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It’s time to brush up policies, make sure key people are retainedThis month, June 2011, we are starting to see signs of some economic recovery. It’s time to re-evaluate your risks and determine how the recovery will impact your business.

As the job market begins to heat up, Uncle Sam is gearing up to play a bigger role in employment regulation and enforcement. The government is increasing the number of its field investigators to ensure companies are in compliance with employment rules and regulations. Hot button areas include use of illegal aliens and misclassification of workers.

Are you aware that the State of California and the IRS assume everyone is an "employee" unless they meet certain factors?

According to the Department of Labor Standards Enforcement office, “there is no set definition of the term ‘independent contractor’ and as such, one must look to the interpretations of the courts and enforcement agencies to decide if in a particular situation a worker is an employee or independent contractor. In handling a matter where employment status is an issue, that is, employee or independent contractor, DLSE starts with the presumption that the worker is an employee.” Labor Code Section 3357.

The DLSE website states, “Employers oftentimes improperly classify their employees as independent contractors so that they, the employer, do not have to pay payroll taxes, the minimum wage or overtime, comply with other wage and hour law requirements such as providing meal periods and rest breaks, or reimburse their workers for business expenses incurred in performing their jobs. Additionally, employers do not have to cover independent contractors under workers’ compensation insurance, and are not liable for payments under unemployment insurance, disability insurance, or social security.”

All employers should be aware of the myriad of consequences of misclassification of employees including:

Stop orders and penalty assessments pursuant to Labor Code section 3710.1;

Liability for overtime premium, meal period pay, and other remedies available to employees under the Labor Code and Orders of the Industrial Welfare Commission;

Exposure for tort liability for injuries suffered by employees when workers compensation insurance is not secured (LC section 3706);

Exposure for unfair business practices (B&P section 17200);

Tax liability and penalties;

Criminal liability (LC section 3700.5)

Where exempt vs. non-exempt employees are involved, this continues to be a never ending issue of confusion for most employers. The State of California and the government assumes that most staff is “non-exempt,” unless the position meets certain FLSA criteria to be deemed as "Exempt." The FLSA criteria can be confusing for some positions. Back wages and penalties for misclassifying employees as “Exempt” can be financially devastating to employers.  Here are some cases resulting in misclassification of “Exempt” employees:

Wachovia Securities Wage & Hour Litigation, $39 million. Employees claimed they were denied overtime pay and other wages.

Veliz v. Cintas Corp., $22.75 million. Delivery drivers claimed that Cintas misclassified route drivers as exempt employees in order to avoid paying overtime.

Conley v. Pacific Gas & Electric, $17.25 million. Employees alleged they were improperly classified as exempt employees and were denied overtime compensation and paid a salary rather than on an hourly basis.

Another hot button issue to be aware of is a phenomena called, Resume Tsunami. After the Depression and previous recessions, there is a historical trend that reflects “voluntary turnover” increases as “unemployment” decreases.

As the job index market heats up, a "Resume Tsunami" effect starts to happen. It’s predicted that employers will be flooded with resumes. During the recession, most employers required employees to work harder. Staff worked longer hours, had fewer support staff and took on more responsibility. Some employers cut pay, froze increases and reduced benefits. It's predicted that 65 percent of your staff is starting to dust off their resume and plan to or are currently seeking employment.

What are the costs of turnover?

Finding 1: The average cost to recruit and train one employee is estimated at 2.5 times an employee’s salary.

Finding 2: U.S. businesses spend over $200 billion annually recruiting and replacing their employees.

To find out whether you need a retention process, answer yes or no to these questions:

I identify the jobs in my organization that have the highest turnover and investigate why.

I conduct post exit interviews 30 to 90 days after an employee leaves the organization to find out the real reason the employee left.

We hold our managers accountable for turnover in their department.

We reward managers for high retention of high-performers in their department.

A part of every meeting is dedicated to staff retention and morale.

We have an excellent orientation and onboarding program for new employees.

We go out of our way to communicate with our employees.

We make sure our managers have training to develop an engaged workplace.

We conduct engagement surveys and immediately start to address issues

Our performance management system inspires high-performers (you make sure your forced distribution models, merit and rating system aren’t backfiring on you).

If you get more than two no’s, you need to start thinking about your internal retention efforts.

Action items:

Make employee satisfaction just as important as customer satisfaction.

Focus on building engagement with your employees at work.

Start measuring turnover and associated costs. Get in front of the turnover. Don’t wait to address it after the recession ends.

Continuously evaluate and improve processes. Does your performance management system motivate high-performers; get rid of traditional performance evaluations and compensation systems that erode your retention efforts (most do.)

Do internal satisfaction/engagement surveys to see what managers and employees want more of and less of.

Identify how your employment practices differ from your competition.

Hold managers and supervisors directly accountable for retention in their respective departments.•••

Brenda Gilchrist, brenda@thehrmatrix.com, is a human resource professional and cofounder of The HR Matrix, llc. She is recognized as one of the top leaders, innovators and visionaries in the North Bay. In addition to leading The HR Matrix, Brenda is an adjunct professor at Sonoma State University Executive MBA (EMBA) program. She holds a bachelor's degree in Industrial/Organizational Psychology, a master's degree in Organizational Dynamics from University of Pennsylvania.