Preparing Your Business For The Coming Storm - Understanding Threats and Shifting Risk

Commentary from StaffMarket Services - February 2010

The Obama administration's 2011 budget proposal is not just about budget numbers... it contains provisions that could have a significant impact on nearly every business in the USA. We have outlined some of the Obama 2011 Budget Proposal Impacts for Business and PEOs here.

Major changes may be in store for American Businesses.

Every business will face unique challenges in the coming few years. Managers will be making hard decisions about market expansion or contraction, capital investment or liquidation, financing decisions, corporate risk structure. Whether you own a convenience store or a manufacturing plant, you will have hard decisions to make about the marketplace opportunities and the risks associated with making a mistake. That is just business. Judging opportunities and risks is what every business is all about. The old “risk/reward” equation may be a cliché but it will always be true. Obviously every business wants to maximize reward and minimize risk. While every business has unique reward opportunities and risk threats there is one risk that is common to every business…. the regulatory risks associated with having employees and avoiding fines and penalties .

Obama and the US Congress – Threats and Risks In the coming 5 years:

Even with the new employment laws in the making (see below), you already have significant risk for fines and penalties from the existing body of business employment regulations. Ask yourself these questions:

• Do you believe that the USA will make it easier or harder to sue employers for wage, sex and other discrimination claims?
• Do you believe that current Obama administration and US congress believes in a limited role for government in the open market business affairs in this country?
• Do you believe that there will be more or less employer related regulations?
• Are you prepared to use the E-Verify systems for all new hires?
• Do you believe there will more or less funding (and willingness to prosecute people) for governmental agencies like the IRS, Department of Labor, OSHA, etc.?
• Do you believe the governmental will advocate union rules that our favorable for businesses?
• Do you understand the potential financial impact of employer mandated health insurance which has been advocated by the Obama administration?

While nobody has a crystal ball, it is clear that the coming times will bring a landscape of employment related regulation that is complicated to navigate and full of landmines. We firmly believe that now more than ever all business owners need to partner with a PEO that will guide them through the terrain and insulate them (where possible) from employment related legal exposures.

Entrepreneurs – Will the traits that made you a success become your Achilles heal?

Small business owners has a group are smart, ambitious and hard working lot. They also tend to be risk takers; not the kind on a jackass episode, but the kind that spend their time focusing on strategic and important tasks, not the mundane jobs that are critical to a functioning business operation. Nothing new here. I’ll wager Steven Jobs never worried about a work comp claim. What will be new in this era is increased governmental attention and legal exposure for your company. The penalties for inattention will become much higher.

Governmental Regulation and Legal Exposure – The Risk to Your Business Increases

President Obama and Congress promise major changes for employment laws. If President Obama works to implement all of the HR changes he proposed as a senator and candidate it could be the largest change in employment law since the mid 1960s. With a friendly congress and a perceived public mandate, you need to be preparing your company now for the changes and risks on the horizon. In addition to the significant load or regulations business owners carry today, while not all of these are yet law, get ready for new ones like:

• Employment Non-Discrimination Act (ENDA)
  This act will expose all employers to lawsuits over gender discrimination in hiring and employment practices by making it illegal to discriminate, refuse to hire or fire them based on their sexual orientation or gender identity.
• Fair Pay Act – Lilly Ledbetter Act already signed in to law
  The recent Lilly Ledbetter case removed the time period restriction for persons to make a claim of wage discrimination. This was a gift to the trial lawyers for supporting the Obama campaign. Guess who is in the cross hairs now? That’s right your company. As if the business landscape was not difficult enough right new, the congress just increased your exposure to financially damaging lawsuits. Companies with poor record keeping of performance evaluations and comparative wage justifications are at risk.
• The Employee Misclassification Prevention Act
  Would increase fines for the mislabeling of employees as “independent contractors” to $10,000 for every violation. For many small businesses that use independent contractors, this could be a big issue. Employers should be aware of the existing risks of incorrectly classifying employees as "independent contractors," including claims for unpaid overtime, minimum wage claims, benefits claims, workers' compensation liability, and tax penalties. This act has lots of potential exposure for many small business owners.
• Healthy Families Act
  Requires employers of 15 or more employees to provide 7 paid days sick leave per year for full time employees.
• Employee Free Choice Act (EFCA)
  This act will make it easier to have your company unionized and will provide significant fines for violations as determined by the National Labor Relations Board.
• Civil Rights Act of 2008
  Among other thins make arbitration clauses in employment contracts unenforceable.
• FOREWARN Act
  Amends the previous requirement for employers conducting layoffs from 100 or more employees to 50 or more employees. Extends the advanced notice requirement from 60 to 90 days.
• Re-Empowerment of Skilled Professional Employees and Construction Trade Act (RESPECT)
  Would amend the definition of “supervisor” to delete “assign” and “responsibility to direct” and require a “majority of time” spent supervising others (currently 10-15%). Would be subject to union organizing in the unit that they manage and would be subject to union rules and discipline for crossing picket lines. Issues with loyalty to management and conflicts of interest.

Shifting Risk to a PEO

When you buy insurance, you are shifting risk to a third party for potential and unforeseen financial events. When you buy an extended warranty, you are shifting financial risk for repairs to a third party. When your company joins a PEO you get administrative relief, access to cost effective benefits plans and you shift employer related risk to a third party. To be clear, a PEO will only agree to accept the risk if you agree to certain employment related best practices as advised by the PEO. PEOs have a dedicated legal staff that knows ways to reduce exposures related to employment and they leverage this for your company. Follow their advice…and shift the risk. A Professional Employer Organization is a motivated partner in implementing HR best practices, reducing legal exposure and defending regulatory actions. Now more than ever hiring a PEO is imperative for the survival of small business in the USA. If you want to do things in a way that meets legal compliance and reduces your exposure, you should consider joining a professional employer organization or PEO.

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When your company must classify people as employeees, engaging a PEO for your employees in a co-employment relationship ensures your company will meet classification requirements.

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For Employers who do NOT use a PEO:
Employers who are uncertain about determining the classification of their employees should consult IRS Form SS-8, which employers and workers can file with the IRS to request a determination of the status of a worker for purposes of Federal employment taxes and income tax withholding. State unemployment insurance agencies use their own rules to determine whether to categorize an activity as employment for state UI purposes .

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