The SESCO Report – June 2012

Controlling Unauthorized Overtime

Unauthorized overtime is extremely costly and affects the bottom line of any organization. However, controlling unauthorized overtime can be a very difficult task. Managers are concerned that addressing overtime will affect production and human resource professionals are concerned about complying with aggressive enforcement of regulations by the Department of Labor, Wage and Hour Division — and rightly so.

SESCO offers the following tips to not only control unauthorized overtime, but also to ensure liability associated with Wage and Hour compliance is eliminated.

1. Establish policy — It is critical that employers establish a number of policies regarding hours of work, recordkeeping (time records) and working time/schedules. SESCO recommends the following policies:

• Policy forbidding unauthorized overtime. However, in addition to this policy, ensure managers under-stand why this policy is critical to include overtime/labor costs. Also, it is critical to discipline employees who work overtime without permission. Be very careful about automatically deducting an employee's time (not paying for overtime work) if we knew or should have known about the employee working or if we benefited from the work. It is always best to discipline an employee through written corrective action and policy enforcement versus disciplining an employee through improper/illegal deductions.

• Policy restricting early clock ins and clock outs. A policy should also be established and communicated via an employee handbook that no employee shall clock in more than five (5) minutes before their starting time or five (5) minutes after their quitting time. Subsequently, utilizing the rounding method as noted below, time records will be automatically rounded to the starting time, re: an employee clocks in at 7:55 — the system will officially record 8:00. The same practice would apply in the evening, re: if an employee clocks out at 5:05, the record will be rounded back to 5:00 for compensation purposes. If employees clock in five (5) minutes prior to or five (5) minutes after when leaving, managers can edit time records as recommended below. However, we need to ensure that employees do not clock in early and start work. If employees begin work such as turning on computers, preparing files or their work areas or other actual work, we should pay them for this period of time and subsequently address this behavior through coaching, counseling and disciplinary action.

2. Edit time records — Frontline managers should be responsible for reviewing and editing time records on a weekly basis. This includes a mispunch (employee forgot to clock in), forgot to clock in and out for lunch or didn't record a personal errand. Also if an employee comes in early and clocks in prior to their scheduled starting time or stays after work late and clocks out after their scheduled ending time, the time should be edited. It is critical that managers address employees' time immediately, preferably within the workweek, and edit time records ensuring that accurate time is recorded. Subsequently, the manager as well as the employee should sign as well as initial any edits or corrections.

With the invention of electronic time recordkeeping systems and the use of outside third party payroll processors such as ADP or Paychecks, managers and human resource/payroll staff must find ways to review, edit and manage time records before time records are automatically sent to an outside third party for processing. This can be administratively difficult; however, it is absolutely critical as time records are legal documents and create the basis of all Wage and Hour compliance to include minimum wage and overtime payments. Don't count on payroll processors to ensure compliance or edit/monitor work time.

3. Do not pay to the minute — SESCO recommends that time recordkeeping systems round time to the nearest fifth, tenth or quarter of an hour utilizing the 7/8 minutes rule. Rounding of time is completely legal as long as rounding of time is consistent to include at the beginning as well as at the end of each shift.

Paying to the minute can be costly as employees will come in early and stay late and as such, can add several minutes to their pay each day and each week. Even at 15 minutes per day, this equates to one hour and 15 minutes per week. It doesn't sound like a lot but when paying overtime, this time can add up to an average of 45 to 50 hours annually and if multiplied at time and one-half (1.5) the employee's rate, it gets very costly.

In summary, overtime can be successfully managed. However, you must develop and implement effective policies, train managers, edit time records and monitor employee time recordkeeping practices.

Understanding the Administrative Exemption

Human resource professionals understand the critical importance of properly designating the exemption status of all positions within an organization. The simple reason is that any position that is determined to be exempt means that the position is exempt from the Fair Labor Standards Act and thus minimum wage, time recordkeeping and overtime obligations. Paying someone a salary does not mean they are exempt.

Nonexempt employees can be paid on a salary or hourly basis; however, they must meet the basic requirements:

• Record time on a daily basis,

• Receive at least minimum wage,

• Receive overtime for hours worked in excess of 40 hours per week (federal regulation — some states have implemented their own overtime regulations).

There are a number of exemptions that can be applied to positions if all tests are met. These white-collar exemptions include:

• Executive
• Computer
• Administrative
• Professional
• Outside Sales
• Highly-Compensated

The Administrative exemption is the most difficult to apply to positions within an organization. To be exempt under the Administrative exemption, the following must be met:

• "Be compensated on a salaried basis of not less than $455 per week."

• "Have a primary duty performing office or non-manual work directly related to the management or general business operation of employer or the employer's customers."

• "Have the primary duty which includes the exercise of discretion and independent judgment."

The first requirement is easily understood. The guaranteed salary basis is just that; however, there are limited times that we can deduct legally from this guaranteed salary basis.

The second requirement typically includes areas like taxation, finance, independent auditing, quality control, procurement, public relations and human resources. However, administrative work cannot include (more than 50% of the working time), re:

• Routine or clerical in nature.

• Merely the application of set policies or advanced skills required.

• Production work.

• Inside sales.

The last requirement is the most difficult to understand and apply to a position. This requirement includes the exercise of discretion and independent judgment. The Department of Labor has provided the following factors to consider when applying the exercise of discretion and independent judgment:

1. Whether the employee has the authority to formulate, interpret or implement management or operating policies.

2. Whether the employee carries out major assignments in conducting operations of the business, independently.

3. Whether the employee performs work that affects business operations to a substantial degree.

4. Whether the employee has authority to commit the employer in matters that have significant financial impact, with-out prior approval.

5. Whether the employee has authority to waive or deviate from established policies and procedures, without prior approval.

6. Whether the employee has authority to negotiate and bind the company on significant matters.

7. Whether the employee provides consultation or expert advice to management, and management places a significant importance on the advice.

8. Whether the employee is involved in planning long- or short-term business objectives providing direction to the company, departments and employees.

9. Whether the employee investigates and resolves matters of significance on behalf of management.

10. Whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances internally or externally.

SESCO recommends an annual assessment of all Wage and Hour and compensation practices to include compensation plans of all positions within an organization to ensure that all positions have been properly designated as exempt or nonexempt and thus reduce liability associated with non-compliance.

Liability can be devastating. For example, a small service center with two (2) locations didn't pay overtime correctly resulting in $100,000 back wage fine — due within 45 days!

Those organizations who take advantage of SESCO's monthly service agreement receive an annual compliance assessment to include follow-up report preparation. Those not currently taking advantage of this offering can contact SESCO at 423-764-4127 or bill@sescomgt. com.

8 Tips for Becoming a True Leader

Here are eight (8) attributes that separate genuine leadership from leadership that's more a matter of chance:

1. Real leadership means leading yourself. Passing out orders is as easy as passing out business cards. But a prudent leader also knows how to lead himself or herself — not merely provide a genuine example to others, but to become a working element of the overall machinery of your business. It's important that leaders have the ability to focus and motivate themselves as they motivate others.

2. Don't be a monarch. Thoughtful leadership likely means you already have a talented workforce in place. That's terrific. But be careful not to set up a throne room in the process. Accidental leaders often inadvertently establish a system of guidance that's unnecessarily restrictive. Guide employees, but don't implement more parameters than are absolutely necessary. It's important to influence the people with who you work. Don't see your business as a hierarchy.

3. Be open to new ways of doing things. One potential landmine of a prosperous operation is to repeat anything that proves successful. It's hard to argue against that, but an inadvertent leader will put far too much stock in sticking with what always works. By contrast, thoughtful leadership acknowledges success but also recognizes there are always ways to do things better.

4. Remember that white males are fast becoming a minority. Statistics show that white males now make up only a small fraction of the workplace population. Couple that with growing partnerships across borders, and it becomes obvious that blending a variety of cultures and backgrounds in a working environment is an essential leadership skill. A thoughtless leader will try to cope with this as best as he or she can. One with more vision will work to take advantage of differences. Competition
- the constant push for faster, better, cheaper — mandates that we learn to effectively deal with differences in the workplace. A company that weaves an appreciation of diversity into its cultural fabric will make itself unbeatable.

5. Establish a genuine sense of commitment. We see too many company slogans and catch phrases whose import is no deeper than the paper they're written on. Want to be "committed to superior service"? More power to you, but a genuine leader will see that as words and little else. Instead, put some meat on those bones — establish how to quantify excellence, design a cogent plan to achieve it, and set a reasonable but real timetable for its completion.

6. Finish the job. Many business leaders yak about their complete game, but how many actually finish what they say they're going to start? A thoughtless leader who never genuinely finishes anything loses the confidence of clients and customers. That lack of follow-through isn't going to be lost on his or her employees, either. Instead, set goals and establish pragmatic, accountable measures to actually finish what you start. The ability to complete things is critical. Nothing's useful unless you actually complete it.

7. Show genuine appreciation. Thoughtless leaders must have forearms like Popeye's, what with all the back-slapping they do. That's fine, but good performance requires a more substantive response. Leaders with an eye to the future hand out praise but augment it with real rewards: promotions, raises, bonuses, and other tangible tokens of appreciation. That motivates your people, not only to apply themselves with enthusiasm but to stick around your company longer than they might otherwise.

8. Know that leadership skills come from learning, too. Far too many business executives believe leadership skills stem from some sort of wondrous epiphany or other such flash of insight. Sure, great ideas can come to any of us, but being a bona fide leader also means study. Read books on effective leadership, attend seminars, and pick the brains of colleagues to see what works for them. It can be a long education, but one with rewards that multiply with the more knowledge you have under your belt.

SESCO can help assess potential and current leaders' skills and abilities and then develop a coaching and development plan to help leaders become the best they can be. Contact SESCO to discuss our leadership assessment and development tools and services.

Special Thanks to New SESCO Clients!

Jefferson-Cocke County Utility District
Newport, TN

University Tire
Charlottesville, VA

Cobra-America, LLC
Bristol, TN

The American Beer Company, Inc.
Meadow Bluff, WV

GNET Group
Roseville, MN

M&M Auto Parts
Stafford, VA

Cardinal Plaza Shell
Springfield, VA

Bristol Home Health
Bristol, VA

SESCO Clients Feedback

"Bill, thanks very much for all the great service you have provided to the WICPA during the past several months. The letters you sent recently were described by our Board Chair as "exactly what I was looking for" with respect to your analysis of the staff bonus plan, CEO compensation, and 2012 staff bonuses and raises." ~ Dennis F. Tomorsky, CPA,
JD, CGMA, President and CEO — Wisconsin Institute of Certified Public Accountants

"We/I have used Joel Cullum to coach our executive team for greater communication and problem solutions. Great job! Knowledgeable, helpful, caring." ~ Ron Scott, President/CEO — Appalachian Community Federal Credit Union

"The best ROI around!" ~ Sandra F. Anders, CFO — Home Recovery (HomeAide)

SESCO Client Inquiry — Staff Response

Question: "What is the liability for employers when a supervisor is involved in a sexual harassment complaint?"

Answer: Initial attention was focused on what is known as "quid pro quo" harassment, which occurs when submission or rejection of sexual advances is used as a basis for employment decisions affecting the individual. An employer is liable for any economic harm an employee may experience due to a supervisor's quid pro quo harassment. Later, the Supreme Court recognized another form of sexual harassment, known as a "hostile environment." A hostile environment is described as an offensive, hostile, or abusive work environment. Employers can be held liable for sexual harassment by co-workers, clients, vendors, customers, and by supervisors.

Companies must train all employees and managers annually and also investigate all concerns or complaints!

SESCO Product of the Month

Employee Benefit Statements — "The Hidden Paycheck"

The cost of employee benefits continues to increase dramatically. The challenge of benefit plans and related costs will continue to place a burden on employers into the future whether or not the Affordable Healthcare Act is upheld. Most statistics tell us that benefits are worth about 30% of an individual's total compensation.

SESCO's Employee Opinion Survey including in excess of 200,000 employee attitude responses, tells us that employee benefits are as or more important to employees than baseline compensation. As such, it behooves employers to communicate to employees not only the benefits that are offered but also the value of those benefits.
Do your employees know the total value of their compensation plus benefits?

SESCO prepares these employee statements. Costs are as follows:

•Less than 100 employees — $12 per employee
•Over 100 employees — $10 per employee

Contact Andrea Ford 423-764-4127 — andrea@sescomgt.com – to learn more about SESCO's employee benefit statements/hidden paycheck program.