The SESCO Report – December 2006

The Year in Review — Plus What to Expect in 2007

A Look Back at Significant Developments in 2006

- The Office of Federal Contract Compliance Programs (OFCCP) requires federal contractors to obtain, where possible, gender, race, and ethnicity data on applicants and employees in connection with administering their affirmative action plans. The agency issued guidance, effective in February 2006, on the definition of an Internet applicant. An individual must submit an expression of interest in employment through the Internet or other electronic means. The contractor considers the individual for employment in a particular position, and the individual's expression of interest indicates that the person possesses the basic qualifications for the position.

- The Class Action Fairness Act was passed by Congress and signed into law in February. The measure shifts more class-action lawsuits from the state courts to federal courts. The law is designed to discourage "forum shopping," where lawyers file cases in the jurisdictions that have been favorable to plaintiffs. The law will require all class-action suits to be heard in federal court if more than $5 million is in dispute or the plaintiff and defendant live in different states.

- The Pension Protection Act of 2006 is the first overhaul of pension law since Congress enacted the Employee Retirement Income Security Act (ERISA) in 1974. The new law contains a variety of provisions to strengthen the funding rules for defined benefit pension plans. The law seeks to ensure that employers make greater contributions to their pension funds, ensuring their solvency. In addition, the law allows employers to encourage their workers to save by automatically enrolling them in 401(k) retirement accounts. The Act also allows for investment advice provided to employer-sponsored retirement plans through a computer model that is certified by an independent party. Advice provided by an adviser whose compensation does not vary with the investments selected would be available to both employer-sponsored pension plans and IRAs.

- Amendments to the Federal Rules of Civil Procedure, effective December 1, 2006 require U.S. companies to keep track of e-mails, instant messages, and other electronic documents generated by their employees. The rules require companies and other entities involved in federal litigation to produce "electronically stored information" as part of the discovery process, when evidence is shared by both sides before a trial. Companies will not have to alter how they retain electronic documents, but will have to do an inventory of their IT system in order to know where the documents are.

What Clients Can Expect in 2007 and Beyond

- The federal minimum wage is almost certain to increase in 2007. The minimum wage has remained at $5.15 an hour for nearly ten years. Several states increased their minimum wage in 2006, and the new Democratic leadership in Congress has stated that an increase in the federal minimum wage is a priority issue.

- The revisions to the EEO-1 report are effective with the 2007 survey report, due September 30, 2007. Revisions to the report include new job categories that split officials and managers into two levels and new race and ethnic categories.

- Effective January 1, 2007, the Deficit Reduction Act (DRA) will enhance federal and state oversight of Medicaid and will increase enforcement actions against fraud and abuse in the Medicaid program. Entities receiving $5 million or more per year in Medicaid funds must create written compliance policies designed to educate employees, contractors, and agents about false claims, false statements, and whistleblower protections under applicable federal and state fraud laws.

- In the last days of the 109th Congress, legislation was passed to extend certain tax breaks important to employers. H.R. 6111 extends and expands the Work Opportunity Tax Credit (WOTC) program, which provides for tax credits to employers that hire individuals who face barriers to employment. Beginning in 2007, the provision combines the WOTC with the Welfare-to-Work (WTW) credit and extends the combined provision through December 31, 2007.

This bill also extends the 1996 Mental Health Parity Act (MHPA) for another year for all insured, self-insured, and public health plans. The MHPA prohibits health plans from setting annual or lifetime limits on the amount of coverage for mental health care unless similar caps are also imposed on medical and surgical benefits.

To provide for greater flexibility in the design of health care plans, the bill provides for certain improvements in Health Savings Accounts (HSAs). Penalty-free transfers will be allowed to HSAs from Flexible Spending Accounts and Health Reimbursement Accounts until 2012. The bill repeals the annual plan deductible limitation on HSA contributions, allowing for $2,700 in annual HSA contributions ($5,450 for families) even if the deductible is lower. The bill allows for a one-time contribution from an individual retirement plan to fund an HSA.

- Health information technology. There appears to be bipartisan support in Congress to implement a health information network. Such a network would shift the health care system from a paper-based format to a secure electronic format by developing standards for the transmission and storage of health information, as well as electronic payments and individualized medical records.

- Family and Medical Leave Act (FMLA). Could this be the year that the Department of Labor issues revisions and clarifications to FMLA? This has been on the department's regulatory agenda since 2002. In December of 2006, the department asked for public comment on FMLA, and comments may be received through February 2, 2007. However, DOL officials have been quick to point out that they are only seeking information and fresh input and that no plans have been made to propose any rule changes.

- Employment Verification. Any new bill that strengthens interior enforcement of U.S. immigration laws is likely to include increased sanctions on employers and a new electronic employment verification system.

The human resource activities most commonly outsourced include the following: background checking, payroll, health and pension benefits, employee assistance programs, and flexible spending accounts.

Statistics of Interest

- The consumer price index increased by 2.2% through the first eleven months of 2006, compared to an increase of 3.4% for all of 2005. Inflation for 2006 is projected to be 3.4%, and 3.0% inflation is the forecast for 2007.

- Interest rates — prime rate is currently 8.25%, projected to stay at 8.25% in 2007.

- Salary increases in 2007 are projected to be 3.5% for salaried exempt employees, 3.5% for nonexempt employees, and 3.8% for executives.

- Employer health costs will rise about 8% in 2007. Although steep, this is lower than in previous years. The trend is for employers to move to consumer-driven health plans. Employee benefit communication programs are increasing to ensure employers receive the benefit of providing expensive benefits.

- In its most recent reporting period (fiscal year 2005), the Wage & Hour Division reports the following:

- received 30,375 complaints of violations of the Fair Labor Standards Act
- collected over 166 million dollars in back wages for 241,379 employees
- assessed over 10.5 million dollars in civil monetary penalties

- The Equal Employment Opportunity Commission (EEOC) conducted 75,420 investigations and recovered over 108 million dollars in monetary benefits.

Please call if you have any questions arising from this update. SESCO Management Consultants is committed to keeping our clients informed of these changes and any other legislation or policy changes which may affect the landscape of employment regulations.

Management ? Rocket Science or Common Sense?

Perhaps the most complex situations to understand in today's business environment are those which revolve around people. Today's workers are more diverse, more technology savvy, more mobile, and more curious than ever before. They want to know why their jobs exist, and how they can make a difference. They ask questions, they expect feedback, and they use technology as a tool without thinking about it. They are the product of a plugged-in, online world and they work in environments where instant results, instant information, and instant communication are the norm.

So, to manage today's workers, of any age, do we need to consult NASA or a Washington, D.C. think tank? Fortunately, we do not. Assuredly, we do not need to engage rocket scientists, faith healers, or any other mystical experts to help us to understand the answer, because while the questions may have changed, the answers remain the same.

For over 40 years, a very savvy front line employee named Mildred Ramsey worked in the fabric mills of the south. She experienced good leadership and poor leadership. She witnessed good work situations and bad work situations. She saw the best and the worst, and learned from all situations.

Over time, Mildred realized that the best ways to accomplish the goals of the organization were to keep workers informed, treat them with respect, ask their opinions, and recognize good work. As this knowledge became clear to her, she developed a plan, a new mission for her life. Unlike many smart team members who take their secrets of success into retirement with them, Mildred became an author and a public speaker ? sharing her knowledge with leaders across the country. Her books and DVD's provide leaders with a common sense approach to managing, and are extremely entertaining as well.

Over the years, SESCO has incorporated elements of Mildred Ramsey's teachings into many of our seminars. Her "Super Supervisor" concepts are appropriate for any organization at any level. Ramsey supports using the "Seven C's" to lead and motivate others: Courtesy, Concern, Consideration, Compassion, Consistency, Control, and Caring.

Think about it ? aren't there times when we as leaders really want to know what our followers are thinking? Well Mildred Ramsey can tell us! To learn more about helping your leaders become a "Super Supervisor" or to utilize Mildred Ramsey's materials in your training, contact Clark Phipps at 423-764-4127 or Clark [at] sescomgt [dot] com.

- Clark Phipps, Senior Vice President, Training and Development

Avoid These Common Mistakes When Using E-mail To Manage People

More than 23 million workers are connected by e-mail networks, and the number is growing fast. However, the smart manager understands that e-mail can be dangerous if not used properly. Here are some common e-mail abuses to avoid:

Hiding behind the terminal.
Don't use e-mail for performance reviews, disciplinary actions, or other touchy matters. It's worse than breaking up over the phone; some things you have to do in person.

Forgetting it's in writing. The informality of e-mail is part of its convenience. But it is a permanent record of written communication ? often much more easily retrieved than an ancient memo. Just because you've forgotten about it doesn't mean you won't see it again.

Flaming. Spontaneity is another benefit of e-mail, but you should watch the tone of an e-mail message as closely as you would a memo written on paper. Sarcasm can be devastating when it is glowing on the screen.

- "The Wall Street Journal"

A Special Wish and Thanks to our SESCO Clients!

From the Management and Staff of SESCO Management Consultants

As we pause in sober contemplation of the millions of people in other lands who cannot have happiness this Christmas, we are humbly grateful for the privilege of living in a country where spiritual values have not been subordinated to material things.

So, in our letter to Santa Claus we do not ask for diamonds or other worldly possessions. Instead, we want only your goodwill ? to so serve you that you will continue to think well of us, as surely we do of you.

That you and yours will find happiness on Christmas day ? that you will have good fortune during the coming year ? is the sincere wish of all of us at SESCO.