Recently I attended a meeting of HR professionals and listened to the keynote speaker, Ernest Malaspina who specializes in Employment Law. Ernie is with Hopkins & Carley, a Silicon Valley-based law firm and he talked about mistakes organizations make that lead to costly legal action.
Ernie shared stories about lawsuits filed by employees and former employees which are much more common today than they were 10 or 20 years ago. In this blog and my next blog, I list Ernie’s top six HR-related mistakes, aptly called “The Dirty Half-Dozen”. Happily, each mistake is followed by Ernie’s advice on how to minimize the risk of those mistakes. Let’s start with the first three:
1. Misclassification of Newly Hired Workers (as Contractors or Exempt Employees)
Should the new worker be an “employee” or an “independent contractor”?
Hiring managers are often tempted to classify workers as independent contractors in order to avoid owing overtime, and to control their benefit costs. They forget that these classifications are determined by legal standards.
Once the decision has been made to classify a worker as an employee, the next question to answer is: should the person be “exempt” or “non-exempt”? Again, there is a temptation to classify a worker as “exempt” to avoid overtime pay. Some managers do it to appease an employee’s preference “to be exempt”.
How to avoid these mistakes:
a. Make the decision on the basis of applicable legal criteria – not based on convenience or industry norms.
b. Be aware and avoid classifications that raise a “red flag”. Examples: a worker in question is a former employee of the company, or one who is classified as a contractor is doing the same work as another (who is classified as an employee.)
c. Let HR review and control classification decisions. Hiring managers often decide based on costs – e.g. avoiding overtime pay by classifying workers as contractors or exempt employees (even when the facts indicate otherwise).
d. Review classifications when there is a change in job title or duties.
2. Poorly Drafted Offer Letters and Contracts
It is good practice to document the terms and conditions of the employment relationship, via a letter or in some cases, a formal employment contract. It allows you to protect yourself as an employer, against possible future claims. A common mistake is to include wording that specifies the term of employment. This undermines “at-will status” – that employment is terminable at will. Another common source of controversy are sales commissions and bonus plans. What if an order is cancelled or returned?
How to avoid these mistakes:
a. Draft offer letters and contracts so they are clearly understandable by someone outside the organization
b. Include all provisions necessary to protect the employer against foreseeable claims
3. Ill-conceived attempts to avoid overtime
Some employers try to avoid paying overtime by providing “comp time” (compensatory time off). However, there are specific conditions when this is allowed. Other attempts to avoid paying overtime are via “make-up time” and “alternative work schedules”.
How to avoid these mistakes:
a. If at all possible, do not grant comp time (especially in California).
b. If you must do it, do it right. Be diligent in complying with requirements.
c. Do not permit “informal” alternative work schedules.
Let’s take a pause right here and reflect – which of these mistakes occur in your organization? What will you do about it?
See part 2