Protecting Your Business as I9 Audits Increase

Here it is, another article aimed at keeping your business out of trouble.  Boring.  After all you didn’t open your club to worry about forms and regulations.  We get it; that’s why GYM HQ exists!  But if there is one thing that we know business owners hate more than boring paperwork, it’s paying large fines to Uncle Sam.  So, consider this your heads up for what’s coming this summer.

Immigration and Customs Enforcement (ICE) wants employers to understand that, going forward, the agency will increase Form I-9 audits, conduct more worksite raids and promote involvement in the government's voluntary compliance program (E-verify).  Under the current administration, audits are expected to go up 4000%.  It’s also important to note that civil penalties associated with violations have increased.  Current penalties are between $224 and $2236 per violation (employee).  Now more than ever, it is important that employers ensure that Form I-9’s are being completed accurately and on time for each new employee.

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So what can you do to prepare?  First, ensure that any employee hired moving forward has a proper I-9 completed.  Here are some of the most common mistakes:

  • The employee not checking a status box or checking more than one status box
  • The employee not signing or dating the I-9
  • Not completing List A, B or C correctly or not completing at all
  • Attaching documents as a substitute filling out section 2.
  • Not using the updated version of the form
  • Not filling in the employee’s hire date in the Certification section
  • Not completing the Business/Organization name and address section completely
  • Filing Form I-9 with the government. Form I-9 is meant to be kept by the business in case an audit is conducted. Should an employee leave the company, the business must retain the forms for a period of up to three years from the date of hire or one year after the employee's final day, whichever is longer. 

Note: Form I-9 cannot be utilized in any capacity prior to making a job offer to a potential employee. Doing so could violate restrictions regarding discrimination against workers based on their ethnicity, race or other identifying factors. 

Remember, the few minutes you spend reviewing the I-9 could potentially save you thousands of dollars in the future!

Next, conduct an audit of what you have on file for current staff.  If you’re missing an I-9 for an employee, ask the employee to complete Section 1 of the I-9 immediately and present documentation as required in Section 2. The new form should be dated when completed—never backdated. If an employee has been working without documentation authorization, this could be because an I-9 form was not properly completed in the first place, or because the employee’s work authorization has expired. If this is the case, notify the employee (in private) of the discrepancy.

You should provide the employee with a copy of the I-9 and any accompanying paperwork. Then ask the employee to provide correct or updated documentation. In either case, if an employee cannot present proper documentation, you should terminate the employee immediately. If you don’t, you risk penalties for “knowingly” continuing to employ an unauthorized worker. Be sure to apply this strict termination policy consistently to avoid potential claims of discrimination.

You may not correct errors or omissions in Section 1 of the form. If you discover a problem in Section 1, ask the employee to make the correction. Employers may only make changes in Section 2 or Section 3 of the I-9.

Employees needing assistance to correct or enter information in Section 1 can have a preparer or translator assist them.

In either case, the individual making the correction should:

  • Draw a line through the incorrect information;
  • Enter the correct or omitted information;
  • Initial and date the correction or added information.

The time you take now to review your personnel files and ensure a solid process for reviewing the I9 when onboarding new team members will more than pay off should you face an audit! 

Need help with HR or payroll? Let us know. We help thousands of fitness owners nation-wide navigate the less than fun aspects of their business!

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Understanding Employee Classification (Exempt vs. Non-Exempt)

Aside from guidance on the use of 1099 Independent Contractors, exempt vs. non-exempt employee classification is perhaps the most popular topic amongst fitness business owners that our HR team fields here at GYM HQ.  Tracking and keeping accurate records of employee time can be a substantial administrative burden; so the draw to pay someone a salary and throw caution to the wind is strong! It’s also very enticing to demand work of a team member in excess of 40 hours a week (or 8 hours a day in California) without the need to pay them additional compensation. Today we review the vital steps for employee classification to keep you in compliance and out of hot water.

Are they an employee?

First, let’s tackle the question of 1099 Independent Contractor vs. W2 Employee.  Review our previous article for guidance on that topic here.  Spoiler alert, I’d wager you have yourself an employee. 

Salary Basis & Threshold

Next, let’s talk pay.  Employees must be paid on a salary basis and at not less than $455 per week or two times the state’s minimum wage, whichever is higher, to qualify for an exemption.

Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period.  The predetermined amount can’t be reduced because of variations in the quality or quantity of the employee’s work.  Subject to the exceptions listed below, an exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked.  Exempt employees do not need to be paid for any workweek in which they perform no work.  If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.

Deductions from pay are permissible when an exempt employee: is absent from work for one or more full days for personal reasons other than sickness or disability; for absences of one or more full days due to illness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness; to offset amounts employees receive as jury or witness fees, or for military pay; for penalties imposed in good faith for infractions of safety rules of major significance; or for unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions.  Also, an employer is not required to pay the full salary in the initial or final week of employment, or for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act.

Once you’ve determined that the employee’s compensation passes the salary basis and level tests, your next step is to take a look at their regular duties.

 Duties Test

The employee should fit squarely into one of the exemption categories below:

For the executive exemption, employees must have a primary duty of managing the business or a department or subdivision of the company; must customarily and regularly direct the work of at least two employees; and must have the authority to hire or fire, or their suggestions and recommendations as to the hiring, firing or changing the status of other employees must be highly considered. 

For the administrative exemption, employees must have a primary duty of performing office or non-manual work directly related to the management or general business operations of the employer or the employer's customers, and their primary function must include the exercise of discretion and independent judgment with respect to matters of significance.

For a professional exemption, employees must have a primary duty of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by prolonged, specialized, intellectual instruction and study, or must specialize in a few other similarly, highly specialized fields, such as teaching, computer analytics, and engineering.  Aside from a select few members of a corporate team (legal, accounting, etc.), this exemption is rare in the fitness industry.

Examples:

An Assistant Fitness Manager may be one of several employees who direct the day-to-day activities of other team members but may have no discretion as to whether to hire or fire employees.  He may spend more than half of his time selling training packages, assisting members, or doing other routine tasks that require little or no discretion and independent judgment.  Even if he were to meet the requirements of the salary basis and salary threshold tests, he would not qualify for an exemption because he would not meet the duties test requirement.

 A General Manager oversees the entire club’s operations (often with little interaction from ownership for days on end).  She is tasked with managing the entire staff (hiring, firing, coaching, scheduling) and making decisions which significantly impact the business.  Though she may also engage in sales or menial administrative or manual tasks (cleaning, paperwork, etc.), she clearly passes the duties test under two both the executive and administrative exemption.

Owners often wonder what the consequences would be if they are found to be misclassifying their team members.  There is a litany of legal cases which point to how severe and costly these consequences can be. In 2011 Levi Strauss agreed to pay over $1 million in back pay to 596 (12%) of its employees who were improperly classified and therefore not paid overtime. In 2014 US Bank settled a misclassification suit for $1.9 million. After seven years of litigation, 24 Hour Fitness settled a misclassification case in 2013 for $17.4 million.  They’d previously settled another wage and hour class action in 2006 for $38 million.  These figures and cases are tied to very large businesses, and it’s sometimes challenging for a single club owner to correlate that to the impact he’d see for his company.  Here’s the easiest way to look at it, when has anything involving hiring a lawyer or law firm ever been less than costly?  Wage and hours claims are one of the most common for small businesses and aside from any money paid out to the claimant, are very costly to defend. How much are you comfortable dishing out to defend a claim?  How sure are you that you have a strong defense?  Is your team currently classified correctly?  As the old adage says, “An ounce of prevention is worth a pound of cure.”  Or in this case, an ounce of preparation (doing things right starting now) is worth a pound of defense.

 

Employee Recognition Part II: Who's Your MVP?

While installing a rewards and recognition program does take effort, it need not be overly complex or time-consuming.  And the positive effects are invaluable!  Think of recognition as a communication tool which helps to reinforce the behaviors and outcomes your organization values most.  It provides a pathway for you to say, “YES, that’s exactly what we’re looking for.  Do more of that!” This article is the second in a short series on Employee Recognition and Rewards. Today we focus on two ideas that bridge the gap between the old-school and the new.  In a workplace that consists of several generations simultaneously, it’s important that your program speaks to everyone!

First the old tried and true Employee of the Month.  The calendar naturally provides us with 12 smaller times frame during which to measure success.  Dedicate a few moments each month to recognize one outstanding team member and crown them your MVP.  This team member should be recognized in front of the entire team (at a meeting or morning stand-up).  Make sure to clearly outline why this person is such a vital part of what makes the company great and how their actions contributed to success during the month.  Complete the recognition with a certificate and reward (bonus, gift card, prize pack, etc.).  This adds a formality to the presentation and makes it feel “official.”  Consider a wall of fame to showcase the current month’s MVP as well as past superstars.

Formal monthly appreciation is great, however, while the month flies by, don’t forget to give out praise DAILY as opportunities arise!  The best leaders don’t make team members wait to let them know they’re doing a great job.  They recognize achievement as it happens.  So, while you may be keeping score internally for your monthly MVP, don’t forget to give frequent pats on the back when any team member exemplifies your brand ethos, hits a milestone, or goes above and beyond.  The best part about daily praise is it’s free!

While your younger team members will undoubtedly appreciate being recognized via the non-digital channels above, don’t forget to speak to them in their language as well and hit social media.  Your Facebook, Twitter, Instagram, and the company website is a great platform to broadcast “shout-outs” to a much broader audience.  Hit millennials with praise where they live!

Your company homepage and blog are prime real-estate.  Dedicate a portion of them to your hard-working employees.  Use these areas to highlight team members and provide their backstory (accenting their passions and unique life histories).  This not only allows for recognition but also showcases your valuable team to your clients and potential clients.  After all, for most fitness businesses, people are the number one differentiator! 

Don’t forget social media!  Nothing is better than watching a post on which you’re featured rack up likes and shares.  This will help supplement your in-person efforts and ensure everyone sees the contributions your team members are making.  This is especially important if your team works in multiple locations or you have remote staff. 

Next month we’ll conclude our employee recognition series with a curated list of non-traditional methods of recognition being successfully used by top companies.  Get ready to think outside of the suggestion box!

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ACA Requirements: Are You Considered a Large Employer?

As you gear up for year-end and all the important reporting requirement hoops through which you’ll need to jump, now is the perfect time to start getting prepared for compliance in 2018!  Time spent preparing now will make year-end 2018 a breeze. In the meantime, we still have 2017 to consider. Over the next several weeks, we’ll post helpful articles to aid you in the process.  First up, the Affordable Care Act. One of the biggest reporting and compliance demands comes courtesy of the ACA.  As we head into year two of the full reporting requirements, one of the first items you’ll need to determine is if your business qualifies as an Applicable Large Employer (ALE).  Two of the ACA provisions apply only to ALEs:

  • The Employer Shared Responsibility Provisions; and
  • The employer information reporting provisions for offers of minimum essential coverage (MEC).

Your determination as an ALE happens yearly and depends on the average size of your workforce during the prior year.  If you had fewer than 50 full-time employees, including full-time equivalent employees (FTEs), on average, during 2016, you wouldn’t be considered a ALE for the 2017. If you had more than 50 full-time employees, including full-time equivalent employees (FTEs), on average, during 2016, you would be considered a ALE for 2017 and be subject to the Employer Shared Responsibility Provisions and the employer information reporting provision. 

To determine your workforce size for 2016, add your total number of full-time employees (30+ hours per week on average or at least 130 hours for the calendar month) for each month of 2016 to the total number of FTEs for each calendar month of 2016.  Divide this total by 12.  If you were only in business for part of 2016, use those months during the calculation and divide by the total number of months you were in business.

An FTE is a combination of part-time employees who, in combination, are equivalent to a full-time employee. To determine your number of FTEs for a month, combine the number of hours for all non-full-time employees for the month but do not include more than 120 hours per employee. Divide the total by 120.  The resulting number is your FTE count.  It should be noted that FTEs are only relevant in determining if you’re an ALE.  If you’re determined to be an ALE, you DO NOT need to offer MEC to part-time employees. 

Example 1 – Employer is Not an ALE

  • Company X has 40 full-time employees for each calendar month during 2016.
  • Company X also has 15 part-time employees for each calendar month during 2016 each of whom have 60 hours of service per month.
  • When combined, the hours of service of the part-time employees for a month totals 900 [15 x 60 = 900].
  • Dividing the combined hours of service of the part-time employees by 120 equals 7.5 [900 / 120 = 7.5]. This number, 7.5, represents the number of Company X’s full-time equivalent employees for each month during 2016.
  • Employer X adds up the total number of full-time employees for each calendar month of 2016, which is 480 [40 x 12 = 480].
  • Employer X adds up the total number of full-time equivalent employees for each calendar month of 2016, which is 90 [7.5 x 12 = 90].
  • Employer X adds those two numbers together and divides the total by 12, which equals 47.5 [(480 + 90 = 570)/12 = 47.5].
  • Because the result is not a whole number, it is rounded to the next lowest whole number, so 47 is the result.
  • So, although Company X has 55 employees in total [40 full-time and 15 part-time] for each month of 2016, it has 47 full-time employees (including full-time equivalent employees) for purposes of ALE determination.
  • Because 47 is less than 50, Company X is not an ALE for 2017.

Example 2 – Employer is an ALE

  • Company Y has 40 full-time employees for each calendar month during 2016.
  • Company Y also has 20 part-time employees for each calendar month during 2016, each of whom has 60 hours of service per month.
  • When combined, the hours of service of the part-time employees for a month totals 1,200 [20 x 60 = 1,200].
  • Dividing the combined hours of service of the part-time employees by 120 equals 10 [1,200 / 120 = 10]. This number, 10, represents the number of Company Y’s full-time equivalent employees for each month during 2016.
  • Employer Y adds up the total number of full-time employees for each calendar month of 2016, which is 480 [40 x 12 = 480].
  • Employer Y adds up the total number of full-time equivalent employees for each calendar month of 2016, which is 120 [10 x 12 = 120].
  • Employer Y adds those two numbers together and divides the total by 12, which equals 50 [(480 + 120 = 600)/12 = 50].
  • So, although Company Y only has 40 full-time employees, it is an ALE for 2017 due to the hours of service of its full-time equivalent employees.

Employer Aggregation Rules

You should also be mindful of the Employer Aggregation Rules.  If your company is part of a larger organization or a collective of companies with common ownership and/or functioning under the same management, then the combined number of full-time employees and FTEs for the group are considered when determining ALE status.

New Employers

If you’re a new employer and weren’t in business on any day in 2016, you should use the 2017 calendar year to determine if you’re an ALE.  Consider if you reasonably expect to employ or actually have employed at least 50 full-time employees or FTEs.

Failure to Provide Coverage

What if you qualify as an ALE but fail to offer any MEC to at least 95% of full-time employees? 

If you fail to offer MEC to at least 95% of your full-time employees (and their dependents) and at least one full-time employee receives the premium tax credit for purchasing coverage through the Health Insurance Marketplace, you will be required to pay a shared responsibility penalty.  This payment is equal to $2,000 for each full-time employee, with the first 30 employees excluded from the calculation.  This calculation is based on ALL full-time employees (minus 30), including full-time employees who have MEC under your offered plan.  Example: You employ 62 full-time employees.  One employee receives the premium tax credit when purchasing coverage.  Your fine would be 62 total employees- the first 30= 32 employees for which the penalty applies.  32 x  $2000= $64,000. 

If you do offer MEC to at least 95% of your full-time employees (and their dependents), you may still be liable for the second type of employer shared responsibility payment if at least one full-time employee receives the premium tax credit for purchasing coverage through the Marketplace.  This penalty is equal to $3,000 but only for each full-time employee who receives the premium tax credit.

Minimum Essential Coverage

A plan meets the standards for minimum value if it covers at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan.  Since you likely do not know the household income of your employees, you can rely on affordability safe harbors. These are Form W-2 wages, an employee’s rate of pay, or the federal poverty line.  If you have questions concerning if the coverage you offer meets the MEC standards, consult your insurance broker.

Tax Credits for Small Employers

If you have fewer than 25 full-time employees, including FTEs, you may be eligible for a Small Business Health Care Tax Credit to cover the cost of providing non-mandatory coverage.  Learn more here

Reporting Requirements

All ALEs are required to file Forms 1095-C and 1094-C.  Employers who are not ALEs but chose to provide MEC to full-time employees are required to file Forms 1095-B and 1094-B.  Reporting requirements and deadlines will be discussed in detail in our next article.

 

Interest in learning more about how GYM HQ can help keep you compliant and take some work off of your plate?  Contact us today: info@gymhq.club or 404-921-2269.

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5 HR Slipups to Avoid

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:

EXECUTIVE EXEMPTION:

·         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.

PROFESSIONAL EXEMPTION:

Staff within the fitness industry typically doesn’t fall into this set (ie. lawyers, doctors, dentists, teachers, architects, nurses, accountants, etc.)

ADMINISTRATIVE EXEMPTION:

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.  

Contact us today:

info@gymhq.club

404-921-2269

 

Top 10 Mistakes Gym Owners Make

It’s that time of year again!  Time to look back on 2016, find opportunities for improvement and plan for a bigger, better 2017!   We work with many operators who are doing some really exciting things.  Some have gotten it nearly right from the get- go and others have learned from a few bumps along the way.  Getting to be at the helm of the behind the scenes team here at Gym HQ as these businesses grow and prosper is a fun, fulfilling, and exciting experience.  I’d like to pass along some of the big no-nos we’ve seen and areas we’ve noted many owners have questions.  I’ve included notes on what we’ve uncovered in businesses throughout the years as examples or steps to take on each item.  While space won’t allow for a full workup of each topic, hopefully these will give you a few items on which to focus in the coming year.  You work hard to drive revenues at for business; we want to make sure you hang on to them!  Here are our Top 10 Mistakes Gym Owners Make.

#1:  LACK OF CONSISTENT AND ACCURATE FINANCIALS

Timely P&Ls ensure that you’re keeping an eye on your margins each month so that adjustments can be made accordingly. 

What we’ve seen:

With no clear understanding of the business’s performance, it’s fairly common for an owner to overestimate performance (revenue) and underestimate liabilities (expenses).

 #2:  NO BUSINESS REPORT ANALYSIS(MISSING KPI REPORTS)

Without knowing your numbers, business analysis and action planning is impossible.

In one instance, after a single month of analysis for one business, we found:

  • High instance of client “no-shows”.  Cost to business $2100/month.
  • Average price per session was too low.  $5 below targeted margin. $28,000/month. 
  • Average trainer rate was too high.  $1 above target margin.  $3,000/month.

#3:  PAYING STAFF AS 1099 INDEPENDENT CONTRACTORS

There is no such thing as a “1099 employee”.

What we’ve seen:

Multiple employees being paid as 1099 Independent Contractors.

It’s important to do an analysis of each position from a behavioral, financial and relationship stand point.

#4:  EMPLOYEE MISCLASSIFICATION

Exempt vs. Non-Exempt Status

What we’ve seen:

Multiple employees misclassified and exempt staff being underpaid.

All job descriptions and pay should be reviewed regularly for compliance.

#5:  LACK OF HOURS TRACKING AND OVERTIME PAY

Coaches, trainers and fitness instructors are an especially touchy area.

What we’ve seen:

Trainers being paid by the session and not utilizing a time clock.

What you should know:

We’ve been very attentive to the recent case law in our industry.  There have been multiple class action law suits concerning trainer pay in the last several months:

In March, a class of more than 80 personal trainers seeking a jury trial in federal court against a Gold's Gym franchisee group over alleged unpaid overtime wages scored a legal victory in the case. The judge ruled that the defendant, Gold's Texas Holdings Group Inc., cannot use an exemption in the Fair Labor Standards Act (FLSA) to defend itself against allegations of employee misclassification should the case go to trial.

In February, Equinox Holdings Inc. settled a class action lawsuit for a maximum of $4 million brought by former employees who alleged the company failed to pay them fully or provide breaks.

In January, a federal judge in Illinois denied a group of four former Life Time Fitness personal trainers' motion for conditional class certification in a lawsuit alleging unpaid minimum wages. That case is currently stayed pending the outcome of private mediation, according to court records.

SUGGESTED METHOD: 

  • Pay hourly and required clock in/out.
  • Provisional bonus pay is okay.

#6:  LACK OF WRITTEN POLICIES AND PROCEDURES

Does your staff have a playbook?

What we’ve seen:

No existing Employee Handbook and incomplete New Hire Packet materials.

Steps to take:

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.   Sitting down and committing your business essentials to writing is important for several reasons:

  • It causes you to really “think through” how you’re carrying out the   day-to-day. 
  • It memorializes when a policy was put in place.
  • It gets everyone on the same page, literally.

#7:  IMPROPER OR MISSING STATE REGISTRATIONS AND BONDING

Do you know the rules of engagement for your state?

What you should know:

  • Each state has different requirements for business                           registration.
  • Some states hold fitness businesses to special requirements underHealth Spa Statutes.  These states require specific language for membership and service agreements and sometimes require businesses to hold a bond (especially for presale).
  • The application of sales tax to products, memberships, and services varies by state. 

#8:  MISSING PROCEDURES FOR CUSTOMER SERVICE

Issues are inevitable.

What we’ve seen:

  • Open permissions allowing staff members to cancel agreements and invoices.  In one example we found an auto-renewal percentage s at 6% vs targeted 20% for the sales model due to sales people cancelling draft and creating new agreements.  $13,000 in draft impact + overpayment of commissions
  • Not adhering to cancellation procedures outlined in member agreement.

#9:  FAILURE TO TRACK, ANALYZE, AND ACT UPON CUSTOMER ISSUES

Where? When? Why? What’s the fix?

Steps to take:

  •  CS volume through all channels should be measured and root causes for complaints tracked:
  • Reason for complaint (staff, facility, contract)
  • Staff involved
  • ClubReady notated
  • Cancellations are categorized by type.
  •  Data is analyzed on a regular basis (calibration calls) and action plans deployed.

 

#10:  FORGETTING ABOUT PAST DUE MEMBERS

Getting members up-to-date is vital for a healthy draft. 

What we’ve seen: 

  •  Lack of system or schedule for follow-up.
  • No process for mandating contact information capture at POS

While this list may seem a bit daunting at first, you'd be surprised how much traction you can gain but simply starting with one area. Happy 2017--may your business thrive this year!

 

 

 

Guide to Preparing for the FLSA Exempt Pay Changes: Month Two, Analyze Your Pay Plans

Last month we began the process of preparing for the FLSA Exempt Pay changes, announced by the DOL in May, by looking at your workforce and their duties.  You can find that article and additional articles on the change on our website:  www.gymhq.club.  This month, we continue our preparation for the upcoming December 1st due date for compliance with a look at employee compensation.

The single biggest change for which owners need to prepare is the new salary minimum.  The salary threshold increases from $455/week ($23,660 per year) to $913/week ($47,476 per year).  If left alone with no changes to the current compensation plans beyond the required salary increase, an owner’s exempt payroll will double!  With payroll constituting one of the biggest expense categories for a business, this could have a major effect on the bottom line.  Here are several considerations to make and examples to use while analyzing a business’s current pay rates and retrofitting them to comply with the new DOL guidelines:

Calculate each exempt employee’s total yearly earnings.  You’ll need to include all compensation including salary, commissions, and bonuses.  Example:

GM Johnny has a salary of $36,000 per year.  He has a commission plan in place that pays him on any memberships sold by him directly as well as a bonus structure based on the achieving 100 new memberships per month.  Looking at the six months he’s been employed, it’s established that his average monthly commission is $300 and his average bonus is $500.  That gives him an estimated annual commission and bonuses payout of $9,600.  So Johnny’s estimated annual income is $45,600. 

If an employee’s current base salary meets or exceeds $47,476, no changes need to be made.

If the employee is close to the earning base stipulated by the new law ($47,476), consider making adjustments to their current compensation plan to bring it into compliance.  Continuing with our GM Johnny example:

The new FLSA pay criteria stipulate that up to 10% of the first $47,476 of the employee’s income can come from non-discretionary commissions or bonuses.  These are bonuses based on clear and measurable goals or a company’s profitability.  That means if we want to cap Johnny at $47,476 for his annual compensation, $4,747.60 of it may come from commissions and bonus.  We can bring his salary up to $42,729 and adjust our commission and bonus structure accordingly.  Where he may have been earning $300 in commission on 30 memberships, now his plan pays him $150.  His monthly bonus is adjusted to $250.  This brings his yearly earnings from these two categories to $4,800.  When combined with his new salary, Johnny’s yearly income is $47,529.  This is only a $1,929 increase to the business for the year. 

If the employee’s current earnings are much lower than $47,476 per year, consider moving them to hourly pay.  Example:

AM Adam has a salary of $24,000 per year.  He earns another $10,000 annually from commissions and bonuses.  That puts his annual earnings at $34,000.  While a review of his job duties indicated that his role does qualify him to be an exempt employee, the business owners have not budgeted $47,476+ each year for his position.   In order to comply with the new FLSA pay rates, Adam’s pay is changed to $11.50 per hour (his salary divided by 40 hour weeks x 52).  He’s required to clock-in and out and his commission and bonus structure remain the same.  GM Johnny carefully monitors Adam’s time clock reports to ensure he’s not exceeding 40 hours per week.

*Luckily our example gym isn’t in California, so Adam is not limited to less than 8 hours per day to stay out of overtime status.

If you’re moving a currently salaried employee to hourly, make sure you factor in the need for and frequency of overtime hours.  Example:

After reviewing the hours Adam typically works, Johnny realizes that he’s averaging 50 hours each week.  He reviews this with the club owners and all agree that Adam is needed for the extra 10 hours each week.  Therefore, Adam will be earning overtime pay.  Johnny will need to be careful to take Adam’s commissions and bonuses into consideration.  For the pay period of August 1st to August 15th, Adam worked 108 hours.  20 of these hours these were overtime.  He also earned another $350 in commissions and bonuses.  Here’s a breakdown of Adam’s pay:

 108 hours x $11.50 + $350 (commissions & bonuses) = $1592 (straight time pay)

$1592 divided by 108 hours worked= $14.74 (regular rate)

$14.74 x ½ = $7.37 (overtime premium)

20 hours of overtime x $7.37 = $147.40 (overtime pay)

Total payout = $1,739.40

If the owner had failed to consider the tendency of Adam’s position to require overtime and had set his hourly rate to $11.50 (and made no changes to his commission and bonus plan), Adam would be set to earn $41,745 per year, which is a lot higher than $34,000.  The cost to the business would be $7,746 annually.  By understanding the implications of overtime pay, the owner could adjust Adam’s hourly rate lower than $11.50 and/or modify his commission and bonus structure.  Considering the need for and frequency of overtime, as well as its cost, is a must when considering a future pay plan for a position.

Consider the cost of admin when deciding to move a salaried employee to hourly.  Who will track the employees’ hours, make adjustments when need, and police overtime?  Who will ensure calculations for overtime pay are properly made?  Does your pay cycle for hours align with your commission and bonus structure?  Example:

Gordon pays his team for hours and salary on a semi-monthly basis, but his commission and bonus structures are based on his club’s monthly sales and performance quotas.  His sales rep Samantha consistently works overtime and Gordon knows he needs to calculate pay based on her regular rate.  However, when he pays her for her hours from the first half of the month, commissions and bonuses are not available.  How does he ensure Samantha is paid out properly?

For August 1st to 15th, Samantha worked 92 hours.  4 of these hours were overtime.  Her hourly rate is $8.  Gordon should pay her the following on her check:

92 hours x $8 = $736

$8 x ½ = $4 (overtime premium)

$4 x 4 hours of overtime = $16

Total pay for this check= $752

At the end of the month, Samantha has $400 in commissions and a $100 bonus.  Gordon is able to attribute $150 of the commissions to August 1st to 15th and splits the bonus in half as it was earned over the entire month.  He then calculates the additional overtime pay due to Samantha for August 1st to 15th.

$200 (commission and bonus) divided by 92= $2.17 (additional income to add into hourly for regular rate)

$2.17 x 4 hours x 1.5 (time and a half) = $13.02 to be added to Samantha’s next check.

Finally, a great place to start when building a compensation plan is to determine how much the position should pay when an employee performs well (if commission/bonus based) and work backwards.

As you can see, there are a lot of points to consider as you work toward December 1st.  Starting now ensures you have the time necessary to put a thoughtful plan together.

Month-By-Month Guide to Preparing for the FLSA Exempt Pay Changes: Analyze Your Workforce

Over two months have passed since the Department of Labor announced the changes to the salary level for employees classified as exempt and we’re still getting a ton of questions on what the changes mean for fitness business owners. Read about the change here.

 Over the next several months, we’ll give you a few tasks on which to focus each month so you’ll be prepared for the December 1, 2016 launch.

August:  Analyze your current workforce. 

·         Review all employees and positions currently classified as exempt or those which you’re paying a salary and not requiring time records to be kept.

·         Review their job descriptions and duties to determine if these employees are currently properly classified (outside of the amount they’re paid).  If you can check off the majority of the following bullet points under the supervisory exemption (or make a case for an administrative exemption), your employee is properly classified as exempt.  If not, the position should be reclassified as non-exempt and be required to keep track of time.

·         Create a list of the positions which will need to be reclassified based on duties and those which will remain exempt. 

Supervisory:

  1.  Regularly supervises two or more other employees, and also
  2.  Has management as the primary duty of the position, and also,
  3.   Has some genuine input into the job status of other employees (such as hiring, firing, promotions, or assignments).

When considering a supervisory exemption, the DOL is very clear that the employee must have management as the primary duty of their job.  Below are typical tasks that would be included in management duties:

  • 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.

A good rule of thumb is that if the person is deemed “the boss” or “in charge”, they are cleanly classified as management.  In the fitness space, the general manager, fitness director, operations manager, and (sometimes) assistant manager roles may be considered exempt.  The most frequent misclassification made in the fitness industry is for the sales role.  If an employee’s job duties are primarily inside sales, regardless of their title, they are not exempt. 

Administrative:

This classification includes employees who job duties are:

·         Office or non-manual work, which is

·         directly related to management or general business operations of the employer or the employer's customers, and

·         a primary component of which involves the exercise of independent judgment and discretion about

·         matters of significance.

It is not enough for the employee to perform office work.  They must regularly exercise discretion and judgement, with the authority to make independent decisions on matters which affect the business as a whole or a significant part of it.  In a fitness business, there are very few roles which would fall under this exemption.

There is also a professional exemption which carves out lawyers, teachers, accountants, and other roles not typical of a fitness business. 

While the change to exempt pay is a challenging one for employers, it presents a great opportunity to review the entire business for duties based compliance.  The new DOL guidelines will likely lead to closer scrutiny of employee misclassification in the future.  We’ll also likely see a rise in the number of plaintiffs’ lawyers focused on bringing suit against employers under wage and hour law violations due to misclassification.  These cases are some of the most costly to defend for business owners. Being proactive now can save you majorly in the future.

Next month:  Assessing salaries.