small business myth busters - adp

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Myth Busters Small Business This content provides practical information concerning the subject matter covered and is provided with the understanding that ADP is not rendering legal advice or other professional services. ADP does not give legal advice as part of its services. While every effort is made to provide current information, the law changes regularly and laws may vary depending on the state or municipality. This material is made available for informational purposes only and is not a substitute for legal advice or your professional judgment. You should review applicable law in your jurisdiction and consult experienced counsel for legal advice.

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Myth Busters

Small Business

This content provides practical information concerning the subject matter covered and is provided with the understanding that ADP is not rendering legal advice or other professional services. ADP does not give legal advice as part of its services. While every effort is made to provide current information, the law changes regularly and laws may vary depending on the state or municipality. This material is made available for informational purposes only and is not a substitute for legal advice or your professional judgment. You should review applicable law in your jurisdiction and consult experienced counsel for legal advice.

1 Myth 1 Money is the only effective way to motivate employees to improve performance.

3 Myth 2 I do not have to pay employees who access work email on their mobile device after they have clocked out for the day.

4 Myth 3 Paper paychecks are for small businesses; direct deposits are for big companies.

6 Myth 4 As a small business owner, I do not have to pay interns who receive credit from their school.

7 Myth 5 All employers must provide final pay to employees on their last day on the job.

8 Myth 6 A business is not required to pay prospective candidates for working interviews.

9 Myth 7 Small businesses don’t need workers’ compensation insurance.

10 Myth 8 My business is too small to need an employee handbook.

Table of Contents

Small Business | Myth Busters

Challenge and Train ThemBored workers are less effective workers. A business owner or supervisor can motivate staffers by giving them a variety of tasks that allow them to learn new skills. Employees can also take on “stretch assignments,” in which high goals are set. Coaching and cross-training programs can be effective, too. The more employees learn while they are in one job, the better-prepared they will be to take on higher positions within the company. This, of course, benefits both the worker and the business.

Make Them Feel AppreciatedIf an employee is doing a particularly good job, verbal or written recognition can lead to continued strong performance. Something as simple as a “Thank You” email or note, or perhaps an announce-ment in a company meeting, can make an employee feel appreciated.

Give Them Some AutonomyAn employee who feels micromanaged may also be less motivated. Everyone wants to think they are trusted to do their jobs well. While it’s important they understand their goals, workers should be allowed to reach them in their own way (within reason). Their methods may even turn out to be better than long-established company ways of doing things.

Create Winning TeamsAs much as employees can feel motivated by self-sufficiency, they also may thrive by working on strong teams. Assigning team projects or arranging group activities can help foster a collaborative spirit that energizes the workforce.

Align Their Goals with the Company’sWorkers want to feel they are a key part of their company’s success. If they understand how their individual goals are tied to the business’s overall performance, they are more likely to feel like important players.

Talk to ThemEmployees don’t want to work in a vacuum. Holding regular company meetings where issues affecting the business (both good and bad) are discussed can help them understand how the company is performing and which goals are – and are not – being met.

An employee suggestion program lets them know their input is valued. Employee satisfaction surveys also allow workers to have a voice, while giving business owners insight into company morale.

Myth 1 Money is the only effective way to motivate employees to improve performance.

Raises and bonuses certainly are ways businesses can motivate employees to work harder and better. But, cash isn’t the only way to encourage workers to improve their performance. Some studies have shown it is not even the best way. Helping employees feel satisfied can create a more fulfilled and productive workforce, while also saving money.

Small Business | Myth Busters

1

Money is the only effective way to motivate employees to improve performance.

Small Business | Myth Busters

Be FlexibleLife circumstances and family responsibilities can make it difficult for some employees to work a 9-5 schedule. Some workers may also require a remote working situation. Whenever possible, a business should allow for flexibility so employees can enjoy a healthy work-life balance.

Give Them Time OffBusinesses should consider paid time off a necessity, not a luxury. Burnt-out employees are not beneficial to any company. Businesses should develop time-off programs that allow workers to recharge, both physically and mentally.

Be FairEmployees should feel they are being treated fairly compared to their coworkers. All supervisors should be trained to apply company policies with consistency.

For other small business insights go to www.adp.com/smallbusiness

Myth 1

2

Nonexempt EmployeesThe answer to this particular compensation question is — it depends. Companies are obligated to pay “nonexempt” employees for any time spent working. This includes accessing or responding to work-related materials outside of standard business hours, such as simply checking an email or phone message, even if they don’t respond. These rules fall under the Fair Labor Standards Act, as well as various state laws.The rules apply even if employees are using their own mobile devices. Additionally, if an employee incurs any kind of expense while using their personal device for a work-related task, they may be entitled to reimbursement.

RecordkeepingConsider having your employees use an online timekeeping system to record all time worked. Your employees can then officially record the time they are working by logging in and out. If this isn’t possible, you can provide employees with hard copies of timesheets on which they can record all work done during these off hours. You should let employees know that they are required to maintain these records.

Playing by the RulesSome businesses have policies that strictly forbid a nonexempt employee from working outside of business hours. A company is allowed to set these rules (company policies included in an employee handbook are a good way to help make sure your employees understand them). That said, if a nonexempt employee defies the policy, he or she is still entitled to compensation for all work performed. The business can, however, discipline an employee for abusing the rules.

For other small business insights go to www.adp.com/smallbusiness

I do not have to pay employees who access work email on their mobile device after they have clocked out for the day.

We live in a hyper-connected world where employees are reachable essentially all the time. It isn’t unusual for staffers to write emails over the weekend, check phone messages late at night or send work-related texts while on vacation. But are business owners required to pay employees who perform work duties using their mobile devices while off the clock?

Myth 2

Small Business | Myth Busters

3

What Is Direct Deposit?Direct deposit is a system by which employers directly funnel funds into an employee’s bank account. This is also known as an automated clearing house (ACH) transaction. Companies can also process payroll through payroll cards to employees who don’t have bank accounts.

Direct Deposit Has Several Advantages:

ConvenienceConsider a four-employee business owned by a husband and wife. It would be easy enough for them to just hand out checks, right? But what happens if the owners travel for business or enjoy an extended vacation? Their employees must still be paid. It would certainly be easier to pay them automatically from afar than to worry about issuing physical checks. The same goes if it’s your employee who is away for an extended period of time. With a direct deposit system, no one has to worry about missing a payday.

Reduced Security RiskPaper checks can be lost, stolen or even counter-feited. For businesses that use industry-recognized security safeguards to help protect personal and other sensitive data, direct deposit funds are more secure. Using this method, business owners can avoid having to take the time or expense to issue new checks when they are lost or deal with cases of fraud involved with theft.

Faster and Easier BookkeepingAlong with a reduced security risk comes an easier bookkeeping process. When funds are electronically distributed, they are immediately paid to employee accounts. Thus, your books won’t be affected by employees who wait several weeks to cash checks.

This is not to mention the savings of time and money and reduced paper use when you no longer have to cut and sign a series of paper checks. Your employees can also use an app on their mobile device to view their pay stubs at any time, rather than collecting physical stubs that can be misplaced.

Cost-EffectivenessThe costs for setting up a direct deposit account, as well as related fees, vary by state and financial insti-tution. A 2014 white paper from Bank of America says it costs 92 cents more to issue a paper check vs. direct deposit. ElectronicPayments.org, a site sponsored by NACHA - The Electronic Payments Association, estimates small businesses can save as much as $19,000 annually by adopting a direct deposit system.

Paper paychecks are for small businesses; direct deposits are for big companies.

Your business may be small, with just a few employees, but that doesn’t mean you can’t mimic big companies when it comes to issuing paychecks. If you’re still distributing paper checks to your employees, you may want to consider the advantages of switching to the electronic payment model.

Myth 3

Small Business | Myth Busters

4

Paper paychecks are for small businesses; direct deposits are for big companies.

Small Business | Myth Busters

Joining the Big Leagues

In a 2016 survey by National Payroll Week, only 2.17 percent of respondents said they were receiving paper paychecks. Smaller companies are joining larger ones in offering this convenient and cost-effective way of compensating employees. Businesses that do this may still be small, but evolving with the times in this area can make them feel a bit bigger, while offering a convenience employees like.

For other small business insights go to www.adp.com/smallbusiness

Myth 3

5

As a small business owner, I do not have to pay interns who receive credit from their school.

Some business owners believe college students seeking summer intern-ships can provide free labor in exchange for school credit. It’s become something of a tradition. After all, these businesses are often helping stu-dents gain valuable career experience. That should be enough, right?

Well, in most cases – no. And this misperception, other than in rare situa-tions, can violate the Fair Labor Standards Act and various state laws. It also puts your business at risk. There have been several lawsuits brought by unpaid interns against high-profile corporations over the past few years.

Myth 4

Small Business | Myth Busters

Interns = EmployeesIf interns are performing work duties on location for your business, they will likely be considered an employee, just like the other staff members on your payroll. In the majority of cases, a business must pay an intern at least the minimum wage, as well as over-time, if applicable.

Internship Criteria The Department of Labor provides businesses with guidelines to help them navigate the intern issue. This is in the form of a six-part test; if all six criteria are met, an intern can remain unpaid.

1. The internship — even though it includes actual op-eration of the facilities of the employer — is similar to training that would be given in an educational environment.

2. The internship experience is for the benefit of the intern.

3. The intern does not displace regular employees but works under close supervision of existing staff.

4. The employer that provides the training derives no immediate advantage from the activities of the intern; and, on occasion, its operations may actually be impeded.

5. The intern is not necessarily entitled to a job at the conclusion of the internship.

6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

It’s important to note that this list applies to “for-profit” businesses. Unpaid internships in the public sector and for not-for-profit charitable organiza-tions, where the intern volunteers without expectation of compensation, are generally permissible.

For other small business insights go to www.adp.com/smallbusiness

6

All employers must provide final pay to employees on their last day on the job.

Some business owners are required to provide a final paycheck on an employee’s last day with the company. Whether that is true depends on the state in which your employee is working.

Under federal law, a final paycheck must be furnished by the next regular payday. However, laws differ at the state level. When the last paycheck is due can depend on who initiated the termination.

Myth 5

Small Business | Myth Busters

States that require a final paycheck be given immedi-ately to an involuntarily terminated employee include California, Massachusetts and Hawaii. In addition, some states that have an immediate paycheck rule offer some wiggle room for employers. In Montana, for example, in situations where an immediate paycheck is required, an employer can have a written policy that extends the time to the next scheduled payday or within 15 days from separation, whichever occurs first. Small business owners should be familiar with the rules in their jurisdiction, so they can provide the last paycheck according to the proper laws. (See the full table of individual state laws at FindLaw.com.)

Vacation TimeWhether or not an employee’s final paycheck will include accrued, unused vacation time also varies by state. Some states require all unused paid time off to be added to the final paycheck amount. Other states, however, allow businesses to adopt a “use it or lose it” policy and may require an employer to notify an employee of this policy in advance.

Once business owners are familiar with the laws in their state, they should communicate the policy to all employees, ideally in an employee handbook (read Myth 8 for why it’s a good idea to have an employ-ee handbook). This will eliminate the chances of an unpleasant surprise for an employee during a termi-

nation process that may already be difficult. On the business end, small business owners are already deal-ing with several difficult tasks before, during and after the termination. Providing clarity ahead of time on the items that will be of most importance to a terminat-ed employee should help prevent additional pain on both sides.

Deducting CostsSome employers may wonder whether they can deduct costs of equipment damaged or broken by the terminated employee from the final paycheck. This differs by state and also by the classification of the employee. If the employee is exempt under the federal Fair Labor Standards Act (FLSA), the employ-er generally may not reduce the paycheck amount for damage to the equipment. Nonexempt employ-ees, however, generally may see their final paycheck amount reduced, as long as the pay does not drop below the minimum wage and applicable overtime isn’t affected. While it may not be required, it’s best for a business to obtain written confirmation from employees that they understand they are responsible for paying for damaged or unreturned equipment.

For other small business insights go to www.adp.com/smallbusiness

7

A business is not required to pay prospective candidates for working interviews.

Working interviews can be beneficial to both prospective employees and employers. When interviewees spend a few hours or days embedded in a workplace environment, they get a real-world glimpse of what it might be like to report there every day, while interviewers can observe whether potential employees would be a good fit for the role and their organization.

No matter how long the working interview lasts, the candidate must be paid for time spent working.

Myth 6

Small Business | Myth Busters

Working Interview = Actual WorkOnce a business has a candidate work for it, federal, state and local enforcement agencies generally consider the candidate to be an employee, even if just for one day. Thus, employers should pay at least the minimum wage for the hours worked, overtime where applicable, withhold taxes and comply with all other applicable employment laws for the period, the individual performs work. The candidate may be unaware of the laws concerning working interviews, so the interviewer should communicate to the interviewee compensation and other employment requirements before the interviewee begins to work.

ExceptionA business is generally not required to pay if a candidate simply observes operations for a set period of time. As long as there is no work that includes any kind of training, the interviewee is not considered an employee. However, in limited circumstances, candi-dates may be issued a 1099 for expenses reimbursed by the employer.

Is It Worth It?Small business owners should consider whether it’s worth it for the business to hire employees for a working interview. Having a working candidate on-site can be disruptive, particularly if it turns out to be a poor fit. A working interview is advisable only if it’s a strong candidate who seems genuinely interested in the position.

For other small business insights go to www.adp.com/smallbusiness

8

Small businesses don’t need workers’ compensation insurance.

No matter how small your business, it’s not just in your best interest to obtain workers’ compensation insurance – it’s also required in most states. All small business owners should familiarize themselves with their state’s laws, as they vary widely across the country. If mandated by your state, you must have coverage in place when your first employee is hired.

The penalties for not having this insurance can be substantial. Business owners must renew coverage annually and ensure they pay premiums in a timely manner so coverage doesn’t lapse. Even if your business operates in a state where workers’ compensation requirements are less stringent (Texas, for one, allows it to be elective), the benefits of purchasing this coverage should be fully understood.

Myth 7

Small Business | Myth Busters

What Is Workers’ Compensation? Workers’ compensation insurance protects employers and employees when workplace accidents or illness-es occur. Coverage generally encompasses medical treatment and rehabilitation, partial replacement of lost wages, retraining costs and death/burial benefits paid to the spouse and minor children for fatal incidents.

No-Fault SystemA company typically must honor a claim even if the employee is at fault for an injury. There are excep-tions, however. For example, a business can require employees to submit to drug or alcohol testing. Claims may be denied if it’s found an employee was under the influence at the time of the injury.

Who Is Covered?Different state rules apply regarding covered em-ployees, but W-2 workers are always eligible. Sub-contractors paid through a 1099 are often covered, unless they provide written evidence of a Certificate of Insurance. Business owners may believe they and their officers are not eligible for coverage, but this also varies by state.

Therefore, owners or officers should check their health insurance policy before electing to forgo coverage.

How to Buy CoverageIn most jurisdictions, a business can buy a policy from a private insurance company. Some locations, however, require a company to purchase through a state-operated fund. In certain states, coverage may be elective if an employer has fewer than a specified amount of employees. Some business owners may choose a self-insured plan, which means they pay claim costs out of pocket. This is generally reserved for larger businesses that maintain a certain level of funds to pay claims.

High-risk businesses such as construction, trucking and manufacturing often have a tougher time obtaining coverage. Their premiums can also be much higher. The assigned-risk market, which is state-operated, can help these businesses get insured when traditional companies refuse to provide coverage.

For other small business insights go to www.adp.com/smallbusiness

9

My business is too small to need an employee handbook.

Some small business owners may feel their business is too small to benefit from an employee handbook. Even though companies are not required by law to create and distribute an employee handbook, it can be extremely helpful for both business owners and their staff to have one place where employees can access the company’s policies and procedures. Having such information in writing can also help demonstrate the company’s commit-ment to complying with applicable employment laws. Here are some key items business owners should have in its employees handbook.

Myth 8

Small Business | Myth Busters

At-Will Statement An at-will statement states the employer or the employee can end the professional relationship at any time, for any reason, as long as the reason is a lawful one. Other than Montana, all U.S. states recognize the at-will employment relationship (employment laws differ by state; if a business has staffers located in multiple states, the handbook should reflect that).

A Description of BenefitsIt’s a good idea to include a section on general bene-fits for employees. The handbook doesn’t need to go into great detail about benefits, and employers often refer employees to summary plan documents for more information. Federal- or state-mandated leave, as well as holidays, vacation and other time-off benefits, in particular, should be explained in a handbook. When explaining benefits, make sure to state that the com-pany has the discretion to make changes as needed.

A handbook should also plainly state what constitutes full-time, part-time, exempt or nonexempt classifica-tions, so employees are aware of their eligibility for certain benefits, which may include overtime pay.

Employees always want to know when they are getting paid, so payday policies should be included. If a company has a specific method of timekeeping to record employee work hours, this should also be included, along with attendance and punctuality policies.

A handbook should include policies on meal and break periods (including lactation breaks for new mothers). Check federal as well as applicable state law to ensure compliance.

Employee Safety and Code of ConductEmployees should feel safe in all respects at work, and a handbook should feature a company’s safety and security policies. This means statements on its compliance with the Occupational Safety and Health Administration’s (OSHA) laws, where applicable, on issues including workplace injuries and health and environmental hazards.

Anti-harassment and discrimination policies are tremendously important to include; employees must know a complaint they make will be taken seriously. Consider including policies on standards of conduct, drug and alcohol use, confidentiality and potential related disciplinary action.

10

My business is too small to need an employee handbook.

Small Business | Myth Busters

Myth 8

Equipment Policy Employees could create unwanted distractions for their employers by using company equipment for non-company business. Staffers must understand there are no expectations of privacy when using company email, phones and servers, and that there may be grounds for termination if misuse is detected.

A Disclaimer The disclaimer can also be a crucial element of any employee handbook. The disclaimer should state in no uncertain terms that the handbook is informational and not an employment contract.

Proof of Readership Employers should ensure they have written acknowledgments from all employees that they have read and understood all policies included in the handbook. If employees refute to sign an acknowl-edgment, consider talking to them about their reasons for refusing to sign. Perhaps the employee misunder-stood the implications of signing the document and just needs an explanation about the purpose of an acknowledgment. If the employee still refuses, the employer can write on the form that the employee was given the handbook for review but refused to sign the acknowledgment, and can then sign and date the acknowledgment.

These are just some of the more important topics a business owner should include in a comprehensive handbook. Consider having legal counsel review all content before the handbook is distributed.

For other small business insights go to www.adp.com/smallbusiness

11The ADP logo and ADP are registered trademarks, and ADP A more human resource. is a service mark, of ADP, LLC. Copyright © 2017 ADP, LLC. All rights reserved.