Many businesses are finding it more challenging to attract workers and the competition for quality employees is increasing. By partnering with a PEO small business can economically offer prospective workers a full suite of employee benefits that make their company a more attractive employment options for the prospective employee. PEOs provide payroll services, employee benefits, workers’ compensation insurance, regulatory compliance assistance, and other HR services to more than 173,000 small and mid-size businesses employing over 4 million people.

For small businesses dealing with the myriad of changing employment laws and rules, companies who have been partnered with a PEO have had expert guidance on every aspect of pandemic related rules and regulations. These advantages have shown the value of a PEO and recent surveys and statistics assembled by the National Association of Professional Employer Organizations has proven this value. NAPEO President & CEO Pat Cleary stated that “PEOs were the unsung heroes of the pandemic as they proved to be lifesavers for so many of their small business clients. Small businesses across the country recognize the true value of partnering with a PEO and more and more are deciding to partner with a PEO.” According to NAPEO, since the pandemic began, compared to other small businesses, PEO clients were 58% less likely to have permanently closed, are 82% more likely to have business operations back to normal or better, and have a rate of employment growth that is 81% higher.

View detailed information about the value of a PEO during the COVID-19 Pandemic.

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Let’s review some quick history…
In the good ole days (1980-1995), companies hired an IT staff, bought computers, built a data center and hired programmers to write the code to process data in to information (remember VMS, Cobol, fortran, etc?).

Later (1995-2010) the industry evolved to the use of purchased software applications. Rather than building the software themselves companies purchased and configured the software, yet it ran on the company’s own dedicated computer hardware. Think software like Oracle Financials, SAP CRM, etc. For smaller businesses the use of dBase III, Lotus 123 transitioned to software like MS Access, Intuit- Quickbooks and Microsoft Exchange. That transition removed lots of the overhead costs associated with technical staffing and software maintenance.

Next (2010-now), came the transition to internet based “hosted” solutions. Now, companies no longer need to maintain their own data centers or hire staff to handle it. All you need is an internet connection, some software configuration and you are ready to go. This has been an efficiency boon to business large and small across the world. No data center to maintain and not so much worry about data security and backups. The data is now somewhere in the “cloud”. But now the question becomes… who can use that data and for what purposes?

Consumer Data Analytics – That’s Done

In the consumer space, anyone with half a brain knows that the reason Google and Facebook are worth billions is because they have provided irresistible tools that suck up personal data like a vacuum. That data is a virtual gold mine of information to marketers, company strategists, political operatives, government, police, etc. They day is coming when they will hand out phones for free (Obamaphones!), because the revenue to be gained from data collection makes it worth it. Heck they may even pay you to carry one. Most people have decided the value and convenience of those tools outweighs their discomfort about the privacy intrusion.

Business Data Analytics – That’s Coming

But what about a company’s proprietary data? Vendors of cloud based business software solutions have recognized that they have a commitment to their customer’s data privacy and security. Those customer concerns have been recognized and cloud vendors have worked hard to use encryption and other techniques to ensure that their client’s data is not stolen or tampered with. Okay so far, but the big question no one is asking is…. What rights do the cloud vendors themselves have to use your company and HR based employee data? Here is where the cloud solution vendors get very quiet. Think about the insights possible by aggregating thousands of company’s business data and the value of that information.

The Value of Aggregated HR/Payroll Information

For example, let’s just pick ADP and or Paychex. They process payroll for thousands of small businesses. They have very current information on payroll values, average wages, location of workers, etc. The ADP employment report is a widely recognized tool that Wall Street and economics analysts use to get an early indicator for the next move of the economy. That information is published by ADP and the public only perceives it as aggregated “national” information. But there is a whole lot more detailed information they actually have available. In fact it may be that a third party information aggregator has struck deals to get information from all the biggest payroll service providers and would be the ultimate information seller.

How is Payroll Data Valuable?

So now, say you are a national restaurant chain and are trying to identify the best location for your next restaurant. It would be insightful to identify the top zip codes for average wage and average wage growth. A location where wages are growing would be a preferred area to place a new store and the converse would be true as well. Areas with a shrinking wage base might be location to target for closure. Or say you are a national health care provider. Payroll providers know who makes payroll deductions for health insurance, for how much and how that is trending… all by location. For a health care provider, that information would be very valuable for deciding new markets to enter and ones to avoid. Payroll information has a lot of value.

Competitive Intelligence Value

Even more valuable is gross wage information for a company. Gross wage information for a company is a solid indicator of the trending health of a company. Growing company wages indicate a marketplace opportunity and conversely stagnant or shrinking wages indicate a business opportunity to avoid. To a potential new entrant to a market, that is valuable information. So the real question is, has your company’s payroll information (and trending) been sold to another party that one day becomes a market competitor? Things that make you go, hummm. Our discussion so far has only explored the data ownership situation for payroll data. Similar or even more serious concerns may exist in other functional areas that have “cloud” based services. For example company financial accounting software (Oracle, Intuit) or legal software (Legalzoom) or sales force management software (Salesforce.com). What rights do the cloud providers have to use that company proprietary data and how? I have not reviewed their service agreements but I bet it is a question they would prefer you didn’t ask.

Do You Even Care?

You may say that it doesn’t matter to you what they do with your company’s information. You might think… “If they can make money off of it, so be it”. Maybe one day the value of the provided business information will be enough to make it so that payroll services will be available for “free”, just like Facebook is for consumers. But, unlike the consumer space, business is war. It only makes sense to make sure those “free” cloud service aren’t actually a Trojan horse.

What about company data that contains employee’s personal information?

This is a sticky one. It is one thing when an individual elects to voluntarily turn over their personal data in exchange for the convenience provided by “free” tools like Facebook. It is a different situation when an individual’s personal data is entered in to a Human Resources information system used by their employer. That is not voluntary and the individual has no control over that data or where it goes. As a business owner, charged with safeguarding your employee’s information, you have a responsibility to ensure that the vendors you select to use that information are not putting your workers at risk for identity theft.

Getting things in Writing

Any time your company makes the decision to outsource your payroll or other information systems processing or IT infrastructure you are exposing yourself to the risk that the vendor you selected uses your company’s information in ways that you may not have intended. If your company uses a PEO or is considering joining one, you need to ask them to provide agreement language that spells out what the terms are for the use of your company’s proprietary information. Things to consider may include:

• Who are all the named parties that will have access to your company’s information?
• What rights and prohibitions does the vendor (and their vendors) have with your company information?
• What is the outsourcing vendor’s liability in the event of a data breach or hacking incident?

This is by no means an exhaustive list of concerns to address, but should provide a starting point for a conversation with current or potential outsourcing vendors. Welcome to the cloud computing era.

image courtesy of Ervins Strauhmanis at Flickr.

PEOs can reduce employee turnover and improves business survival prospects

A new (September 2014) follow up study commissioned by the National Association of Professional Employers (NAPEO) further demonstrates the positive impacts for employers when they join forces with a Professional Employer Organization. The results are profound:

Businesses that join a PEO are roughly 50% less likely to fail when compared to similar companies in the population as a whole.

In addition, companies the join a PEO enjoy lower employee turnover rates

Read the entire 2014 NAPEO white paper here and find the original 2013 NAPEO study here.

Let StaffMarket help you find the right PEO for your company.

I did some searching and found that Sams’ Club has partnered with a San Antonio Texas company called Execupay to offer club members access to the payroll software at a “discounted price”. At the Execupay website a PR article notes that they are pursuing banks to offer private labeling of their software to make more money for the banks…” “Financial institutions that offer payroll in an integrated model to their clients receive not only a substantial residual revenue stream, but also have the means to improve customer retention”. So much for the “discounted price” but hey everyone is entitled to make a profit, that’s okay.

Payroll Software or Payroll Service?

Execupay may actually offer some great software. I managed financial systems and wrote payroll software for the Boeing Company. I managed the software implementation of the Oracle HRIS system for the nation’s largest Professional Employer Organization (at that time, over 120,000 employees). I understand how challenging coding, maintaining and operating payroll software can be. No matter how elegant and comprehensive the software may be, ultimately there is still a lot of work involved to establish, configure and run the payroll processes…. a lot of work. There are lots of things that happen in the real world of payroll that they don’t tell you about in the sales brochures.

• Are all your tax withholding accounts established amounts calculated correctly and deposited with government on time?
• How will you handle workers compensation insurance, premium remittance and work comp claims?
• What about overtime and DOL compliance…. Better know the rules there
• Got I9 forms for all your hires? W4s? W2s at the end of the year?
• Got your 941s ready for the quarter?
• What about minimum wage, tipped tax credits, paid leave laws (vary by states)

Check this out for more about what you need to consider

But wait there’s more!

• What about inadvertent overpays or underpays?
• What happens when an employee withholding gets jacked up next period because you underpayed last period?
• What about pretax treatment for health insurance premiums or 410Ks. How are those handled?
• What happens if you get a wage garnishment IRS levy or child support order for one your employees? What is the max amount you can take out their check and where to you remit the monies?

Truly this list goes on and on…. And the reality is that while a slick software package may handle all these real world circumstances, there is only person that has to figure it all out, make sure it happens on time, every time and will be responsible when mistakes are made: You. If you think that Sam’s club will be manning a help desk to assist with your payroll problems you may want to check out some customer comments on how they are doing with their regular retail business.

Focusing on your Core Business

For business owners who have lots of free time on their hands (or have staff members with nothing to do) learning and maintaining their own payroll system might seem like a way to save some money. Unfortunately there is a lot more to it than appears on the surface and by the time you find out you have gotten in over your head, it can be painful to repair the problems. There is a reason business owners use a payroll service rather than just get some software from Sam’s Club. Payroll software is just a tool, like a set of socket wrenches. If you have the time and are competent mechanic, you could change the engine in your own car. But hey, if you insist on doing everything yourself, you might even consider performing your own appendectomy.

Here is the user’s guide for the PlatinumPay Payroll Software. Take a look at what you are getting into if you decide to do it yourself and take on your company’s payroll.

Payroll Software, Payroll Service or Professional Employer Organization?

PEOs offer a full payroll service as part of their comprehensive suite of workers compensation insurance and Human Resources services. While a payroll services like ADP or Paychex offer more than just access to a payroll software package, even they are recognizing the demand from business owners for a more comprehensive suite of services. Hiring a PEO will cost more than simple payroll services from Sam’s Club but for most business owners, it is money well spent. Let StaffMarket help you find the best PEO for your company.

Defending your company from employment related litigation is not only expensive; it can be a huge distraction from running a business. While employers can’t change the laws, they can put themselves in a position to defend themselves and make sure that events that occurred can be articulated forcefully and accurately. While facts will be different in each case, there are some common documents are critical in almost every employment related legal dispute.

Critical Employment Related Documents

• Employment Application
• Employee Handbooks
• Job Descriptions
• Performance Evaluations
• Disciplinary Warnings
• Response to Administrative Claims.

According to D. Albert Brannen at Labor Lawyers, these six documents “are almost always included among the documents requested and produced in employment litigation”. While not the only areas of risk, without these documents and employer is defenseless in employment litigation.

Creating Base Line Employment Documents
For a starting point, employers must create these documents for their company and also make sure the documents themselves are legal. Rules for what employers can and cannot do or ask are changing all the time and it is critical to update them as required. For example on the employment application there are new rules (2014) about asking applications about prior arrests. Employee handbooks now need to have rules for social media policies that do not violate and encroach on “protected activities” and the Department of Labor. Simply finding a form on the internet and using that as a template for your companies documents could be an expensive mistake. Written job descriptions are critical when conducting performance evaluations.

Document Maintenance
Next on the list is ensuring that each document is complete and accurate for each employee. This requires a consistent ongoing effort. Just creating the forms is worthless in a litigation defense if they were never completed and filed. In addition employers need to track and obtain acknowledgments from the employee that they have been provided, read and understand the information in the documents.

Consistent Treatment Among Employees
It is also key to ensure that your documents maintenance is consistent among employees. A sure way to weaken a litigation defense is for a plaintiff to be able to demonstrate that they were “singled out” for some other reason. This is especially critical if the litigant is member of a “protected class” who may be making a discrimination claim. Consistent effort across the workforce is required if they defendant hopes to show the claims are unfounded.

What Options Does an Employer Have?

Do it Your Self
Most entrepreneurs and small business owners are by nature do it yourself kinds of people. That can be a trap. Employment laws are changing all the time and in many cases are unique in different states. Ensuring your documents and processes are legal, up to date and consistent is a big job by itself. Most business owners are not willing to put the time and energy into doing it correctly and consistently. Unfortunately when they find out (in legal fees, civil judgments or regulatory fines), it will be an expensive mistake.

Hire a Labor Lawyer and Internal HR Expert
To get started, a labor law firm probably has template forms that are up to date and cover lots of legal contingencies. However document maintenance will demand someone in the company with an HR background ensure that these documents are consistently prepared, completed and communicated to employees. This route is expensive and most small business cannot justify the expenditure for a full time HR expert.

Hire a Professional Employer Organization (PEO)
PEOs are in business help other businesses navigate the minefields of employer related risks. Companies that join a PEO get:

• Access to a full suite of up to date and legal current employment forms
• Access to Human Resources experts to customize a maintenance plan for their company
• Legal advice and risk sharing should employment related litigation arise
• Staff training programs for managers and owners
• Access to Employment Practices Liability Insurance (EPLI) to mitigate the financial risk for (some) employment practices.

For business owners, joining a Professional Employer Organization ensures employer related risk are reduced and HR best practices make a better place to work. Investigate PEO solutions for your company now.

Image courtesy of dan4th Nicholas via Flickr

Jim Clifton the Chairman and CEO at Gallup explains the BIG LIE about unemployment rates in a short but insightful article at Gallup.com

Is it just me?

Most people suffering from unemployment or underemployment will wonder why. Since so much of our personal identity is related to the work we do, the ability to provide for ourselves and our families and the value we contribute to society. People whose careers are stifled (or not even getting off the ground) ask “why am I in this circumstance?”. Did I not get the education I should have? Do I need to move to a new town? Did a past mistake result in an entanglement with the legal system and now I have a black mark on my record that will forever hinder my job prospects? Sometimes despite valiant efforts to find a job or a better job, the opportunities in the job marketplace just aren’t here. In a robust economy where employers are competing for workers throughout the skill spectrum, employers are forced to overlook factors that otherwise might give them pause in making a new hire. For example in Florida during the construction boom of the mid 2000′s, many general contractors decided they were NOT interested in drug testing job applicants. Even though many Professional Employer Organizations (PEOs) offer that service, the general contractors knew that drug testing would shrink their potential workforce and that would make it harder to find workers. Times have changed and once again it is an employers market, so these factors come back in to play. Applicants without a precise skill match, lack of experience or any background blemishes will be that last to be employed. The proof of this is that despite a decade of inflation and recent stock market growth, there has been NO real wage growth for 40 years. According to Pew Research Center:

But after adjusting for inflation, today’s average hourly wage has just about the same purchasing power as it did in 1979, following a long slide in the 1980s and early 1990s and bumpy, inconsistent growth since then. In fact, in real terms the average wage peaked more than 40 years ago: The $4.03-an-hour rate recorded in January 1973 has the same purchasing power as $22.41 would today.

So in seeking and answer to the question of “Is it just me?”, we look to the Department of Labor unemployment rate for a clue. Unfortunately, the data they publish is misleading.

Why mislead the Public? ..because it serve the interest of:

Politicians
The one thing politicians like most is staying in power. Duh. They have a real incentive to convince the public that things are great. If you are unemployed or underemployed, it’s not their fault, it’s yours. A real conversation about the workforce participation rate (at some of the lowest numbers since the early 1980s) is not the number they want you to focus on. An of course in a pinch to make the numbers look good right before an election, they are not above outright lying about the truth on the unemployment numbers.

Wall Street
Of course the Wall Street barons want to promote the narrative that the economy is good and getting better and stock will be rising in value. While this may be true, downplaying the unemployment problems fuels demand for stocks and bonds that are their lifeblood. They easy money policies of the Fed motivated company boards to borrow money (after all.. its practically free) to purchase back their stock. So the stock market booms and Wall Street has a great story to tell investors, yet no real job growth was created. Billions of dollars printed and loaned out and the average working person in America got bupkus.

Media
It almost goes with out saying that the media adopts the go-along/get-along attitude about unemployment. It serves the media no purpose to make trouble for the politicians and Wall Street crowd. Easy access to politicians is key to their story telling and Wall Street pays for lots of advertising. These are two groups the media wants to protect.

Mr. Clifton Chairman and CEO at Gallup notes that:

There’s no other way to say this. The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie.

And it’s a lie that has consequences, because the great American dream is to have a good job, and in recent years, America has failed to deliver that dream more than it has at any time in recent memory. A good job is an individual’s primary identity, their very self-worth, their dignity — it establishes the relationship they have with their friends, community and country. When we fail to deliver a good job that fits a citizen’s talents, training and experience, we are failing the great American dream.

Gallup defines a good job as 30+ hours per week for an organization that provides a regular paycheck. Right now, the U.S. is delivering at a staggeringly low rate of 44%, which is the number of full-time jobs as a percent of the adult population, 18 years and older. We need that to be 50% and a bare minimum of 10 million new, good jobs to replenish America’s middle class.

I hear all the time that “unemployment is greatly reduced, but the people aren’t feeling it.” When the media, talking heads, the White House and Wall Street start reporting the truth — the percent of Americans in good jobs; jobs that are full time and real — then we will quit wondering why Americans aren’t “feeling” something that doesn’t remotely reflect the reality in their lives. And we will also quit wondering what hollowed out the middle class.

True that Mr. Clifton, true that.

A lawsuit has been filed in the Central District of California on 12/14/2014 on behalf of former employees of Sony Corporation claiming that former employees have been damaged by the hacking of Sony’s IT systems. The complaint filed in Los Angeles federal court claims that Sony “failed to secure its computer systems, servers and databases, despite weaknesses that it has known about for years” and “subsequently failed to timely protect confidential information of its current and former employees from law-breaking hackers.”

The scale of the breach is breathtaking. According to the suit over 47,000 employees had data revealed including: unique social security numbers and names, birth dates, home addresses, email addresses, salary information. According to Identity Finder LLC, the personal information was copied more than 1.1 million times throughout the 601 files stolen by hackers. The personal info was found in more than 500 spreadsheets, 75 PDF files, and several Word documents, none of which were password protected.

HRIS Systems Security Obligations and Liability
The exposure of sensitive employee information should give everyone in the HRIS industry some concern. The Sony hacking situation is unique in that the attackers appear to have stolen all sorts of data with the very public intention of harming the company. How often is employee data stolen when it is never publicly revealed? Let’s face it, no company wants it revealed that hackers stole employee data. That is bad press and feeds more legal exposure. There is no way of knowing how many times this happens because companies won’t disclose it and if it is discovered, things will be settled quietly out of court. Can you imagine the impact to a payroll/HRIS provider like ADP or Paychex if they were hacked and it became known that sensitive employee identity, wage, performance and health insurance information was exposed to the criminal elements around the globe? According to ADP, they serve over 400,000 clients and pay 31 million people worldwide. If they were hacked like this is it would be game over.

Impact for Cloud HRIS Vendors
Companies who outsource their HRIS and Payroll to a cloud based vendor may want to take a hard look at their exposure should that vendor get hacked and their employees damaged. Many PEOs have moved from in house IT datacenters, to cloud based providers. All PEOs need to take a hard look at their security practices for with their clients/employee information. PEOs using cloud based solutions need to review their agreements and determine just who is on the hook if something like this happens to them.

Image courtesy of Alexandre Dulaunoy at flickr

2014 FUTA Rates by State

While employers in other states may watch leaves turn from green to yellow to orange, California employers are accustomed to seeing many new yellow cautions and red flags each fall. Among a number of new legal requirements for California employers, from anti-bullying components to harassment training for managers to protecting unpaid interns and apprentices under the state’s antidiscrimination statute, Governor Jerry Brown also signed the Healthy Workplaces, Healthy Families Act of 2014 (“HWHFA”), which requires employers to provide paid sick days to employees effective July 1, 2015.

Currently, Connecticut is the only other state in the country with a paid sick leave law, though some major cities, such as San Francisco; New York City; Portland, Oregon; Washington, D.C.; and Newark, New Jersey, have already enacted paid sick leave provisions. California’s HWHFA goes a step further than most other paid sick leave laws and ordinances in that it applies to all employers regardless of company size, subject to a few exceptions detailed below.

Here’s the quick breakdown of employer requirements under HWHFA:
• Accrual: Employees working in California for 30 days or more per year will begin accruing at least one hour of sick pay per every 30 hours worked, as of July 1, 2015, or the first day of work, whichever is later. Exempt employees are deemed to work 40 hours per week for purposes of the law, unless their normal workweek is less than 40 hours. Employers can limit accrual to six days, or 48 hours, per year.

• Use: Employees’ accrued sick time can be used after 90 days of employment. Paid sick leave can be used in minimum increments of two hours or more.

• Carry-Over: Accrued sick days carry over to the following year of employment, but employers may limit an employee’s use of paid sick days to three days, or 24 hours, per year of employment.

• Eligibility and Use: Paid sick leave can be used for the illness or preventative care of an employee or an employee’s family member (defined as a parent, child, spouse, registered domestic partner, grandparent, grandchild, or sibling). Paid sick leave can also be used for employees who are victims of domestic violence, sexual assault, or stalking, as described in California Labor Code Sections 230 and 230.1. As these issues were referenced in the bill’s findings, it is clear that the California legislature enacted HWHFA in part in order to mandate paid sick leave provision to such victims.

• Compensation: Paid sick days are compensated at the same wage rate as the employee normally earns during regular work hours. If, in the 90 days before an employee is eligible to use the sick leave, the employee has varying rates of pay (or was paid by commission or piece rate, or was non-exempt and salaried), the rate of pay is determined by dividing the employee’s total wages (except overtime) during the 90 days by total hours worked in that period.

Unlike paid vacation days, paid sick days do not have to be paid out at the termination or separation of employment. HWHFA does not apply to employees covered by collective bargaining agreements that provide paid sick leave terms and certain wage rates, to providers of in-home supportive services, and to individuals employed by air carriers as flight deck or cabin crew members.

How will this affect the many employers who already provide discretionary PTO benefits to their employees? For these employers, if their PTO policy (1) can be used for the illness or preventative care for the employee or eligible family members, (2) provides at least three days, or 24 hours, of equivalent paid time off per year, and (3) meets the accrual, use, and carry-over requirements discussed above, their policy does not need to be altered. There are, however, notice, posting, and record-keeping requirements under the law, and it may be advisable to consult with employment counsel to review existing policies for compliance.

California employers without a PTO policy may want to consider creating a wholly separate, compliant paid sick leave policy. Although many employers have moved away from separating sick leave from other types of leave, opting instead for a regular “no-hassle” PTO policy, in light of HWHFA it may be easier for employers without PTO policies to tailor their paid sick leave policies to the law’s requirements. For employers interested in doing so, there are a few things to keep in mind. First, the policy must apply to both non-exempt and exempt employees, so a full-time salaried employee working 2,080 hours per year would accrue approximately 8.66 sick days (69.33 hours) per year. However, an employer may limit use of paid sick leave to three days (24 hours) per year of employment, and can limit total accrual to six days (48 hours).

Employers should also consider HWHFA’s interaction with California’s Kin Care requirement, which authorizes employees to use up to one-half of annually accrued sick leave to take time off to care for a sick family member. Previously, Kin Care did not apply to employers who did not have specific paid sick leave policies, but now that all California employers must have such policies, employers need to become more familiar with Kin Care requirements.

Importantly, HWHFA has a prohibition against taking any adverse action against an employee for using accrued sick days, including a presumption of retaliation if the employer takes any action against an employee for using the leave or after the employee has complained about any issues with their sick leave. For example, if an employee has procedures in place in the event of an unexpected absence, an employee who fails to follow such procedures, but invokes their accrued sick time for protected reasons, may be insulated from adverse action. The Labor Commissioner has jurisdiction to investigate and enforce the law, which carries hefty penalties similar to other wage and hour violations for unlawful withholding of sick days or other related violations.

As with many new laws, there are still open questions raised by HWHFA. The law does not specify whether employers may require a doctor’s note or certification from employees before applying accrued paid sick days to absences. Moreover, an employer cannot require that the employee find a replacement for the time they are out sick. As several other state legislatures introduced paid sick leave bills in 2014, all employers should closely monitor such legislative developments in the states in which they do business. California employers in particular should check in with employment counsel as they weather the fall and winter and prepare for paid sick leave next summer.