Better Employee Management Eight Critical Areas for Small-Business Success This white paper is an overview of eight building blocks of an effective small-business HR program: payroll, employee communications, benefits, safety, compliance, hiring, motivation, and separation.
Executive Summary Hiring, payroll, health care, and retirement benefits; it s enough to make a small-business owner s head spin. While most recognize that these are critical human resource tasks, they also know that their time is at a premium. While their efforts are best spent on the nuts and bolts of improving their businesses, if small-business employers can address the most critical human resources topics, they will be ahead of the competition in securing and keeping the best talent. Certain human resource areas must be managed properly to help keep employees productive and happy, and to help a small business thrive. These eight critical areas include the following: 1. Payroll is a complex process that must be carried out accurately, on time, and in compliance with state and federal wage and hour laws. 2. Employee communication helps a workforce focus on business objectives and mission. 3. Benefits can make a small company look bigger, and more attractive to potential employees. 4. Worksite safety and loss prevention reduce risk and help avoid accidents and fines. 5. Compliance helps keep a business in line with employment statutes and regulations. 6. Interviewing and hiring, when done effectively, may help to maximize the potential for employee success. 7. Employee motivation and development may be critical for employee learning and advancement. 8. Employee separation, whether voluntary or involuntary, requires certain HR tasks that are critical to business operations. Human Resources: Not Just for Big Businesses Small-business owners can look to many of the same human resource guidelines and activities that drive large organizations. This white paper is an overview of eight building blocks of an effective small-business HR program: payroll, employee communications, benefits, safety, compliance, hiring, motivation, and separation. Payroll There s nothing more important to employees than their paychecks, but keeping accurate records and issuing timely and correct payrolls is a complex task. Do small-business owners have the time and expertise to process payroll? According to the U.S. Census Bureau, small-business owners with employees put in more hours on the job each week than owners with no employees. In fact, just over half of business owners with employees worked more than forty hours per week, but only 26% of business owners without employees worked more than forty hours per week. 1 Issuing payroll each pay period can be time intensive. Paychex experts estimate that, on average, an employer spends fifteen minutes per employee, per pay period, processing their payroll. To prepare payroll, employers must calculate, distribute, and track employee pay. These tasks require the person responsible to understand the applicable federal and state laws, determine rates of pay for employees, distribute pay, and reconcile bank accounts. All this, while also figuring the right amount of federal and state employment taxes to withhold for payment to government agencies. Payroll affects many other aspects of a business. When it s handled well, a smoothly running payroll boosts everything from financial management to employee morale. A recent Paychex survey revealed that many accountants believe business owners should seek professional help with payroll processing, with 50% of responding CPAs saying they refer one or two clients per year to a payroll service provider. 1
Employee Communications Employees need to feel that their work contributes to the success of the organization, and good communication may be the key to engaging them. Effective employee communication starts with clear expectations for both employees and employer. Now, organizations of all sizes are establishing employee handbooks that cover a range of topics, from employee benefits to standards of conduct. Employers also should make certain that they have clearly written job descriptions that accurately reflect the job duties and requirements of each position. Regular employee communications also may include employee meetings, company newsletters, and even job postings. Benefits In general, employees of small businesses do not have the same access to benefits as those who work for large companies. 2 Big firms traditionally have offered benefits packages that have included health-care coverage, retirement plans, and more. The good news for workers is that today there are ways that even the smallest business can offer a benefits package. Health insurance. Employer-sponsored health insurance is the top benefit selected by employees, according to a recent study by MetLife. 3 Many business owners may not realize that group insurance rates and benefits are available for firms as small as two employees. Retirement. Employers can offer 401(k) plans at a low cost, which may help employees prepare for retirement. Small businesses can emulate bigger employers by adding a match to the plan. Paychex found that more than half of CPAs who participated in a recent survey refer their clients to outside providers of 401(k) retirement accounts and health insurance. Life insurance. Group insurance for employees can be very reasonably priced, and can help take care of loved ones in the event of an employee death. Various forms of life insurance are available to employers, from basic term life to dependent life insurance policies. Disability insurance. While some states require employers to provide short-term disability insurance to their employees, many organizations are choosing to offer short-and/or long-term disability insurance to their workforces. The typical benefit provides partial compensation during disability for up to a maximum number of weeks. Flexible spending account. A flexible spending account (FSA) is used to pay out-of-pocket medical expenses and dependent-care expenses on a pretax basis. To contribute to an FSA account, employees establish an annual contribution amount, a portion of which is deducted accordingly from each paycheck. This requires employees to budget for these anticipated expenses, including prescription drugs and co-payments. Employee assistance program. This benefit may provide access to confidential and voluntary assistance to employees and their immediate family members who may be facing challenges such as financial concerns, legal issues, alcohol or drug dependencies, marital problems, and more. Many offerings can go beyond these services to help create a total work-life balance experience. Workplace Safety and Loss Prevention In most cases, employees are a small business s greatest assets. Good safety practices help keep workers safe and reduce insurance premiums. Recent estimates by the U.S. Occupational Safety and Health Administration (OSHA) place the business costs associated with occupational injuries at close to $170 billion expenditures that come straight out of company profits. 4 OSHA suggests beginning a workplace safety plan with these activities: Post your policy on worker safety where all employees can see it. Hold a meeting with all employees to communicate your safety and health policy. Make sure that your support is visible by getting personally involved in the activities that are part of your safety and health program. Ensure that you, your managers, and your supervisors follow all safety requirements that apply to all employees, even if you are only in an area briefly. You can learn more about workplace safety at www.osha.gov. The site provides special information for small businesses. 2
Compliance Federal and state departments of labor enforce wage and hour laws and regulations. Adherence to federal and state laws and regulations helps to show your employees that they matter, while making efforts to avoid fines and penalties. You can help avoid costly errors by staying in compliance with applicable employment laws. The U.S. Department of Labor may enforce the payment of back wages, as well as assess civil money penalties, for failure to comply with the Fair Labor Standards Act, the federal wage and hour law. In fiscal year 2008, the department fielded 23,845 complaints and collected more than $185 million in back wages, along with $9.9 million in civil money penalties. 5 Anti-discrimination laws both federal and state help to protect employees and applicants from discrimination in all aspects of employment based on a protected class, including, but not limited to, age, disability, sex, race, color, national origin, and religion. Anti-discrimination laws apply to hiring and firing, promotions and layoffs, the use of company facilities, employee benefits, and more. Interviewing and Hiring One of the most important HR functions in any business is recruiting and selecting top people. If your company relies on outdated or ineffective interviewing and hiring techniques, you might be losing money. It s a good practice to list the job-related criteria sought for the position and evaluate each candidate against these during the interviewing process. Depending on the position, key criteria could include: Experience The extent to which the applicant s background and experience are consistent with the requirements of the job. Education How the applicant s schooling is relevant and sufficient for the requirements of the job. Job knowledge and job skills Does the applicant possess the practical and technical knowledge required on the job and skills to perform the job? Knowledge of and interest in the industry The extent to which the applicant has knowledge or is familiar with the company s industry. The level of desire applicant has in working for the company. Communication skills How effectively the applicant can communicate verbally and/or in writing. Supervisory skills The extent of the applicant s previous responsibility for direct and indirect reports, including the authority to hire and fire. Applicant s management style. Creativity How readily the applicant proposes ideas and finds new and better ways of managing tasks and workflow. Initiative The extent to which the applicant appears to seek out new assignments and assumes additional duties when necessary. Composure How well the applicant appears to maintain control and handle stress. Overall impression The extent to which an applicant s overall appearance, manner, and responsiveness seem to be consistent with the requirements of the job. Employee Motivation and Development A worldwide study showed that engaged employees are happy employees. Half of engaged employees said they had no plans to leave their company, while 15% of the disengaged group planned to stay. 6 The Recognition Council, a branch of the Incentive Marketing Association, has issued guidelines for employers who want to understand better how to motivate and engage employees 7 : 1. Employees who feel valued and trusted are more productive; and high-performing employees will leave companies if they do not feel valued. 2. Definitive recognition and rewards programs can help managers reward the behaviors that produce results. 3
3. A survey of 1,000 workers by White Water Strategies, a U.K. consulting firm, found that saying thank you or praising staff can affect job satisfaction as much as a one-percent pay increase. 4. The right training and recognition programs can help create a motivated workforce. Employee Separation Employers should consider the best practices below when an employee is terminated. It s also important to contact your local Department of Labor for any state-specific requirements. Documentation Depending on the reason for separation, you will need to have appropriate documentation for terminated employees. For employees who resign, you should receive a letter of resignation and schedule an exit interview. For discharged employees, or for any who have been laid off, employers should document this information in the employee s personnel file. Exit interviews Some purposes of exit interviews are: to learn how the company can improve itself; to help employees feel good about the service they provided to the company; and perhaps to provide an opportunity for an employer to encourage the employee to stay under new circumstances, if desired. Employers may also use exit interview documentation as evidence to discredit employee allegations of discrimination or unlawful conduct, if the employee did not disclose the allegations during the exit interview. Notification to the payroll and/or human resources department(s) Calculate final pay, which may include earned but unused vacation and personal pay, depending on state law or company policy. Check with the local Department of Labor for more information about state laws regarding when final pay must be distributed and what compensation must be included. Unemployment details Some states require that employees be given a separation notice when filing an unemployment claim. Contact your local unemployment office for state-specific requirements. Continuation of group health insurance The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal requirement covering group health plans maintained by employers with 20 or more employees during 50 percent of the working days in the preceding calendar year. This law requires employers to offer employees (in certain circumstances) and qualified beneficiaries the option of continuing their medical insurance coverage. More information on COBRA and state health insurance continuation regulations are located in the Resource Library of the Paychex Web site at http://www.paychex.com/pdf/cobra.pdf. Certification of health insurance coverage Title I of the Health Insurance Portability and Accountability Act (HIPAA) requires plan administrators of medical insurance plans to furnish a certificate of creditable coverage automatically to: an individual entitled to elect COBRA continuation coverage, at a time no later than when notice is required to be provided for a qualifying event under COBRA; an individual who loses coverage under a group health plan and is not entitled to elect COBRA continuation coverage, within a reasonable time after coverage ceases; or an individual who elected COBRA continuation coverage, either within a reasonable time after the plan administrator learns that COBRA continuation coverage ceased or, if applicable, within a reasonable time after the individual s grace period for the payment of COBRA premiums ends. Certificates must be provided free of charge when requested by employees while they have health coverage or anytime within 24 months of coverage ending. Employees who know they will be leaving their place of employment may request the certificate in advance. Return of employer property Upon termination, all employer-owned property should be returned to the employer. 4
Request for employee reference information Supervisors should refer all inquiries concerning requests for employee information to the member of management designated to handle such requests. Severance pay Providing some type of severance pay at termination is a fringe benefit that an employer may offer to terminated employees. Severance pay is sometimes given in return for signing a waiver form relinquishing an employee s right to bring a lawsuit against a former employer. Employers should consult with legal counsel when considering severance pay and/or waivers. There are also state laws regarding layoffs and/or plant closings that may require severance-pay packages. This list is not all-inclusive and will depend on specific state laws as well as company policies and benefit packages. About Paychex Founded in 1971, Paychex, Inc. is a leading provider of payroll, human resource, and benefits outsourcing solutions for small- to medium-sized businesses. The company has more than 100 offices and serves over a half million payroll clients nationwide. The company offers comprehensive payroll services, including payroll processing, payroll tax administration, and employee pay services, including direct deposit, Human resource services include 401(k) plan recordkeeping, employee handbooks, job descriptions, workers compensation administration, section 125 plans, a professional employer organization, time and attendance solutions, and other administrative services for business. Paychex Insurance Agency, Inc. offers clients in every state a full range of business insurance options, including group health insurance from more than 150 highly rated carriers and turnkey administrative support for payroll clients. Contact Information To find out more about how Paychex can help small businesses with human resource services, call 800-322-7292, or visit www.paychex.com. Sources 1 U.S. Census Bureau, Survey of Business Owners. 2 Joel Popkin and Company (SBA Office of Advocacy), Cost of Employee Benefits in Small and Large Businesses, 2005. 3 Metropolitan Life Insurance Company, Seventh Annual Study of Employee Benefits Trends, 2009. 4 Occupational Safety and Health Administration, Small Business Handbook, 2005. 5 U.S. Department of Labor Employment Standards Administration, Wage and Hour Division, 2008. 6Towers Perrin, 2007-2008 Global Workforce Study. 7 The Recognition Council, The Time for Employee Recognition and Rewards Is Now, 2009. Professional employer organization (PEO) services are sold and provided by Paychex Business Solutions, LLC (PBS) and its affiliates, which are registered and licensed to sell and provide PEO services, including in Florida. PBS FL license numbers are Paychex Business Solutions, LLC, GL7, PBS of Central Florida, LLC, GM14, PBS of America, LLC, GM46, Paychex PEO I, LLC, GM455, Paychex PEO II, LLC, GM456, Paychex PEO III, LLC, GL193, Paychex PEO IV, LLC, GM519 and Paychex PEO V, LLC, GM 522. Insurance sold and serviced by Paychex Insurance Agency, Inc., 150 Sawgrass Drive, Rochester, NY 14620. CA License 0C28207. The information in this paper is furnished for informational use only and should not be construed as a commitment by Paychex, Inc. Paychex provides such information as a service and is not implying its endorsement of, or agreement with, such opinions, information, analyses, recommendations, or conclusions. If legal advice or other expert assistance is required, the services of a competent professional should be sought. 2014, Paychex, Inc. Paychex, Inc. 911 Panorama Trail South Rochester, New York 14625 800-322-7292 www.paychex.com 5