage more effectively in this economy.

These ideas make sense for your organization, no matter its size or industry:

• Be very clear with workers about how the business makes and keeps money. Although I’ve always had open-book management, to help employees understand the numbers that much better, I had them watch the HR That Works The Accounting Game Webinar. You might want to have at least your management team do the same thing.
• Refocus your objectives. This is a good time to reestablish your core values. In our recent webinar, The Integrity Dividend, Cornell University professor Tony Simons advised members to focus on no more than three to five core values. Make these points memorable and brand them as often as possible. Then ask a simple question: How does this activity help or hinder moving toward these values?
• Increase your productivity. Eliminate any time wasters. Whether it’s a MySpace chat or shopping online, there’s simply no time for it in today’s workplace. We’re tightening up our standard operating procedures, job descriptions, benchmarks, and 90-day game plans. If you’re an HR That Works member and haven’t yet done so, please watch my Training Module on Performance Improvement.
• Work on your business. In my business, the summer months are generally slow. Every year, we use it to work “on” the business. Right now, we’re all having an early summer and I believe that smart companies will use the slowdown to strengthen their operations. As the economy recovers, your company will be better positioned for growth and prosperity.
• Live up to your commitments. Tony Simons reminded us about the risks associated with making “casual commitments.” In my workshops I talk about the trap of heroes being over committed. When we over-commit, we produce a lie and then the drama begins. So, be clear about what you’re committed to, don’t over commit — and then walk the talk.
• Create some positive dramas. Lord knows we’ve had enough of the negative ones! Don’t allow your business to wallow in some collective pity party. Create a fun committee. Have a creativity day. Let your employees’ kids do artwork that can be displayed in one of your hallways. Create some “positive energies” and you’ll get some positive results!

Many employers are freezing wages, telling employees that any additional pay will come in the form of a bonus if they or the company does well. A recent California decision (Marin v. Costco) serves as a reminder that paying a bonus to non-exempt employees can trigger additional overtime obligations.

In Marin, several former employees, all classified as non-exempt, sued Costco for its alleged failure to pay overtime wages on the non-discretionary bonus it paid to these employees.

Under the Federal Fair Labor Standards Act and the California Wage Orders, employers must calculate overtime based on the employee’s regular rate of pay. This rate must be computed by each work week, and becomes significantly more complex if an employee’s compensation involves more than just an hourly wage, such as profit sharing or productivity bonuses. For each work week, the employer must total all the compensation paid, but exclude overtime payments, profit sharing, discretionary bonuses and other benefit plans, and then divide the total number of hours worked, up to 40, to determine the regular rate of pay. Significantly, non-discretionary bonuses, such as those earned by meeting performance standards, are included in the regular rate calculation.

Bonus overtime stems from the fact that overtime premium pay is computed based on a multiple (usually 1.5 times) of the employee’s regular rate of hourly compensation. This regular rate is calculated by dividing the number of hours worked in the week by all compensation earned for that week. If the employee is later given a bonus that’s partially due to work performed in that week, this additional pay must be added to the total compensation for the week. This effectively causes a retroactive increase in the employee’s regular rate of pay.

For example, suppose an employee’s straight time hourly pay is $10 per hour, and that he worked 40 regular hours and 10 overtime hours in a given week. His regular weekly paycheck would include $400 as straight time pay, plus $150 of overtime pay (1.5 times his base rate, or $15 an hour, multiplied by 10 hours).

Now suppose the employer has a profit-sharing program that pays this employee $5,200 at the end of the year based on the company’s overall performance. Because the bonus is equally attributable to all weeks in the year, this payment retroactively increases his weekly compensation by $100 ($5,200 divided by 52 weeks). Under the law, this additional $100 per week payment also raises the employee’s regular hourly rate for the week retroactively by $2.50 ($100 per week divided by 40 straight time hours per week). Since the employees recalculated regular rate for this week is now $12.50 per hour, his recalculated overtime rate increases proportionately from $15 an hour to $18.75 an hour. Each employee is thus entitled to an additional $3.75 for each overtime hour worked, totaling $37.50 extra for the week in which he worked 10 hours of overtime. This is known as the retroactive effect of a non-discretionary bonus.

In contrast, the retroactive effect of a discretionary bonus creates a different outcome. Suppose the same employer paid the same $100 per week for the performance bonus based on that particular employee’s volume of production during the year (e.g., making sales, manufacturing products, etc.). The law now requires that the bonus overtime be calculated differently. Instead of dividing the $100 by 40 straight time hours to determine the regular rate for bonus overtime, the employer is allowed to divide the amount by the total of the straight time and overtime hours worked (in this case, 50 hours). As a result, the employee’s regular rate for the week rises by just $2.00 ($100 divided by 50 total hours worked). The employee would be entitled to only an additional $20 ($2.00 multiplied by 10 hours of overtime), as opposed to $37.50.

In summary, the two points to remember from the Marin case are that: (1) Additional overtime payments are triggered when a bonus is paid; and (2) the method for calculating the amount of this bonus overtime depends on whether the bonus is characterized as a non-discretionary bonus or a discretionary bonus. Calculating bonus overtime is complex and can be a headache for employers. However, employers who ignore this calculation do so at their own peril because using a mistaken formula offers fertile ground for a class action or other litigation.

The Bottom line: When formulating bonus plans, be prepared to calculate the impact of retroactive overtime pay.

Here are materials to help you calculate wage obligations related to bonuses.

• 29 CFR 778.211 – Discretionary bonuses http://www.dol.gov/dol/allcfr/ESA/Title_29/Part_778/Subpart_C.htm
• Bonus Plan Opinion Letters http://www.dol.gov/esa/whd/opinion/FLSANA/2006/2006_02_17_4NA_FLSA.htm and https://www.dol.gov/esa/WHD/opinion/FLSA/2005/2005_08_26_22_FLSA.htm
• For businesses in California, http://www.dir.ca.gov/dlse/DLSEManual/dlse_enfcmanual.pdf Section 35 on bonuses

Partial content contributed by Pettit Kohn Ingrassia & Lutz (www.pettitkohn.com).

Because many employers can find these two categories confusing, we decided to help clarify things. To begin with, comp time is basically illegal unless you’re a federal or state employer. Comp time allows you to work extra one week and then get the time off at a time-and-a-half rate the next week. Government employers who do this are limited to 240 hours of comp time off (CTO). They must be requested by employees only. Although comp time is theoretically available under California state law, employers are still required to pay the time at an overtime rate. For most businesses, providing CTO just isn’t worth it — in California or any other state.

Make-up time is different because it involves swapping some hours for other hours within a week period and avoiding overtime obligations in the process. To get make-up time, there must be a written request, a personal obligation of the employee, and the make-up time has to occur in the same week. Under Federal law, as long as employees work less than 40 hours a week, make-up time is not an issue. Under California law, with its eight-hour overtime requirement, there are more specific rules: The employee may not exceed more than 11 hours of work in one day or 40 hours in the week (the only real distinction with federal law is the 11-hour limit). HR That Works users can find a Sample Make-Up Time Policy and Request on the Web site.

The CDC states: Human cases of swine influenza A (H1N1) virus infection have been identified in the United States. An investigation and response effort surrounding the outbreak of swine flu is ongoing. What can you do? Learn about it by going to the CDC Web site. You might also want to share this information with employees. Employers can learn more about their obligations for a potential flu epidemic here.

Many companies have instituted across-the-board salary reductions. Many of the same companies offer their employees reduced hours as well. This can be a trap with exempt employees. The DOL recently released opinion letters addressing short-term layoffs, mandatory time-off policies, and a reduction in work hours. In all three cases, the employer would allow use of vacation time but would dock worker time once exhausted.

Although the DOL had no problem with folks being required to use their vacation time, it did have a problem with docking pay for the time missed. The latter can jeopardize the employee’s exempt status. Employers may dock time if the employee misses an entire week of work or voluntarily takes time off for personal reasons, but not simply because they reduced their pay and feel that it’s fair to have them work less. In other words, if an exempt employee has their pay and hours reduced, they might lose their exempt status.

According to the DOL, there is a narrow exception: A fixed reduction in salary effective during a period when a company operates a shortened workweek due to economic conditions would be a bona fide reduction. If you attempt to go this route, get some legal advice first. You’ll find the opinion letters here.

The bottom line: When it comes to exempt employees, you can fire them or reduce their pay — but watch cutting their hours in the process!

It’s a good idea to take advantage of the O*NET Web site, which provides job descriptions for thousands of positions — and it’s free! In addition to the essential job duties identified by O*NET, you might also consider adding these items to your job descriptions:

1. Being on time. (Yes, lawyers will argue that this is not an essential job function). If it’s essential for an employee to show up at 8 a.m., due to the nature of your business, and flexible scheduling won’t work for that position, then identify it as an essential job function.
2. Mandatory overtime. If your business requires mandatory overtime, make sure that this is an essential job function. (Even though lawyers will argue that the essential work only has to be done within 40 hours per week).
3. Rotation through jobs. Many companies do this for cross-training and other purposes. Again, if job rotation is important, put it in the job description. (This forestalls the argument that rotation is a punitive or retaliatory measure).
4. A pleasant personality. For example, having a pleasant personality is an essential job function for customer service employees. (Again, lawyers will argue that being nice isn’t an essential job function — simply getting the job done is).

Although it might sound ridiculous to add such requirements to your job descriptions, we’ve seen these issues arise in case after case, especially in the disability accommodation area.

Every year I look forward to the annual Berkshire Hathaway Annual Report. Not just because I own some of the stock, but because of the much anticipated letter from Warren Buffett that provides incredible insight with a good sense of humor to boot.

For example, in this year’s letter Buffett stated that the recent economic period was “devastating” and that “investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game.”

Although Buffett is concerned that government spending will lead to an onslaught of inflation, he remains optimistic that America’s best days lie ahead. In his report, he states that he and his partner, Charlie Munger, are focused on these goals:

1. Maintain the company’s Gibraltar-like financial position, which features huge amounts of liquidity, modest near-term obligations, and dozens of sources of earnings in cash.
2. Widening the moats around operating business that give them durable competitive advantages.
3. Expanding and nurturing the cadre of outstanding operating managers who, over the years, have delivered exceptional results.

Does anything make more sense for your business or career than what you’ve just read? The answer should be “of course not.” Which begs the question: Are these the goals of your business or career? Do you maintain liquidity both at home and in your business? Do employees understand the importance of maintaining retained earnings? Do you have dozens of sources of earnings in cash? What are you doing to acquire or develop new ones?

Have you identified the moat around your operating business that you’re now attempting to widen? What do you do that’s unique from your competition or others at the company? How do you intensify it? Do a better job of branding it?

Finally, do you have outstanding managers you are constantly nurturing so that they can continue to produce exceptional results? How are you nurturing them? What leadership training are they getting? How are their egos being stroked? If you’re a manager, how are you nurturing yourself? Feeding your mind, body and soul?

Productivity and quality are key to Buffett. Two examples: GEICO is one of the most efficient operators in the insurance business. Five years ago the number of policies per employee was 299. In 2008 the number was 439, a huge increase in productivity, without a drop-off in service.

“Our two pipelines, Kern River and Northern Natural, were both acquired in 2002. A firm called Mastio regularly ranks pipelines for customer satisfaction. Among the 44 rated, Kern came in ninth when we purchased it and Natural ranked 39th. There was work to do … Mastio’s 2009 report, Kern River ranked first and Northern Natural third. Charlie and I couldn’t be more proud of this performance. It came about because hundreds of people at each operation committed themselves to a new culture and then delivered on their commitment (mine).”

So, how can you show that you’ve increased productivity per employee and the overall quality of your operations? What are your benchmarks and how well do your employees know them?

While remaining cautious, Buffett see this as an incredible time for opportunity. As he states, “When investing, pessimism is your friend; euphoria the enemy … Whether we’re talking about socks or stocks, I like buying quality merchandise when it’s marked down.”

The savvy employers I know get that this opportunity is the silver lining in a stressful time. They’re doing everything possible to capture market share, as well as the best and brightest employees from the competition. When the economy eventually does turn around, they’ll be in an incredible competitive position. You want to be a company like that — you don’t want to compete against a company like that.

Finally, at the end of every annual report are the 15 owner-related business principles that Buffett believes will help shareholders understand his management approach. Reading these 15 principles offers a lesson in business management.

How would your company stack up to them?

You can read a copy of the annual report here.

OSHA has ordered Southern Air Inc., a cargo airline headquartered in Norwalk, Conn., to pay more than $400,000 in lost wages, back pay, damages, and legal fees to compensate a flight crew member who was terminated for raising safety concerns protected under the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR21).

The employee was terminated in April 2008 after twice complaining to management about inadequate rest breaks and being required to work hours in excess of those allowed under FAA rules. The employee then filed a whistleblower complaint with OSHA’s Boston Regional Office.

After finding merit to the complaint, OSH issued a Notice of Secretary’s Findings and Preliminary Order directing Southern Air to pay the complainant $300,000 for loss of career wages, $135,240 in compensatory damages, $7,394.65 in attorney’s fees and back pay of $1,485 per week, plus interest, from April 7, 2008, through the date of payment. The company was also ordered to post the FAA whistleblower poster and an OSHA notice to employees about their whistleblower rights.

“Employees have a strong and clear right to raise legitimate safety and health concerns about their working conditions without fear of termination or reprisal,” says OSHA New England Regional Administrator Marthe Kent. “We will pursue the appropriate legal remedies whenever we find that workers have been denied this vital safeguard.”

In addition to AIR21, OSHA administers the whistleblower provisions of the Occupational Safety and Health Act and other statutes protecting employees who report violations of securities, trucking, airline, nuclear power, pipeline, environmental, rail, public transportation and consumer product safety laws. For detailed information on employee whistleblower rights, including fact sheets, go to: http://www.osha.gov/dep/oia/whistleblower/index.html.

It should come as no surprise that a weakening economy, growing unemployment rates and an “employee friendly” Administration have led to a significant jump in claims. As with the EOOC stats below, Jury Verdict Research reports a record level of employee verdicts in 2007 with similar numbers coming in for 2008. Expect more of the same for 2009. Bottom line: Better make sure you have EPLI coverage!

After months of speculation regarding when the Congressional debate over the Employee Free Choice Act (EFCA) would begin, this controversial legislation was reintroduced March 10th in both the United States Senate (S. 560) and the House of Representatives (H. 1409). As reported in previous updates and E-Mail Alerts, EFCA would eliminate secret ballot union elections, dramatically change the process by which a first collective bargaining agreement is negotiated, and significantly increase the penalties employers face for unfair labor practices without imposing stiffer sanctions for labor unions. For more information on EFCA, please contact your local Worklaw Network firm representative. HR That Works users should read the extensive report on the EFCA found in the Special Reports section.

Article courtesy of the Worklaw® Network.