Setting Employee Policies and Benefits
Once you have great employees on board, how do you keep them from jumping ship? One way is by offering a good benefits package.
Many small-business owners mistakenly believe they cannot afford to offer benefits. But while going without benefits may boost your bottom line in the short run, that penny-wise philosophy could strangle your business’s chance for long-term prosperity. “There are certain benefits good employees feel they must have,” says Ray Silverstein, founder of PRO, President’s Resource Organization, a nationwide network of peer group forums.
Heading the list of must-have benefits is medical insurance. But many job applicants also demand a retirement plan, disability insurance, and more. Tell these applicants no benefits are offered, and top-flight candidates will often head for the door.
The positive side to this coin: Offer the right benefits, and your business may just jump-start its growth. Give employees the benefits they value, and they’ll be more satisfied, miss fewer workdays, be less likely to quit, and have a higher commitment to meeting the company’s goals. Research shows that when employees feel their benefits needs are satisfied, they’re more productive.
“Take care of your people, and they will take care of your customers.”
—J. WILLARD MARRIOTT, FOUNDER OF MARRIOTT INTERNATIONAL INC.
Benefit Basics
The law requires employers to provide employees with certain benefits. You must:
Give employees time off to vote, serve on a jury, and perform military service
Comply with all workers’ compensation requirements (see Chapter 22)
Withhold FICA taxes from employees’ paychecks and pay your own portion of FICA taxes, providing employees with retirement and disability benefits
Pay state and federal unemployment taxes, thus providing benefits for unemployed workers
Contribute to state short-term disability programs in states where such programs exist
Comply with the federal Family and Medical Leave Act (see “Family Matters” on page 360)
You are not required to provide:
Retirement plans
Health plans (except in some states)
Dental or vision plans
Life insurance plans
Paid vacations, holidays, or sick leave (except in some localities)
In reality, however, most companies offer some or all of these benefits to stay competitive.
Most employers provide paid holidays for Christmas Day, New Year’s Day, Memorial Day, Independence Day, Labor Day, and Thanksgiving Day. Many employers also either allow their employees to take time off without pay or let them use vacation days for religious holidays.
Most full-time employees will expect one to two weeks’ paid vacation time per year. In explaining your vacation policy to employees, specify how far in advance requests for vacation time should be made, and whether in writing or verbally.
There are no laws that require employers to provide funeral leave, but most allow two to four days’ leave for deaths of close family members. Companies that don’t do this generally allow employees to use some other form of paid leave, such as sick days or vacation.
Legally Speaking
Complications quickly arise as soon as a business begins offering benefits, however. That’s because key benefits such as health insurance and retirement plans fall under government scrutiny, and it is very easy to make mistakes in setting up a benefits plan.
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Want a quick way to save on workers’ comp insurance premiums? Some companies offer a 5 percent discount for simply having a written policy prohibiting drugs in the workplace. It’s a cheap trick to save big. Ask your workers’ comp provider for details.
And don’t think nobody will notice. The IRS can discover in an audit that what you are doing does not comply with regulations. So can the U.S. Department of Labor, which has been beefing up its audit activities of late. Either way, a goof can be very expensive. You can lose any tax benefits you have enjoyed, retroactively, and penalties can also be imposed.
The biggest mistake? Leaving employees out of the plan. Examples range from exclusions of part-timers to failing to extend benefits to clerical and custodial staff. A rule of thumb is that if one employee gets a tax-advantaged benefit—meaning one paid for with pretax dollars—the same benefit must be extended to everyone. There are loopholes that may allow you to exclude some workers, but don’t even think about trying this without expert advice.
Family Matters
The federal Family and Medical Leave Act (FMLA) requires employers to give workers up to 12 weeks off to attend to the birth or adoption of a baby, or the serious health condition of the employee or an immediate family member.
After 12 weeks of unpaid leave, you must reinstate the employee in the same job or an equivalent one. The 12 weeks of leave does not have to be taken all at once; in some cases, employees can take it a day at a time.
In most states, only employers with 50 or more employees are subject to the Family and Medical Leave Act. However, some states have family leave laws that place family leave requirements on businesses with as few as ten employees, and in the District of Columbia all employees are covered. To find out your state’s requirements, visit the Labor Department’s website at dol. gov/whd/contacts/state_of.htm.
Such complexities mean it’s good advice never to go this route alone. You can cut costs by doing preliminary research yourself, but before setting up any benefits plan, consult a lawyer or a benefits consultant. An upfront investment of perhaps $1,000 could save you far more money down the road by helping you sidestep potholes.
Expensive Errors
Providing benefits that meet employee needs and mesh with all the laws isn’t cheap—benefits probably add 30 to 40 percent to base pay for most employees. That makes it crucial to get the most from these dollars. But this is exactly where many small businesses fall short, because often their approach to benefits is riddled with costly errors that can get them in financial trouble with their insurers or even with their own employees. The most common mistakes:
Absorbing the entire cost of employee benefits. Few companies are footing the whole benefits bill these days. The size of employee contributions varies from a few dollars per pay period to several hundred dollars monthly, but one plus of any co-payment plan is that it eliminates employees who don’t need coverage. Many employees are covered under other policies—a parent’s or spouse’s, for instance—and if you offer insurance for free, they’ll take it. But even small co-pay requirements will persuade many to skip it, saving you money. These days, many companies charge a much higher rate to cover spouses who could otherwise get coverage from their own employer.
Covering nonemployees. Who would do this? Lots of business owners want to buy group-rate coverage for their relatives or friends. The trouble: If there is a large claim, the insurer may want to investigate. And that investigation could result in disallowance of the claims, even cancellation of the whole policy. Whenever you want to cover somebody who might not qualify for the plan, tell the insurer or your benefits consultant the truth.
Sloppy paperwork. In small businesses, administering benefits is often assigned to an employee who wears 12 other hats. This employee really isn’t familiar with the technicalities and misses a lot of important details. A common goof: not enrolling new employees in plans during the open enrollment period. Most plans provide a fixed time period for open enrollment. Bringing an employee in later requires proof of insurability. Expensive litigation is sometimes the result. Make sure the employee overseeing this task stays current with the paperwork and knows that doing so is a top priority.
Not telling employees what their benefits cost. “Most employees don’t appreciate their benefits, but that’s because nobody ever tells them what the costs are,” says PRO’s Silverstein. Many experts suggest you annually provide employees with a benefits statement that spells out what they are getting and at what cost. A simple rundown of the employee’s individual benefits and what they cost the business is very powerful.
Giving unwanted benefits. A work force composed largely of young, single people doesn’t need life insurance. How to know what benefits employees value? You can survey employees and have them rank benefits in terms of desirability. Typically, medical and financial benefits, such as retirement plans, appeal to the broadest cross-section of workers.
If workers’ needs vary widely, consider the increasingly popular “cafeteria plans,” which give workers lengthy lists of possible benefits plus a fixed amount to spend.
Health Insurance
Health insurance is one of the most desirable benefits you can offer employees. There are several basic options for setting up a plan:
A traditional indemnity plan, or fee for service. Employees choose their medical care provider; the insurance company either pays the provider directly or reimburses employees for covered amounts.
Managed care. The two most common forms of managed care are the Health Maintenance Organization (HMO) and the Preferred Provider Organization (PPO). An HMO is essentially a prepaid health-care arrangement, where employees must use doctors employed by or under contract to the HMO and hospitals approved by the HMO. Under a PPO, the insurance company negotiates discounts with the physicians and the hospitals. Employees choose doctors from an approved list, then usually pay a set amount per office visit (typically $10 to $35); the insurance company pays the rest.
Self-insurance. When you absorb all or a significant portion of a risk, you are essentially self-insuring. An outside company usually handles the paperwork, you pay the claims, and sometimes employees help pay premiums. The benefits include greater control of the plan design, customized reporting procedures, and cash-flow advantages. The drawback is that you are liable for claims, but you can limit liability with “stop loss” insurance—if a claim exceeds a certain dollar amount, the insurance company pays it.
Health savings accounts. HSAs allow workers with high-deductible health insurance to make pretax contributions to cover health-care costs. A high-deductible plan is one that has at least $1,250 annual deductible for single coverage and $2,500 for family coverage in 2013 and 2014. Furthermore, as of 2014, annual out-of-pocket costs paid under the plan must be limited to $6,350 for individuals and $12,700 for families.
Employer contributions to HSAs are tax deductible, excludable from gross income, and are not subject to employment taxes. Employees can use these tax-free withdrawals to pay for most medical expenses not covered by the high-deductible plan.
Above and Beyond
What does COBRA mean to you? No, it’s not a poisonous snake coming back to bite you in the butt. The Consolidated Omnibus Budget Reconciliation Act (COBRA) extends health insurance coverage to employees and dependents beyond the point at which such coverage traditionally ceases.
COBRA allows a former employee after he or she has quit or been terminated (except for gross misconduct) the right to continued coverage under your group health plan for up to 18 months. Employees’ spouses can obtain COBRA coverage for up to 36 months after divorce or the death of the employee, and children can receive up to 36 months of coverage when they reach the age at which they are no longer classified as dependents under the group health plan.
The good news: Giving COBRA benefits shouldn’t cost your company a penny. Employers are permitted by law to charge recipients 102 percent of the cost of extending the benefits (the extra 2 percent covers administrative costs).
The federal COBRA plan applies to all companies with more than 20 employees. However, many states have similar laws that pertain to much smaller companies, so even if your company is exempt from federal insurance laws, you may still have to extend benefits under certain circumstances. Contact the U.S. Department of Labor to determine whether your company must offer COBRA or similar benefits, and the rules for doing so.
Health Savings Accounts and Small Business
Employer health-care costs rose an average of 15 percent each year over five years to an average of about $700 per month per employee, according to surveys by The Kaiser Family Institute and The National Association of Health Underwriters. About 45 percent of U.S. small-business owners provide no health-care coverage, in large part because of the cost.
Health Savings Accounts in conjunction with a high-deductible insurance plan can be one way small-business owners can offer health insurance affordably to employees. An HSA allows employees to put money into a savings account (which is invested in funds or interest-bearing accounts) to cover health-care costs. As of 2014, annual out-of-pocket costs could not exceed $6,350 for an individual. Ask your benefits coordinator or get more information by Googling “Health Savings Accounts” or see WageWorks’ handy FAQ at www.wageworks.com/employers/benefits/health-savings-account-hsa.aspx.
Cost Containment
The rising costs of health insurance have forced some small businesses to cut back on the benefits they offer. Carriers that write policies for small businesses tend to charge very high premiums. Further complicating matters, states are mandating certain health-care benefits so that if an employer offers a plan at all, it has to include certain types of coverage. Mandated benefits increase the cost of basic health coverage from less than 20 percent to more than 50 percent, depending on the state, according to a recent analysis from the Council for Affordable Health Insurance. Employers who can’t afford to comply often have to cut insurance altogether.
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Small-business owners can evaluate their options and generate a quote at no charge at BenefitMall.com (benefitmall.com). This site also offers electronic brochures, training videos, and other useful information so you can know what you’re looking at when you compare plans for your business.
The good news: Some states have tried to ease the financial burden by passing laws that offer incentives to small-business owners who provide their employees with coverage. There are also ways to cut costs without cutting into your employees’ insurance plan. A growing number of small businesses band together with other entrepreneurs to enjoy economies of scale and gain more clout with insurance carriers.
warning
Beware the practice of “cherry picking.” Health insurance carriers often woo companies with young, healthy employees away from their existing policies by promising substantially lower rates. All too often, however, those rates rise dramatically after the first year. Sticking with one carrier rather than renegotiating your health insurance coverage every year saves time and effort. In the end, that’s money, too.
What’s more, the Affordable Care Act has also provided a way, in some states, for employees who aren’t offered insurance or who don’t like their options, to sign up through health care exchanges administered by the state. The plans are offered at competitive rates and lower-wage earners are offered offsets or stipends. The laws and rules are still changing, so be sure to stay informed.
Many trade associations offer health insurance plans at lower rates for small-business owners and their employees. Your business may have only five employees, but united with the other, say, 9,000 association members and their 65,000 employees, you have substantial clout. The carrier issues a policy to the whole association; your business’s coverage cannot be terminated unless the carrier cancels the entire association.
Associations are able to negotiate lower rates and improved coverage because the carrier doesn’t want to lose such a big chunk of business. This way, even the smallest one-person company can choose from the same menu of health-care options that big companies enjoy.
Associations aren’t the only route to take. In some states, business owners or groups have set up health insurance networks among businesses that have nothing in common but their size and their location. Check with your local chamber of commerce to find out about such programs in your area.
Some people have been ripped off by unscrupulous organizations supposedly peddling “group” insurance plans at prices 20 to 40 percent below the going rate. The problem: These plans don’t pay all policyholders’ claims because they’re not backed by sufficient cash reserves. Such plans often have lofty-sounding names that suggest a larger association of small employers.
How to protect yourself from a scam? Here are some tips:
Compare prices. If it sounds too good to be true, it probably is. Ask for references from other companies that have bought from the plan. How quick was the insurer in paying claims? How long has the reference dealt with the insurer? If it’s less than a few months, that’s not a good sign.
Check the plan’s underwriter. The underwriter is the actual insurer. Many scam plans claim to be administrators for underwriters that really have nothing to do with them. Call the underwriter’s headquarters and the insurance department of the state in which it’s registered to see if it is really affiliated with the plan. To check the underwriter’s integrity, ask your state’s insurance department for its “A.M. Best” rating, which grades companies according to their ability to pay claims. Also ask for its “claims-paying ability rating,” which is monitored by services like Standard & Poor’s. If the company is too new to be rated, be wary.
Make sure the company follows state regulations. Does the company claim it’s exempt? Check with your state’s insurance department.
Ask the agent or administrator to show you what his or her commission, advance, or administrative cost structure is. Overly generous commissions can be a tip-off; some scam operations pay agents up to 500 percent commission.
Get help. Ask other business owners if they have dealt with the company. Contact the Better Business Bureau to see if there are any outstanding complaints. If you think you’re dealing with a questionable company, contact your state insurance department or your nearest Labor Department Office of Investigations.
Retirement Plans
A big mistake some business owners make is thinking they can’t fund a retirement plan and put profits back into the business. But fewer than half the employees at small companies participate in retirement plans. And companies that do offer this benefit report increased employee retention and happier, more efficient workers. Also, don’t forget about yourself: Many business owners are at risk of having insufficient funds saved for retirement.
To encourage more businesses to launch retirement plans, the Credit for the Small Employer Pension Plan provides a tax credit for costs associated with starting a retirement plan. The tax credit may be claimed for a maximum period of three years. There are four rules you must follow to be eligible for the credit, according to Investopedia.
1. The plan must be a qualified retirement plan, such as pension, profit sharing, stock bonus, or qualified annuity plan; e.g., a 401(k), Simplified Employee Pension (SEP) plan, or SIMPLE.
2. Employers with 100 or fewer employees who received at least $5,000 in compensation for the preceding year are eligible. Part-time employees must be considered part of this group.
3. The plan cannot just be for an owner/employee. It must also cover at least one non-highly compensated employee, who makes $110,000 or less a year and is not an owner of the company.
4. The employer is not allowed to have sponsored a pension plan during the three years preceding the new plan’s start date.
The credit is a maximum of $500 in the year the plan starts and $500 in each of the next two years, assuming at least $1,000 of expenses are incurred in both years. Expenses cannot be lumped together.
For more information, see IRS Form 8881, Credit for Small Employer Pension Plan Start-Up Costs.
Don’t ignore the value of investing early. If, starting at age 35, you invested $3,000 each year with a 14 percent annual return, you would have an annual retirement income of nearly $60,000 at age 65. But $5,000 invested at the same rate of return beginning at age 45 only results in $30,700 in annual retirement income. The benefit of retirement plans is that savings grow tax-free until you withdraw the funds—typically at age 59. If you withdraw funds before that age, the withdrawn amount is fully taxable and also subject to a 10 percent penalty. The value of tax-free investing over time means it’s best to start right away, even if you start with small increments.
Besides the long-term benefit of providing for your future, setting up a retirement plan also has an immediate payoff—cutting your taxes.
Here is a closer look at a range of retirement plans for yourself and your employees.
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IRS Publication 560, Retirement Plans for Small Business, describes rules for SEP, SIMPLE, and other qualified plans. It’s free; visit irs.gov or call (800) TAX-FORM.
Individual Retirement Account (IRA)
An IRA is a tax-qualified retirement savings plan available to anyone who works and/or the person’s spouse, whether the individual is an employee or a self-employed person. One of the biggest advantages of these plans is that the earnings on your IRA grow on a tax-deferred basis until you start withdrawing the funds. Whether your contribution to an IRA is deductible will depend on your income level and whether you’re covered by another retirement plan at work.
Jeffrey S. Kahn, an employee benefits attorney with Greenberg Traurig in Boca Raton, Florida, says you can’t contribute to a traditional IRA after age 70½, and you must begin distributions by April 1 following the year you reach age 70½. There also is a 10 percent penalty for funds withdrawn (with limited exceptions) before age 59.
You also may want to consider a Roth IRA. While contributions are not tax-deductible, withdrawals you make at retirement will not be taxed. The contribution limit in 2014 for both single and joint filers was $5,500 per person or $6,500 for individuals aged 50 and older. After that, contributions are indexed to inflation.
A single person may contribute fully to a Roth IRA with an adjusted gross income (AGI) of under $114,000, with benefits phasing out up to $129,000. For married couples filing jointly, full contributions are possible with an AGI less than $181,000, with benefits being eliminated at $191,000. These limitations are also adjusted periodically.
There’s also a retirement savings option known as a Roth 401(k) to consider. It is a 401(k) plan that allows employees to designate all or part of their elective deferrals as qualified Roth 401(k) contributions. Qualified Roth 401(k) contributions are made on an after-tax basis, just like Roth IRA contributions. Employees’ contributions and earnings are free from federal income tax when plan distributions are taken. Regardless of income level, Kahn says you can qualify for a deductible IRA as long as you do not participate in an employer-sponsored retirement plan, such as a 401(k). If you are in an employer plan, you can qualify for a deductible IRA if you meet the income requirements. Keep in mind that it’s possible to set up or make annual contributions to an IRA any time you want up to the date your federal income tax return is due for that year, not including extensions. The contribution amounts for deductible IRAs are the same as for Roth IRAs.
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Want to know how you’re doing on your retirement savings plan? Check out CNN Money’s online retirement planning calculators at cgi.money.cnn.com/tools. They provide an easy, accurate way to help you determine how much you’ll need and what your chances are of getting there. And if it looks like you’ll fall short, suggestions are provided for improving your plan. Best part—it’s free!
Savings Incentive Match Plan for Employees (SIMPLE)
SIMPLE plans are one of the most attractive options available for small-business owners. With these plans, you can choose to use a 401(k) or an IRA as your retirement plan.
A SIMPLE plan is just that—simple to administer. This type of retirement plan doesn’t come with a lot of paperwork and reporting requirements.
You can set up a SIMPLE IRA only if you have 100 or fewer employees who have received $5,000 or more in compensation from you in the preceding year. Generally, the employer must make contributions to the plan by either matching each participating employee’s contribution, dollar for dollar, up to 3 percent of each employee’s pay, or by making an across-the-board 2 percent contribution for all employees, even if they don’t participate in the plan, which can be expensive.
The maximum amount each employee can contribute to the plan is $12,000 for 2014. After that, the amount will be indexed for inflation. Participants in a SIMPLE IRA who are age 50 or over at the end of the calendar year can also make a catch-up contribution of an additional $2,500 in 2014.
Manual Labor
Sooner or later, every entrepreneur needs to write a manual. Employee policy manuals, procedures manuals, and safety manuals are just a few of the more important ones.
Even if you only have one employee, it’s not too soon to start putting policies in writing. Doing so now—before your staff grows—can prevent bickering, confusion, and lawsuits later when Steve finds out you gave Joe five sick days and he only got four.
How to start? As with everything, begin by planning. Write a detailed outline of what you want to include.
As you write, focus on making sure the manual is easy to read and understand. Think of the simplest, shortest way to convey information. Use bullet points and numbered lists, where possible, for easier reading.
A lawyer or a human resources consultant can be invaluable throughout the process. At the very least, you’ll want your attorney to review the finished product for loopholes.
Finally, ensure all new employees receive a copy of the manual and read it. Include a page that employees must sign, date, and return to you stating they have read and understood all the information in the manual and agree to abide by your company’s policies. Maintain this in their personnel file.
Simplified Employee Pension (SEP) Plan
As its name implies, this is the simplest type of retirement plan available. Essentially, a SEP is a glorified IRA that allows you to contribute a set percentage up to a maximum amount each year. Paperwork is minimal, and you don’t have to contribute every year. And regardless of the name, you don’t need employees to set one up.
If you do have employees—well, that’s the catch. Employees do not make any contributions to SEPs. Employers must pay the full cost of the plan, and whatever percentage you contribute for yourself must be applied to all eligible employees. Generally, the maximum contribution is 25 percent of an employee’s annual salary (up to $260,000) or $51,000, whichever is less.
As your company grows, you may want to consider other types of retirement plans, such as Keogh or 401(k) plans.
“When you get into a tight place and everything goes against you, ’til it seems as though you could not hang on a minute longer, never give up then, for that is just the place and time the tide will turn.”
—HARRIET BEECHER STOWE
Where to Go
With so many choices available, it’s a good idea to talk to your accountant about which type of plan is best for you. Once you know what you want, where do you go to set up a retirement plan?
Banks, investment companies, full-service or discount brokers, and independent financial advisors can all help you set up a plan that meets your needs. Many of these institutions also offer self-managed brokerage accounts that let you combine investments in mutual funds, stocks, bonds, and certificates of deposit (CDs).
Low-Cost Benefits
In addition to the standard benefits discussed above, there are plenty of benefits that cost your company little or nothing but reap huge rewards in terms of employee satisfaction and loyalty. Consider these ideas:
Negotiate discounts with local merchants for your employees. Hotels, restaurants, and amusement parks may offer discounts on their various attractions, including lodging and food, through corporate customer programs. Warehouse stores, such as Sam’s Club, allow discounted membership to employees of their corporate members. Movie theaters provide reduced-rate tickets for companies’ employees. Don’t forget to offer employees free or discounted prices on your own company products and services.
Ask a local dry cleaner for free pickup and delivery of your employees’ clothes. Or ask a garage for free transportation to and from work for employees having their cars serviced there. Many businesses are willing to provide this service to capture—and keep—new customers.
Offer free lunchtime seminars to employees. Health-care workers, financial planners, safety experts, attorneys, and other professionals will often offer their speaking services at no charge. Education is beneficial for both your employees and your business.
Offer supplemental insurance plans that are administered through payroll but are paid for by the employee. Carriers of health, life, auto, and accident insurance typically offer these plans at a lower rate to employers, so everybody benefits.
Offer a prepaid legal services plan administered through payroll but paid for by the employee. Like insurance, the purpose of the prepaid legal service is to provide protection against the emotional and financial stress of an employee’s legal problems. Such services include phone consultations regarding personal or business-related legal matters, contract and document review, preparation of wills, legal representation in cases involving motor vehicle violations, trial defense services, and IRS audit legal services.
The employer deducts the monthly service fee from the paychecks of those employees who want to take advantage of the service. Typical fees range from $10 to $16 per month per employee and cover most routine and preventive legal services at no additional cost. More extensive legal services are provided at a lower rate when offered in this manner, saving employees money.
How about an interest-free computer loan program? Making it easier for employees to purchase computers for their personal use increases the technical productivity of employees on the job. The employee chooses the computer and peripherals based on the employer’s parameters. (For example, the computer must be a Macintosh, and the entire package may not exceed $3,000.) The company purchases the system, allows the employee to take it home, and deducts the payments from his or her paycheck. Although there’s some initial capital outlay, it is recouped quickly. Any computer experience an employee can gain at home will most likely enhance his or her proficiency in the workplace.
Let employees purchase excess inventory from your business at a significant discount via sample sales or employee auctions. Arrange these purchases in conjunction with regularly scheduled companywide “yard sales” for employees to buy and sell their personal belongings.
tip
Taking time to thank your employees pays off in performance. Some ways to show appreciation: Send birthday cards to workers’ homes. Write congratulatory notes for a job well done. Use food to boost morale—Popsicles on a hot day or hot chocolate in the winter. Small things make a big difference in making employees feel valued.
One of the most appreciated but most overlooked benefits is membership in a credit union. There are some 6,000 well-established, state-chartered credit unions throughout the United States and Canada that accept startup businesses as members—at no charge.
The benefits to your employees are threefold: Most likely they’ll increase their savings rates (especially if you offer automatic payroll deduction), they’ll have access to lower loan rates, and they’ll pay lower fees—if any—for services. Services credit unions frequently offer include:
Automatic payroll deductions
Individual retirement accounts
Savings certificates
Personal and auto loans
Lines of credit
Checking accounts
Christmas club accounts
Only state-chartered credit unions are allowed to add new companies to their membership rosters. To find a credit union that will accept your company, call your state’s league of credit unions. You can also write to the National Credit Union Administration, 1775 Duke St., Alexandria, VA 22314-3428, or call (703) 518-6300 for more information, or visit their website at ncua.gov for a list of consumer resources.
Perk Up
Consider joining employee discount organizations like WageWorks, NextJump, or Corporate Perks. These companies aggregate discounts and points-based purchasing on everything from local restaurants to theme park tickets to big-box retailers.
NextJump’s corporateperks.com program is available to any company with 10 or more employees. According to the company, “Corporate Perks aggregates employees across tens of thousands of corporations to negotiate exclusive offers from top-name merchants, providing a perfect solution for both employees and employers in this economy by stretching the power of employees’ paychecks. Active employees save an average of $1,400 a year through the program on items including computers, monthly cell phone bills, pet care, groceries, apparel, home furnishing, and more.” Signing up is easy and often costs an employer nothing.
When comparing credit unions, get references and check them. Find out how communicative and flexible the credit union is. Examine the accessibility. Are there ATMs? Is there a location near your business? Consider the end users—your employees.
Once your company is approved, designate one person to be the primary liaison with the credit union. That person will maintain information about memberships as well as enrollment forms and loan applications. Kick things off by asking a credit union representative to conduct on-site enrollment and perhaps return periodically for follow-up or new sign-ups.
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Recruiting firm Robert Half International offers several salary guides that contain data on average starting salaries in accounting, administration, information technology, and legal and creative fields. You can request a complimentary copy at roberthalf.com.
Employee Policies
Now that you have employees, you’ll need to set policies on everything from pay rates to safety procedures. Many of these policies are regulated by federal and state laws. Here’s what you need to know.
Paying Employees
There are many state and federal laws that regulate the paying of employees, including the calculation of overtime, minimum wage, frequency of payment, and rules for payment upon termination. Because your business may be subject to both state and federal laws (the primary federal law being the Fair Labor Standards Act, or FLSA), which are often quite different and conflicting, you should check with the applicable government agencies, your local chamber of commerce, and appropriate financial and legal experts to determine which laws apply and how to correctly apply them.
Nonexempt and Exempt Employees
Under the FLSA, all employees are classified as either exempt or nonexempt. A nonexempt employee is entitled to a minimum wage and overtime pay as well as other protections set forth in the FLSA.
Exempt employees are not protected under these rules. However, if you wish to classify an employee as exempt, you must pay him or her a salary. Anyone paid on an hourly basis is automatically considered nonexempt; however, there can be nonexempt employees who are paid a salary.
If salary is not the determining factor, what factors determine whether an employee is exempt? Under FLSA and most state laws, an exempt employee is one whose job responsibilities, more than 50 percent of the time, involve the regular exercise of discretionary powers and can be characterized as:
Executive: usually a manager who directs the work of other employees and has the authority to make recommendations affecting the status of those employees (e.g., hiring, firing, promotions, etc.)
Administrative: a person who performs office or nonmanual work under general supervision and which primarily involves special assignments or requires specialized training, experience, or education
Professional: a person who is engaged in a recognized profession such as medicine or law or in a field of learning that is specialized and predominantly intellectual or creative
There are additional exempt categories for more specialized employees, such as professional artist, computer professional, or outside salesperson. In addition, your business may be subject to both federal and often more restrictive state laws governing the exempt status of employees. In those instances, an employee must meet the requirements for exemption under both federal and state law.
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Want to get an idea what others in your industry are paying workers? The Bureau of Labor Statistics offers the National Compensation Survey for most regions of the country. The information is broken down by occupation, industry, and demographics. The bureau also has information about benefits. To access the reports, visit stats.bls.gov/ncs/#tables or call the Bureau of Labor Statistics’ regional offices.
Tip Credits
States sometimes set minimum wage laws above or below the federal minimum wage standard. If your business is subject to both state and federal wage laws, you’ll have to pay the higher of the two.
Under federal law (the Small Business Job Protection Act of 1996), you may apply tips received by an employee against the employee’s minimum hourly wage, provided that: 1) the employee makes at least $30 per month in tips, 2) the employer pays at least 50 percent of the federal minimum wage, 3) the employee has been informed of the applicable law governing minimum wage and tip credits, and 4) the employee retains all the tips received by him or her (unless there’s tip pooling with other employees). However, if the hourly wage paid by the employer when added to the tip credit is less than the minimum wage, the employer must make up the difference. In 2014, the maximum tip credit that an employer can currently claim under the FLSA is $5.12 per hour (the minimum wage of $7.25 minus the minimum required cash wage of $2.13), according to the U.S. Department of Labor.
Once again, you will need to make sure there are no contrary state laws governing if and when you can use tip credits to meet your minimum wage obligations. For example, California law requires a higher minimum wage than federal law and thus applies to California employers and employees. Because California law prohibits crediting tips against minimum wage payments, tip credits are unavailable in California. Tip credit is also not allowed in Alaska. For a table of state laws on tip credits, see dol.gov.
Overtime Requirements
Excluding certain industry-specific exceptions, federal and state law requires that nonexempt employees be paid overtime. Under the FLSA, nonexempt employees must be paid one and a half times their normal rate of pay for hours worked in excess of 40 hours during a workweek. A workweek is defined as seven consecutive 24-hour periods. Although a workweek can begin on any day, it must be fixed for that employee and cannot be changed so as to evade applicable overtime laws. Most states also have their own overtime laws, and if they are more favorable to employees, those are the ones you must follow. For example, under California law, employees who work more than eight hours during a single day are entitled to overtime, even if they do not work more than 40 hours during a given workweek (the federal requirement).
Remember, nonexempt employees can be salaried as well as hourly. So don’t make the mistake of assuming that just because an employee is salaried, he or she is exempt from overtime.
tip
For a comprehensive look at how to start a successful safety program, read Workplace Safety: A Guide for Small and Midsized Companies (Wiley) by Dan Hopwood and Steve Thompson. Besides presenting helpful information about core OSHA regulatory requirements, the book covers workers’ comp, disaster and emergency planning, injury investigation and management, best practices, and more.
Workplace Safety
Why worry about safety? Because failing to do so could literally destroy your business. Besides the human loss, workplace accidents cost money and time. You could be liable for substantial penalties that could wipe out your business’s cash flow. The Occupational Safety and Health Administration (OSHA) can assess huge fines for willful violations of safety rules, especially when they could result in death or serious physical harm.
OSHA Regulations
All employers, whether they have one employee or 1,000, are subject to federal OSHA requirements. However, in states where a federally certified plan has been adopted, the state plan governs. State standards must be at least as strict as the federal standards.
Businesses that use nonemployee workers, such as independent contractors or volunteers, are not subject to OSHA. Workers are considered employees under OSHA if you:
Control the actions of the employee
Have the power to control the employee’s actions
Are able to fire the employee or modify employment conditions
Small employers (with ten or fewer employees) don’t have to report injuries and illnesses. However, that doesn’t mean they are exempt from OSHA regulations.
Compliance with OSHA
The first step in complying with OSHA is to learn the published safety standards. The standards you must adhere to depend on the industry you’re in.
Every business has to comply with general industry standards, which cover things like safety exits, ventilation, hazardous materials, personal protective equipment like goggles and gloves, sanitation, first aid, and fire safety.
e-fyi
The Institute for a Drug-Free Workplace is a nonprofit association that provides information, education, and advocacy for companies concerned about controlling illicit drug and alcohol use at work. Learn about drug-testing laws, read model employer guides and more at drugfreeworkplace.org.
Under OSHA, you also have a general duty to maintain a safe workplace, which covers all situations for which there are published standards. In other words, just because you complied with the standards that specifically apply to your industry doesn’t mean you’re off the hook. You also need to keep abreast of possible hazards from new technology or rare situations the government may have thought of and published standards for.
Sound exhausting? Help is available. Start with your insurance carrier. Ask if an insurance company safety specialist can visit your business and make recommendations. Insurers are typically more than happy to do this since the safer your business is, the fewer accident claims you’ll file. The government can also help you set up a safety program. Both OSHA and state safety organizations conduct safety consultation programs. Check to see what programs your state safety department offers, too. You’ll find local offices of government agencies as well as state organizations listed in the government pages of your phone book, usually under “Labor Department,” “Department of Commerce,” or a similar name.
Don’t forget to tap into the resources of your chamber of commerce, industry trade association, and other business groups. Many offer safety seminars and provide safety training literature free or for a nominal charge. In addition, there are private consultants who can help small businesses set up safety programs that meet OSHA regulatory standards. Your lawyer may be able to recommend a good one in your area.
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Peeved at payroll paperwork? Companies with as few as five employees can benefit from using a payroll service. When comparison shopping, get references, ask about services, and inquire if the payroll service keeps abreast of federal and state payroll regulations. Rates depend on number of employees and frequency of payroll.
Put It in Writing
When you have a safety program in place, put it in writing with a safety manual (see “Manual Labor” on page 370). Your safety manual should explain what to do in the event of a fire, explosion, natural disaster, or any other catastrophe your business may face. Make sure you keep well-stocked fire extinguishers and first-aid kits at convenient locations throughout your building. Also make sure employees know where these are located and how to use them. In addition to emergency procedures, your safety manual should explain proper procedures for performing any routine tasks that could be hazardous. Ask employees for input here; they are closest to the jobs and may know about dangerous situations that aren’t obvious to you.
Finally, have an insurance professional, a government representative, and an attorney review the finished manual. You’re putting your company’s commitment to safety on the line, so make sure you get it right.
Emphasize the importance of safety with meetings, inspections, and incentive programs. These don’t have to cost a lot (or anything). Try establishing a “Safe Employee of the Month” award or giving a certificate for a free dinner for winning suggestions on improving safety.
Discriminatory Treatment?
Although sexual harassment is one of the biggest issues facing employers these days, it’s not the only type of discrimination you need to be concerned about. Under the Civil Rights Act of 1991, employees who believe they were victims of job discrimination due to race, religion, sex, or disability are entitled to a trial by jury.
While companies with fewer than 15 employees are generally exempt from federal discrimination laws, most states have their own laws prohibiting discrimination, which, in addition to protecting a wider range of categories of employees, include smaller businesses within their scope and procedural and evidentiary standards more favorable to claimants. Apart from the tendency of some juries to award plaintiffs disproportionately high monetary damages, litigation in this area of the law can be extremely costly, even if you prevail. One attorney estimates the average legal fees for defense in a sexual harassment suit, regardless of the verdict, are upwards of $75,000.
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Learn to spot some of the signs that sexual harassment may be occurring in your company. Increased absenteeism, drop-offs in productivity, and lack-luster performance are all signs that something may be wrong.
Concerns over discrimination are more important than ever in today’s increasingly diverse business world. If you run a small business, chances are you will be dealing with employees from many cultures, races, and age groups. How can you keep things running harmoniously and protect your business from legal risk? The best policy is to make sure that everyone in your workplace understands what constitutes harassment and discrimination—and also understands the benefits of a diverse workplace.
Big companies may spend thousands on diversity training, but there are plenty of low-cost options available:
Learn as much as you can from books on the subject and from exposure to people who are different from you.
Investigate video series on managing diversity. Many are available for rental or purchase.
Consider public programs. A growing number of Urban League, chamber of commerce, Small Business Administration, and community college seminars and courses are bringing business owners together to learn about diversity issues.
As the business owner, it’s important to set a good example. Some ground rules to help keep you out of trouble:
Don’t touch employees inappropriately.
Never date someone who works for you.
Don’t demean others or make suggestive comments. Watch your mouth; what seems humorous to some may offend others.
Be sensitive to diversity of all kinds. Are employees in their 50s making condescending remarks about the “young upstarts” in their 20s? Two white women in their 40s might face a cultural conflict if one is from the Midwest and the other is from the West Coast, or if one has children and the other doesn’t.
If you decorate your office for the holiday season, don’t include some religious symbols and leave out others. Many employers use nonreligious décor such as snowflakes and candles.
Put policies regarding discrimination and harassment in writing as part of your employee manual (see “Manual Labor” on page 370). Outline the disciplinary action that will be taken and the process by which employees can make their complaints known.
“Make the tough decisions and don’t look back. As long as you’ve thought things through and have kept the company’s interests at heart, you’ll be OK.”
—KATRINA GARNETT, FOUNDER OF CROSSROADS SOFTWARE INC.
Hold a brief orientation meeting to introduce employees to your new policy or reacquaint them with the one already in place. Spell out very plainly what is and isn’t acceptable. Many employees are especially confused about what constitutes sexual harassment. While you want to follow the law and make a safe environment, you also don’t want your staff walking around scared to say hello to one another.
Even if an incident does arise, the good news for business owners is most complaints can be solved at the company level, before the issue comes close to a courtroom. To make this work, however, time is of the essence. Don’t put off dealing with complaints, or the victim is likely to stew.
Give both parties a chance to tell their side of the story. Often, the cause is a simple misunderstanding. To cover all your bases, you may want to have a neutral consultant or human resources professional from outside the company investigate the matter.