Employment Practices Liability Insurance (EPLI) has become an important insurance component for all types of businesses

Company Size is Irrelevant

Nearly 75% of all legal complaints against businesses are over employment related disputes. Think about that; not over contract disputes or debt collection… but lawsuits related to the myriad of rules employers must follow. Over 40% of these suits are against businesses that have less than one hundred employees.

Why EPLI is critical

• Since 1998, employment related lawsuits have increased over four hundred percent.
• Basic general liability insurance does not cover employment related risks
• The EEOC division of the Department of Labor files more than 90,000 charges each year and the plaintiffs win 70% of jury trials.
• The average lawsuit settlement is around $200,000 and the cost to defend the claim is nearly $150,000.
• Businesses with 15-250 employees are sued more often than larger businesses.

EPLI should be considered to protect your company from the crippling costs of employment related lawsuits.

How a PEO can help

Many PEOs offer EPLI coverage as part of their insurance related suit of services to their clients. Some PEOs may include the cost of EPLI in their standard plan pricing while others offer it on an a la carte basis. In addition hiring a PEO brings an HR expert on to your company team that will help your company implement HR / employment practices that make your company a great place to work and also mitigate employment related risks. Have a question about EPLI offerings in the PEO marketplace? Call us, we will talk you through it.

How Much Time is Comp Time?

Per the rules, compensatory time should be accrued at no less than one and one half hours for each hour of overtime elected to be treated as comp time.

The 1000 Hour Rule

Per the bill, comp time can only be offered to employees provided they have worked at least 1000 hours for the company in the preceding 12 month period.

Maximum Amount

How much time can an employee accrue? Per the rule an employee may not accrue more than 160 hours of compensatory time. Employers also have the option to “cash out” an employee’s accrued comp time for any amounts over 80 hours provided they have provided the employee with 30 days prior notice.

Stopping Comp time and Cashing Out

Employees may elect to cease accruing comp time at any time. They also can (by written request) “cash out” their comp time for all unused time. The employer has up to 30 days to completed the requested payment to the employee.

How can comp time be used?

Similar to vacation time, the law states that compensatory time “shall be permitted by the employee’s employer to use such time within a reasonable period after making the request if the use of the compensatory time does not unduly disrupt the operations of the employer.”

Can employers force workers to accept Comp Time instead of overtime payment?

No. No. No. The rule states that: “An employer that provides compensatory time under paragraph (1) to an employee shall not directly or indirectly intimidate, threaten, or coerce or attempt to intimidate, threaten, or coerce any employee for the purpose of—“(A) interfering with such employee’s rights under this subsection to request or not request compensatory time off in lieu of payment of monetary overtime compensation for overtime hours; or“(B) requiring any employee to use such compensatory time.

Paying off Comp Time

Upon termination, employers must make payment for all accrued comp time amounts. For employers this may be trickier than it looks. The law states that: “If compensation is to be paid to an employee for accrued compensatory time off, such compensation shall be paid at a rate of compensation not less than—“(i) the regular rate earned by such employee when the compensatory time was accrued; or “(ii) the regular rate earned by such employee at the time such employee received payment of such compensation, whichever is higher.

For Employers – Things to Consider before implementing a Comp Time Policy

If this new bill becomes law, employers have some things to consider before offering a comp time program in their company. First of all, read the H. R. 1180 bill and know the provisions of the law. Can employers offer comp time to some employees and not to others? This would seem to open the employers to accusations of disparate treatment of workers. Companies considering offering a compensatory time program need to carefully consider the cost of comp time implementation and the ongoing administration costs.

Employee Handbook Changes

A company that wants to offer a comp time plan for their eligible employees will need to update their employee handbook to clearly communicate the procedure for employees to follow when electing to treat overtime compensation as comp time and conversely to stop such treatment. In addition company policy for requesting comp time usage or comp time payment must be established and communicated to employees.

Payroll Processes and Systems

Effectively implementing a comp time program will require that the company use a payroll system that:

• Tracks the employees eligibility for comp time election:
  • Employee is hourly
  • Minimum 1000 hours worked in last 12 months
  • Current comp time balance not over 160 hours
• Tracks whether the employee has elected to treat the current payroll period overtime as comp time. Time cards or other time and attendance systems may need to be modified.
• Tracks the employee pay rate at the time the comp time was earned.
• Provides employee with a pay advice (payroll stub) showing the comp time earned and comp time balance available.

Interestingly, implementing this plan will require payroll systems to differentiate between employee wages earned and wages paid. Items like employer costs for workers compensation insurance premiums and state unemployment taxes need to be considered. Other complications like wage garnishments, IRS levies or child support orders may get involved.

Employer Liability

Comp time owed to employees represents a financial liability of the company and accounting treatment should recognize this situation. Companies with a comp time plan need to implement accounting practices that recognize their future liability and ensure that funds are available to meet their associated financial obligations. Investors considering purchasing an interest in a company with a comp time plan in place need to be aware of potentially significant obligations they may inherit.

How will Professionals Employer Organizations React?

It can be expected that if H.R. 1180 (Working Families Flexibility Act) is implemented into law, some PEO clients may want to offer their work-site employees the option to accept comp time in lieu of overtime compensation. As we discussed above, there are many moving parts to get right. PEOs are experts in the rules, processes and operational aspects of implementing these HR best practices.

About that employee handbook

Part of the value of joining a PEO is that they are continually monitoring the changing regulatory landscape to determining the best practices and language that should be in an employee handbook so that the risk of running afoul of employment laws is reduced and hopefully eliminated. The foundational document in every company should be their employee handbook. The employee handbook is the basis of the do’s and don’ts for each company employee. Once created and published, it should be standard practice in your hiring process to deliver the handbook and obtain a written acknowledgement from the employee that they have read and understand the contents of the handbook. Believe it or not, that’s the easy part. The bigger questions is: What are the rules for employees identified in the handbook? For employers this can be a tricky area. As you might expect, federal and state governments have their own set of regulations for employers about what rules employers can establish in the workplace. The NLRB has new expectations (2015) about employee handbooks and their expectations of employers. Some PEOs consult with labor lawyers for this advice, while others have their own in-house legal teams. When a company joins a PEO creating a tailored employee handbook is part of the process.

Best to follow your PEOs advice

So your company signed on with a PEO, implemented your employee handbook and went on about your business, but your company still has some responsibilities.   When a business joins a PEO, the PEO will help the business construct an employee handbook that meets that company’s needs and meets the regulations at the time it was implemented. But as time goes by and regulations change, that handbook may become out of date and possibly even illegal. A responsible PEO will reach out to their clients and advise them on the changes or updates that need to be made.

Listen to your PEO

Most PEOs have hundreds or thousands of small business clients. When your PEO contacts you and advises your company to make a change…. It’s best to heed their advice. Why? Well obviously you want to follow the rules, and by doing so, prevent legal troubles for your company. But another good reason is that in the event there is a complaint filed against your company, the PEO may be able to argue that your company ignored their guidance and therefore they are not liable for the damages or fines. Recently our staff attended a meeting with executives at one of the nation’s leading PEOs. When we asked what actions they were taking to inform their clients about the new NLRA title VII rulings, they indicated that they had reached out to all of their clients to provide guidance on the topic. They executives noted with some frustration that many of the clients never responded to their outreach. When our staff (at StaffMarket) asked if that created a liability for their PEO, they said that they were protected due to language in their Client Services Agreement (CSA).

Always read the fine print

Rest assured that your PEO wants your company to be compliant with all employment related regulations. However, the Client Service Agreement signed by your company and the PEO is the final say on who is responsible in the event of a problem with regulators. It is the key document that all PEO customers need to read carefully and understand. Just because your company joins a PEO does not mean you don’t share some of the burdens of ensuring regulatory compliance.

Image courtesy of Janelle Ward at Flikr

Exempt vs Non-Exempt Workers Reclassification
One of the claims made was that certain employees had been classified as “exempt” and later had their status changed to “non-exempt”. While classified as “exempt” those certain employees were not paid overtime and were prevented from taking vacations. Part of the dispute involves going back and calculating the compensation what should have been paid had the employees been classified correctly in the first place. The Zenefits case demonstrates that declaring workers as “exempt” to avoid overtime payment requirements can be a costly mistake.

Paid Time Off Troubles
In addition there were claims that Zenefits failed to pay employees for unused paid time off (comp time) as required under California law. According to the WSJ:

“A copy of the company’s employee handbook dated May 2014 that was reviewed by the Journal states clearly that employees would accrue vacation at a rate of three days a month up to 10 days a year. It also stated that “on termination of your employment you will be paid for all accrued but unused [paid-time off]. New employees were required to sign the handbook, says a person familiar with the matter.In March 2015 the handbook was updated to reflect a new, unlimited vacation policy, but under California law Zenefits still would have owed employees for vacation previously accrued. Startups often run afoul of labor and other rules early on. Zenefits stands out because its employee base has expanded far faster than most other startups. By the fall of 2014, less than two years after it started, Zenefits had 400 employees. A year later, it has quadrupled that number to around 1,600.”

Comparing the Zenefits Business Model to Professional Employer Organizations

Zenefits has gained attention by essentially being an insurance broker (for workers’ comp, health insurance, supplemental insurance, etc) and earning revenue from the insurance commissions. Their niche is that in return for naming them the insurance agent (and getting the commission revenue), they offer businesses customers free access to HR information systems and payroll services. This model has been around for years and is known as an Administrative Services Organization or ASO. ADP and Paychex have been two of the more well-known payroll service bureaus that have recognized the revenue potential from business insurance products and have been working to bundle those products to their payroll services. Because Zenefits is selling insurance products as bundled part of its product suite there have been challenges with meeting each states requirements for Zenefits sales staff to also be licensed as insurance agents/brokers in the state. An article at Buzzfeed reviewed some of the challenges they are facing with insurance licensing. PEOs do not typically “sell” insurance, rather they allow their members companies (and their workers) to join their workers comp, health insurance or other policies.

The Big PEO Difference – Risk Shifting
Compared to an ASO like Zenefits, PEOs offer an important additional service suite… ensuring regulatory compliance and reducing regulatory risk.

What is Regulatory Risk?
Regulatory risk is the financial risk to a company for being non-compliant with employment related rules and regulations. The employee mis-classification problem is just one risk in a sea of employment related icebergs. PEO have significant in-house expertise regarding legally compliant HR practices and they apply that expertise for their member/client companies in a way that an ASO usually does not.

Companies that join a PEO are implementing HR practices that are legally compliant and defensible in the event of claims by employees or regulators like the Department of Labor or any other federal or state agency regarding their employment practices.Companies that join a PEO (rather than hire an ASO) implement a co-employment model between their company and the PEO. This arrangement not only reduces regulatory risk but also shifts that risk to a third party, the PEO. Shifting risk always has a cost and PEOs will necessarily charge fees to cover those potential costs. Like any insurance… it’s a bet. A regular monthly insurance premium cost reduces the financial impact when something bad happens. Think of PEOs as employment practices business partners and insurance against employment related regulatory risk.

image courtesy of Axlon23 at Flickr

Now may be a good time to get out your company’s employee handbook and review your current language for some potential problem areas.

Here some areas where employee activities are protected:

Discussing Pay and Benefits

Employees have the right to discuss pay and benefits with each other and nonemployees. If your handbook says otherwise, that language needs to be removed.

Disclosing Employee, Personnel or Confidential Material

Years ago the NLRB ruled that a broad policy prohibiting the disclosure of “any confidential information“ is illegal. Now in March 2015, the Board further expanded guidelines to prohibit employers from using language that bars employees from disclosing “employee” or “personnel” information. Based on this new rule set, the following confidentiality policies would be illegal.

Discussing Company Investigations

When allegations of employee misconduct are made, the company may conduct an investigation to determine how to handle the situation. Theft, drug abuse, violence, harassment or any number of allegations may warrant an investigation that involves interviewing employees. Employers have often instructed those being interviewed that they are not to discuss the investigation with anyone. In 2012 the NLRB determined that to be an unlawful demand of employers.

Disclosure to the Media, Government Agencies and other Third Parties

Employees have a long time right to communicate with the media, government and others regarding complaints, wages, benefits, working conditions and other terms of employment. Company policies that inadvertently restrict this right under the a “Confidentiality” provisions will be illegal. In April 2015 the NLRB General Counsel said the following rules are unlawful:

Using Company Logos, Trademarks and Copyrights

For years, employees have been allowed to use logos, trademarks and such on leaflets, picket signs and other protest material. Any board statements that do not accommodate these employee rights will be found unlawful. The NLRB General Counsel found the following to be unlawful:

Taking Photos, Videos and Audio Recordings

This is a sticky one. According to the NLRB, employees have the right to photograph and make recording in furtherance of protected concerted activity. This includes using their personal phones. Therefore, rules that place a total ban on possession or usage are overly broad and would be unlawful. Such as:

Summary

In furtherance of employees rights to engage in lawful, concerted activity, employers need to be careful not to create broad confidentiality demands that may be ruled unlawful.   Employers should review their company’s employee handbook for potential problems. Companies that are members of a Professional Employer Organization (PEO) should ask their PEO to provide the latest guidance on their handbook revisions.

Nothing in the article should be construed as legal advice or legal opinion. These contents are intended as general information only and you are urged to consult legal counsel or contact a Professional Employer Organization concerning your situation. Thanks to the D. Albert Brannen a labor lawyer at Fisher and Phillips for inspiration and content on this employment related topic.