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Five Small Business Pay Traps to Avoid

While mostly common practices, compensation policies can leave employers exposed to claims, legal proceedings and fines.

When it comes to compensation, there are several compliance issues we address regularly as we onboard our clients. While mostly common practices, compensation policies can leave employers exposed to claims, legal proceedings and fines. These are the 5 areas of concern regarding compensation that we address most often:

Putting the wrong employees on a salary: There are strict rules about which employees are able to be “exempt” from overtime. First, you must meet the federal minimum salary, currently set at $23,660, but proposed to rise to over $35,000 soon. Next, you have to be able to substantiate that they are executives, professionals, or administrative. Don’t be fooled that administrative means anyone on your office staff – THIS is the trap. An administrative employee must have the authority to exercise independent judgement and make significant business decisions without approval from a manager. Ask yourself – can this person make large purchases without approval? Or – would this person be able to hire or fire someone on their own?


Meeting and training pay: We often hear “I took this employee with me to a special training. I paid for the training and bought them lunch. That’s all I need to do, right?” This one is simple – if a particular training or attendance at a meeting is noted as mandatory, you must pay for the time they’re there. This includes travel time if the meeting takes place off-site; and while providing a meal is a nice gesture, it does not alleviate your requirement to pay employees for their time.


Policies against employees discussing their pay: This comes up often either when evaluating a handbook, or when an employee complains about the amount someone else makes. The employer might ask them not to discuss their pay with others or may even have a policy against it. This is considered an unfair labor practice as defined by Section 8 of the NLRA – you cannot require confidentiality when it comes to pay. Employees have a right to discuss their compensation and working conditions whenever and wherever they please.


Allowing employees to eat lunch at their workstations: This is highly common in small medical practices and offices: Jim brings his lunch to work and prefers to clock out and eat while sitting at his desk, reading the news or checking his personal email. While not illegal, allowing this is highly inadvisable. If Jim is at his desk on his unpaid lunch hour and the phone rings, he might answer it. He may quickly return an email. And that leaves the employer open for an unpaid work claim. If you ask your employees to take an unpaid lunch, they should do it away from their workspace so they are not tempted to complete work tasks while off the clock.


Giving employees gifts, gift cards/certificates: Birthdays, graduations and holidays are the perfect time to reward employees! I completely agree, but may differ on the delivery. Although a bonus run through your payroll system may not be as easy, or even as fun, any tangible gift or gift card over $20 in value is considered taxable income and needs to be reported as wages.


So yes, when it comes to compensation, there are several compliance issues we address regularly with our clients. Although many issues arise from good intentions, the liability is simply not worth the risk. Give us a call and we can review your compensation packages to ensure you’re providing the best possible compensation for your employees while keeping yourself and your organization out of trouble.

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