Tuesday, August 16, 2016

The Fissured Workplace and Employee Misclassification

In recent times, companies such as Uber and Handy have been faced with lawsuits challenging whether the individuals working for them should truly be considered “contractors.” Are their “staff” in reality employees being denied rights reserved to those in the proper classification? In this issue of Astronology® we explore the fissured workplace and the accompanying issue of employee misclassification. How large of an issue is misclassifying employees? Is this part of larger concerns related to the fissured workplace?

What is the Fissured Workplace?
David Weil, an administrator for the United States Department of Labor’s Wage and Hour Division, popularized the term “fissured workplace” to describe the surge in employers’ use of contracted laborers. In 2014 Weil highlighted on the US Department of Labor’s blog what results from workplace fissuring: “The blurred lines from the fissured workplace make achieving compliance with the wage and hour laws we enforce a difficult task. Intense competition between business models like subcontracting, temporary agencies, labor brokers, franchising, licensing, and third-party management leads to low pay, and noncompliance pulls down standards for all – making it difficult for responsible employers to survive in low margin, fiercely competitive conditions. The costs in this race to be the lowest bidder are borne by workers deprived of their wages and their rights.” There’s a danger involved in a fissuring workplace: the danger of misclassification.

The Growth of Contracted Workers
But how many people actually are working in an independent contractor arrangement? To get a better understanding, economists Larry Katz and Alan Krueger replicated the 2005 Contingent Worker Survey in 2015. The results of the survey provide an estimate of how much labor is being contracted out by employers in the United States. The 2015 survey noted a jump from 10% in 2005 to 16% of workers in 2015 in “alternative arrangements,” working while not directly being an employee of an organization. Why the increase in outsourcing and contracting? In a Wall Street Journal online article, Anna Louie Sussman and Josh Zumbrun point to fissuring.

The Consequences of Misclassifying Workers in a Fissured Workplace
The Wage and Hour Division (WHD) website explains that although the department supports the proper use of independent contractors, there is a difference between legitimate independent contractors and misclassified employees. By classifying a worker as an independent contractor, an employer avoids expenses such as overtime pay, unemployment compensation tax, workers’ compensation insurance, and employee benefits such as sick pay & vacation. Such attempts to cut costs results in losses for everyone, however. Not only are employees cheated, but heavy fines from organizations found guilty of misclassification can add up to 41.5% of the contractor’s pay. Also of note is that these penalties can go as far back as three years. As a result, the WHD has worked with the IRS and many states to combat worker misclassifications. With 32 states cooperating in 2015, the WHD investigations resulted in more than $74 million in back wages for more than 102,000 workers in a variety of industries, including janitorial and hospitality.

“In general, independent contractors should comprise a small minority of most employers’ workforces,” states Jennifer Loftus, National Director for Astron Solutions. “Activities that are non-strategic in nature, and not the primary focus on the organization, are best candidates for outsourcing. When independent contractors or contract labor begin to comprise a noticeable and / or large portion of the workforce, the organization leaves the door open to lawsuits and investigations. When in doubt about workers’ proper classifications, check with outside legal counsel or other outside advisors. Proactive protection to the organization is advisable over negative consequences down the road.” Do you think fissuring workplaces will be curtailed as more misclassified employee cases come to light? Tell us your thoughts! We enjoy hearing from our Astronology® readers!

Tuesday, August 02, 2016

Overtime Out of Control? Effective Cost Management Strategies

Following the release of the May 18, 2016 final rule regarding adjustments to the overtime threshold for the Fair Labor Standards Act (FLSA), organizations are working to make changes to meet the new requirements. The ruling adjusts the minimum salary needed to qualify for exemptions to $913 a week, or $47,476 a year. This will affect an estimated 4.2 million American workers.

This means organizations will have to be vigilant in keeping accurate records of hours worked among all non-exempt employees, and of course be judicious with their overtime budgets. Overtime can carry an organization through treacherous times, or speed its descent into the red. The difference is a matter of strategy.

While overtime is often used in the heat of a difficult moment, it also can be successfully incorporated into an organization’s business plan. If your organization frequently relies on employees clocking extra hours, consider an overtime audit.

Analyze how overtime is currently used, both economically and culturally. How many hours of overtime are used per month? Which employees take advantage of it, and how effectively? Has it become an expected part of their income?

Determine key periods when the use of overtime is necessary and plan accordingly. By formally strategizing, you’ll take the surprise and much of the stress out of the process.

When overtime is offered, a few employees often voluntarily shoulder the entire burden. Consider setting individual limits to prevent resultant health and / or motivational problems among overworked employees.

Another strategy for handling the restriction of overtime hours is a rotation system. In one such system, employees sign up for overtime on a list. After an employee works a certain number of extra hours, his or her name is scratched off, and the next employee on the list will be eligible for overtime. This allows for a pool of potential overtime workers for any shift, and prevents any one employee from shouldering too much of the burden.

Alternatively, you may wish to offer overtime only to key employees or groups of employees who can handle the extra hours without a significant dip in productivity.

Staff redeployment often can be used in place of, or alongside, overtime. Increased cross training will facilitate redeployment, allowing employees to wear several hats during a given period. If your employees are sufficiently cross-trained, you can plan for the absences that result from overwork.

If overtime is used frequently at your organization, find out how your employees think it could be better handled. A custom survey may let you know how the majority feels, and can include open-ended questions that may garner innovative strategies tailor-made to your organization’s culture.

As you would determine overtime caps for individuals, you also can set systemic limits to ensure that your organization won’t be overtaxed by overtime.

Consider the reasons you’re using overtime. If the burden is unlikely to abate in the near future, you may be pouring money into extra hours that would better be spent in training or hiring.

Some employers insist that turnover costs are higher than overtime costs when benefits, vacation, payroll, and training are taken into account. If this is a concern, consider calculating the average turnover cost at your organization using one of the numerous free turnover cost calculators available online (search on Google for “turnover cost” for a plethora of tools). You may find that overtime is more costly than hiring. If the cost is the same—i.e., if a new employee’s total compensation plus turnover cost is the same 150% of total wages you’d spend on overtime—remember to factor in the hidden costs that come from overextending employees. In such cases you’d be wise to hire instead of allowing too much overtime.

Overtime can be a response to absenteeism. However, exhausted employees on the clock are more prone to absence-inducing conditions. In other words, unscheduled overtime often creates absenteeism.

Overtime hazards include the following:
  • Stress 
  • Lower levels of performance 
  • Fatigue-related errors 
  • Workplace injuries 
  • Sickness 
  • Depression 
  • Work / life imbalance
  • Burnout

As with any change in workplace practices, make sure that any alteration in overtime strategy is accompanied by the appropriate communication, or you may face a backlash in morale. In cases where overtime is offered only to specific employees, the reasons given should be especially clear to avoid feelings of unfairness among co-workers.

These flexible options are suitable only in a non-union work environment, as union contracts govern overtime rules. By employing principled negotiation and integrative bargaining techniques during contract talks, however, unionized employers also may be able to effectively control overtime costs.

Tuesday, July 19, 2016

Living Wages in 2016 – How Do Employers Respond?

Seven months have passed since New York State’s minimum wage increased to $9.00 per hour, while the “fast food” minimum wage increased to $9.75 across most of the state, and to $10.50 in New York City. If you do not work in the restaurant industry, or in New York State, you may think this change doesn’t affect you. However, an increasing number of industries are concerned that these pay increases will have a negative domino effect on their organizations. In this issue of Astronology®, Astron Solutions discusses the challenges these new increases present to employers outside the fast food industry.

Last year, a New York Times online article expressed that the decision to raise the minimum wage for fast food workers “thrust(s) New York State to the forefront of the current experiment.” The article goes on to state that “based on projections from government data, the proposed $15 minimum wage for fast-food workers could represent more than 60% of the wage of a typical New York City worker when it takes effect at the end of 2018...” The New York Times online article highlights the 2003 minimum wage increase in Santa Fe, New Mexico, to compare and predict New York’s possible future. Despite a concentrated analysis with current modern tools, economic analyses of the Santa Fe increase suggest it had little effect on employment.

Last year when news broke on the $15 minimum wage legislation, Astron Solutions’ Michael Maciekowich noted that the impending changes caused quite a stir. According to Mike, “numerous Astron clients in New York State called, concerned that the ‘fast food’ minimum wage would in essence become the new state minimum wage, in that these organizations compete for entry level staff with the fast food industry. As the ‘fast food’ minimum wage increases to $15.00 over the next three to five years, organizations that compete for staff with this industry will have no choice but to raise their minimum wages to compete. This will also have a domino effect, in that this increase in the entry wage will create pay compression with coordinators and supervisors in the same work units. This compression will add unforeseen additional budgetary impact. For non-profit organizations, this will just add to concerns of how to address increasing pay expenses with already shrinking revenue dollars."

In accord with Mike’s thoughts, in April, New York Governor Cuomo signed a $15 minimum wage plan that will
  • Give New York City workers in businesses with at least 11 employees a $2 yearly minimum wage increase, starting with the minimum wage set at $11 at the end of 2016. A $15 minimum wage would be reached on 12/31/2018.
  • Give New York City workers in businesses with 10 or fewer employees a minimum wage increase to $10.50 at the end of 2016, then $1.50 each year. A $15 minimum wage would be achieved by 12/21/2019.
  • Workers outside of Nassau, Suffolk and Westchester Counties would have an increase to $9.70 at the end of 2016, with $0.70 year increases annually until reaching $12.50 on 12/31/2020. Afterward, the wage will increase to $15 via an indexed schedule set by the Director of the Division of Budget.
  • Workers in Nassau, Suffolk and Westchester Counties will have their minimum wage increased to $10 at the end of 2016, with $1 increase each year. A $15 minimum wage will be reached on 12/31/2021.
While some organizations are wondering if they can really afford the continual increases, other organizations seem to be slowly addressing this concern by creating their own solutions. This month, Jamie Dimon wrote an Op-Ed in The New York Times about JP Morgan’s plan to raise its minimum wage for 18,000 employees to between $12 and $16.50 per hour, with geographic and market factors considered.

Meanwhile, a Fast Company online article last year examined the popular fast food chain Chipotle, and how they could address the living wage issue. Chris Arnold, a Chipotle spokesman, mentioned in an e-mail to Fast Company that “we have never taken a position on the minimum wage and believe that a minimum wage or starting wage tells only part of the story; We already pay above minimum wage and offer benefits that are more than competitive.” Some of those benefits include paid sick & vacation days and tuition reimbursement. The Fast Company Online article explained that even if the company had the CEOs’ paychecks reduced to $1 per year and divided the compensation among the current employees, it would result in only a $0.55 increase per hour for an employee working 40 hours per week. So what can they do? Consider that in San Francisco, the minimum wage increased to $12.25, and will increase to $15 by 2018. Coincidentally, it had been noted that Chipotle raised its menu prices in the city by 10%. Such a move sends the message that customers have to share in the responsibility of lifting minimum wages. In short, if you can afford an $11 burrito, then you can probably pay for the same burrito with the cost increased by $1. Time will tell if this will work.

Could you adopt this approach if your organization is affected by minimum wage increases? Would you consider adopting this approach proactively? Have you prepared other solutions to address the minimum wage issue? Write to Astronology. We’d love to hear your input!

Tuesday, July 05, 2016

Save Your Employees from the Dark Side: Human Resource Lessons from Star Wars

Through George Lucas’ storytelling, filmgoers have come to know Darth Vader as the epitome of evil. But as viewers learn from the early 2000 Star Wars prequel trilogy, underneath that intimidating exterior beats the heart of a man whose turn to the dark side was largely a result of his frustration with his former employer.

What if the Jedi had an effective human resource program? Perhaps we would have seen Anakin chatting with Yoda over intergalactic eggnog at the Jedi holiday party, rather than Darth Vader bowing to the evil emperor in Revenge of the Sith.

So where did the Jedi’s HR program go wrong? At first glance, there doesn’t appear to be a problem. After all, the Jedi offer an excellent training program for new employees, surely making them one of the galaxy’s employers of choice. Where else can you learn how to wield your very own lightsaber and do Jedi Mind Tricks? They don’t offer that type of training even at Microsoft.

Concerned for employees’ futures, wise companies are.

In Revenge of the Sith, we see that Anakin, now a Jedi Knight, has become one of the Jedi’s “star employees.” However, even though Jedi Knight is a highly respectable title, Anakin is unhappy regarding his entry level status. He desperately wants to be promoted to Jedi Master believing that this new title would bring him the respect that he feels he deserves. What Anakin doesn’t seem to understand is that each Jedi Master has years of solid experience and knowledge of The Force under his or her belt. As a result of this disconnect, Anakin becomes increasingly frustrated and considers another job offer.

“A Career Progression program could have helped in this situation,” explains Michael Maciekowich, National Director, Astron Solutions. “Building career paths lets employees know that they are moving forward within an organization, giving them a sense of direction. Anakin would have realized that the Jedi cared about his career growth, and that the promotion to Jedi Master was an attainable goal, had there been a clear career progression program in place.”

Communicate you must.

As the story unfolds, we see that there is also a serious lack of communication between Anakin and the Jedi’s upper management, the Jedi Council. In fact, Anakin reveals to his wife that he feels lost and doesn’t believe that the Jedi Council trusts him.

“The Council could have considered a First Impression Survey, which is given to employees within their first few months of employment. This is a crucial time to provide integration into the organizational culture, encourage open communication, and let new employees know that you value their feedback,” says Jennifer C. Loftus, MBA, SPHR, PHRca, GPHR, SHRM-SCP, CCP, CBP, GRP National Director, Astron Solutions.

Offer great benefits, you should.

One major reason why Anakin eventually turns to the Dark Side is because he believes that they offer better “benefits” (and we don’t mean a good dental plan). The confused, young Jedi is concerned that he is going to lose someone close to him due to medical reasons, and believes that his new position will offer him the “ultimate” in healthcare insurance. As he quickly learns, however, his new employer wasn’t exactly truthful about the health coverage.

Perhaps the Jedi weren’t clearly communicating their own benefit plan to Anakin. Increased communication and attention to employee feedback could have helped in this situation as well.

“When choosing from the vast array of benefit offerings, it is important for HR professionals to analyze their employees' needs. The Jedi Council should have asked their employees what standard and voluntary benefits would be of most value to them and work to make those benefits available,” explains Loftus. It may be too late for Anakin / Darth Vader, but it’s not too late to save your own employees from the Dark Side. Remember, you don’t need The Force to make your team happy, just solid HR programs.