You're now several weeks into your New Year’s business resolutions as you're reading this post. Much like the start of a new year presents a good time to set new goals and work toward your best you, it also offers the opportunity to review your business, look for the gaps, and work toward bridging them. Due to its complexity and direct impact on legal risk, a review of your HR and pay practices is a great place to begin. We’ve gathered the top five areas in which we receive the most questions or have spent the most time coaching.
Issue #1: Employee misclassification
We start with an issue that should be relatively fresh in most owners’ minds. Preparing for the salary base increase that was set to go into effect on December 1, 2016 led most businesses to take a hard look at the team members being paid salary and being treated as exempt. While the proposed changes only impacted the minimum salary requirements, many owners noted that they may also need to make some changes based on the existing duties requirements. Below are the three categories for exemption based on duties:
· Regularly supervises two or more other employees, and also,
· Has management as the primary duty of the position, and also,
· Has some genuine input into the job status of other employees (such as hiring, firing, promotions, or assignments).
Supervision means what it implies. The supervision must be a regular part of the employee's job, and must be of other employees. Supervision of non-employees does not meet the standard. The "two employees" requirement may be met by supervising two full-time employees or the equivalent number of part-time employees. (Two half-time employees equal one full-time employee.)
"Mere supervision" is not sufficient. In addition, the supervisory employee must have "management" as the "primary duty" of the job. The FLSA Regulations contain a list of typical management duties. These include (in addition to supervision):
· Interviewing, selecting, and training employees;
· Setting rates of pay and hours of work;
· Maintaining production or sales records (beyond the merely clerical);
· Appraising productivity; handling employee grievances or complaints, or disciplining employees;
· Determining work techniques;
· Planning the work;
· Apportioning work among employees;
· Determining the types of equipment to be used in performing work, or materials needed;
· Planning budgets for work;
· Monitoring work for legal or regulatory compliance;
· Providing for safety and security of the workplace.
Staff within the fitness industry typically doesn’t fall into this set (ie. lawyers, doctors, dentists, teachers, architects, nurses, accountants, etc.)
The most elusive and imprecise of the definitions of exempt job duties is for exempt "administrative" job duties.
The administrative exemption is designed for relatively high-level employees whose main job is to "keep the business running." A useful rule of thumb is to distinguish administrative employees from "operational" or "production" employees. Employees who make what the business sells are not administrative employees. Administrative employees provide "support" to the operational or production employees. They are "staff" rather than "line" employees. Examples of administrative functions include labor relations and personnel (human resources employees), payroll and finance (including budgeting and benefits management), records maintenance, accounting and tax, marketing and advertising (as differentiated from direct sales), quality control, public relations (including shareholder or investment relations, and government relations), legal and regulatory compliance, and some computer-related jobs (such as network, internet and database administration).
Issue #2: Lack of Documentation
A general lack of documentation seems to plague many fitness businesses even outside of the realm of HR (customer relations, contracts, etc.). When it comes to employees, the two biggies are a failure to outline policies in writing and a failure to document issues. Think of your Policy and Procedures Manual and/or your Employee Handbook like the playbook for your business. They lay out expectations for team members, explain the business objectives behind those expectations, and provide the framework for how to carry them out. Without a playbook, you and your staff are essentially flying blind! This is not a good place to be, especially when issues arise. And issues always arise! It’s recommended that a business employ a policy which provides for a method of documenting all employee dealings relating to performance (both positive and negative) and requires signatures where appropriate. Clear and consistent documentation ensures the employee understands the reasons for your actions and what your expectations are of them moving forward. If the time comes when employment must end, it also provides a history should a claim arise (unemployment benefits, discrimination, wrongful termination, etc.).
Many managers equate the word discipline with punishment versus thinking of it as the process of helping an employee understand their role and how to perform more effectively or efficiently. If meetings with a supervisor involving documentation are always viewed as negative and seen as a threat, that’s exactly what they end up being and the policy loses any potential positive impact. You end up with a too little, too late situation because even you avoid discussing employee issues!
Issue #3: Lack of Time Keeping
This issue generally falls into one of three categories:
· Connected to a misclassification issue where an employer is treating an employee as exempt when they shouldn’t be. All nonexempt employees should be keeping time records.
· Time records are being kept in an inaccurate or haphazard manner. This typically comes in the form of written time sheets that don’t capture time in/out to the minute or assumed time clocks that simply plug in the employee’s standard schedule and ignore actual reporting times. While this is better than nothing, it won’t hold up to scrutiny should questions of proper payment of wages occur.
· Failure to keep time records for piece rate employees. The previously advised method of paying trainers by the session or group instructors by the class is shifting. Current best practice advises tracking actual time worked (including prep and wrap time), paying to the clock, and then adding in a bonus based on total classes taught or sessions completed (if desired).
Issue #4: Use of Independent Contractors
I’ve written and spoken so extensively on this topic that it seems redundant to include it again here. However, rarely does a week go by that I don’t get a call from an owner attempting to find a way to “1099” someone. Here’s the bottom line, in 99% of cases the person you’re dealing with is an employee. Sure you can manufacture a creative reasoning for paying them as a contractor, but it’s generally not worth the risk given the severe penalties associated with misclassification. You can see moredetailed information on the topic on our website under past blogs, but it all boils down to this: if the position requires the person to be directed as to how, when, where and with what to do the job, he’s an employee.
Issue #5: Lack of Knowledge of and Adherence to State Labor Laws
Every state comes with its own unique challenges for business owners. Minimum wage changes, special break requirements, mandatory check information, employee notices, rules governing final wages, workers compensation requirements…the list goes on. HR and payroll practices are certainly not one size fits all and it’s imperative that a business owner investigates the rules in his or her home state. These should be reviewed frequently to plan for and implement any changes. It’s the owner’s responsibility to be informed.
Feeling overwhelmed by all of the HR laws and guidelines? Wish you could focus only on increasing your revenues, managing your team, and growing your business? GYM HQ may be your perfect solution. Let us take a look at your pain points and come up with a solution tailored to you. We’re your one-stop-shop for: HR best practices & guidance, payroll, accounting, customer service, past due communications, and operations best practices & guidance.
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