Archive for the ‘Human Resources’ Category

Clearing The Air: E-cigarettes In The Workplace

May 16, 2014


No Vaping ImageFor many of the Gen X and Gen Y’s of today’s workforce, smoking in the workplace is something only known from watching an episode of Mad Men, a TV series that takes place during the 1950s and 1960s. In an era where traditional cigarettes tend to make headlines when large retailers, such as CVS, propose to discontinue selling tobacco products, electronic cigarettes (also known as vaporizers) are the new controversy.

What are e-cigarettes?

E-cigarettes are electronic nicotine delivery systems by which a battery powered heating element vaporizes a liquid solution, usually containing nicotine, creating water vapor as opposed to smoke. These personal vaporizers started appearing in the marketplace around 2006 and have quickly evolved in recent years. The early models produced small amounts of vapor, but with the increased battery capacity, the newer generations of these devices now produce significant amounts. Unlike tobacco products, e-cigarettes are not regulated by the Food and Drug Administration (FDA). Due to the lack of federal regulations, manufacturers of these products are not required to list the ingredients used to create the solutions. Most contain a mixture of propylene glycol, glycerin and nitrosamines.

Why all of the controversy?

Proponents of e-cigarettes are quick to point out that the chemicals used in most solutions are found in many products that have been deemed safe by the FDA. For example, propylene glycol and glycerin can be found in such things as toothpaste and asthma inhalers. While nitrosamines are known carcinogens and are linked to liver cancer, they can be found in many household products such as latex gloves. E-cigarette advocates point to the low levels of nitrosamines in personal vaporizers and compare the levels to those omitted by non consumable products. While many agree that using e-cigarettes can be a safer alternative to tobacco use, the void of research does not mean they are actually safe and point out that in the early years of “big tobacco”, many believed that smoking traditional cigarettes were safe and is now known to be a leading cause of lung cancer and emphysema, not only among smokers but to those who have been subjected to secondhand smoke.

What does this mean for the workplace?

While only 28 states and the District of Columbia have bans on smoking in the workplace, most would be hard pressed to find any company that still allows the practice on-site. 150 cities, including Chicago, have banned the use of e-cigarettes in public places such as restaurants, bars and offices requiring smokers of any kind to stand at least 15 feet from entryways of such establishments before lighting up or “vaping.” For those who work in areas not covered by such a ban, the issue may come down to how e-cigarettes are classified and the broad nature of some employee policies. Many believe that regardless of whether they are electronic or traditional, if they contain nicotine they are cigarettes and should be treated as such. Others point out that they are actually smoking cessation products designed to help smokers quit–and they have a point. Nicotine Replacement Therapies (NRT’s) such as patches and gums, which also contain various levels of nicotine, are not only permitted in the workplace, but some companies reimburse employees for the expense of such products in order to help in the quitting process.

Regardless of one’s personal viewpoint on the use of e-cigarettes as a smoking alternative or NRT, companies have a responsibility to not only treat their employees fairly but also to ensure the safety of their employees while on the job. It is important to consider the well-being of the workforce as a whole when drafting and implementing workplace policies. When considering non smoking policies and the use of e-cigarettes, policies should be clearly constructed and detailed in order to alleviate any confusion. If the company provides any kind of assistance to those employees who are trying to quit using tobacco products with the use of NRT’s, policies regarding their use and expense reimbursements should be detailed and include which products are covered and what is not. When in doubt, it may be worth it to error on the side of caution when deciding on whether or not to allow vaping on company property.

C3 Advisors, LLC
May 15, 2014

C3 Advisors converges the three essential business elements—Process, People and Technology—to help businesses thrive, not just survive, by improving profitability and reducing risk. Our services help our clients improve process optimization, people integration and technology maximization.
Process Optimization focuses on establishing formalized operational functions that facilitate increased productivity, mitigate risk, and provide the foundation for optimal profitability.
People Integration addresses staffing and workforce issues that are critical to the success of continually cost efficient, low risk, and productive processes.
Technology Maximization ensures the ROI on a technology investment is fully realized through complete use of systems functionality and business intelligence.

We have specific expertise in post-acute healthcare, technology and service companies. Please visit our website at and for direct information about how C3 Advisors, LLC can assist your business, please call us at (630) 510-3181 or e-mail us at
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To Pay or Not to Pay: The Internship Debate

March 17, 2014

Intern Article Image

With winter finally coming to an end and the return of the summer months, businesses across the country are starting to ramp up efforts to bring in summer interns.  Internship programs can be beneficial for students who need to gain experience in their field of study even if they will not be paid for the work that is being assigned.   Those benefits also include developing experience for inclusion on a resume, potential future employment references and, sometimes, additional college credit for the work that is done.  There are many benefits to business, as well, in terms of reducing heavy workloads, filling future recruiting pipelines, and increasing employee managerial skills, just to name a few.   The mutual benefits that can be derived from an internship program are clear but, in reality, employers can lose at the internship game if their programs are not designed and managed properly.

 The Fair Labor Standards Act (FLSA)

Most employers know that the FLSA differentiates between employees and independent contractors, but many don’t realize that an intern can often fall within the definition of an employee if care is not taken to differentiate the intern’s role and responsibilities.  As with independent contractors, the Department of Labor has defined specific tests that must be met in order to properly classify interns vs. employees.

 FLSA Internship Test

Under the FLSA, the following six tests must be met in order for a worker to be classified as an intern:

 1.       The internship, even though it includes a role in the actual operation of the business or facilities of the employer, is similar to training which would be provided in an educational environment;

2.       The internship experience must be designed for the benefit of the intern, and is not with expectations of commercial benefit for the business;

3.       The intern does not displace regular employees, but works under close supervision of existing staff;

4.       The employer that provides the training  derives no immediate advantage from the activities of the intern; and on occasion operation of the employer’s core business functions could be impeded;

5.       The intern is not necessarily entitled to a job at the conclusion of the internship; and

6.       The intern and the employer mutually understand that the intern is not entitled to wages for time spent in the internship.

 It is important to note that all six of the requirements must be met in order to demonstrate that an “employment relationship” does not exist, and the intern is not entitled to the benefits and protections afforded to employees under the FLSA rules.

The Pitfalls of Misclassification

Beware of assigning menial tasks to interns or hiring interns in lieu of employees.  And, be careful, to pay attention to wage and hour rules if interns are to be paid, even when the payment is in the form of a stipend.

In 2013, the United States District Court for the Southern District of New York held that duties performed by interns such as taking lunch orders, making deliveries, and organizing file cabinets demonstrated the existence of an employment relationship and that the unpaid interns charged with these tasks should have been classified as employees (Glatt v. Fox Searchlight Pictures). The case demonstrated that menial office duties were not for the educational and/or training benefit of the intern and only benefited the employer.  Therefore, the interns should have been classified as employees and paid.  In the same court, a collective class action suit was filed against a modeling management company.  In that case, the petitioner filed a $50 million suit alleging that the modeling agency knowingly misclassified employees as unpaid interns in order to avoid paying wages and overtime.

 Unpaid internship programs are not the only programs at risk. Internship programs that offer stipends that do not meet the minimum wage requirements are also at risk of wage and hour claims.  Take the situation where a student receives an internship for a company and receives a stipend for his/her work.  If the amount of the stipend is not adequate and in conformity with minimum wage and overtime requirements, there could be an actionable wage and hour issue.  In this case, an attempt at providing some compensation to the intern could actually backfire in a meaningful way.

 Finally, let’s not forget the issue of commercial benefit.  The tech-savvy intern who is brought on to develop a new program or application that may be offered for sale in the future probably isn’t going to be classified as a true intern under the FLSA’s rules and that individual should be compensated for his/her work.


When properly designed, the use of interns can offer a company many benefits.  Overhead and overall wage and benefit expenses can be controlled.  Interns often bring new skills, particularly in areas such as technology, to the fore during an internship. Recruitment of interns can often be done using free websites such as  Interns also derive significant benefit from the practical experience that an internship may provide.  All in all, offering internships can be a win/win situation for both the company and the student as long as the program follows the requirements set forth by the FLSA and, if applicable, state wage and hour laws.  Take these rules into account when designing your program and, when in doubt, seek the advice of legal counsel before taking the plunge.  Remember that an hour of your attorney’s time may mean the difference between a successful internship experience and a costly mistake that could end up in litigation.

Let’s Get Rid of HR!

November 20, 2013

HR_Vital Function Image

An article entitled, “Why We No Longer Need HR Departments” by Bernard Marr was recently posted on LinkedIn. (  Bernard Marr is a self-described bestselling author and performance management expert residing in the UK.   Let’s be clear.  The term, performance management, in the minds of many, is simply another euphemism for a systematic approach to HR and Mr. Marr is a consultant who provides these services to his clients.  Thus, we were among the 3,000 or so people who thought Mr. Marr’s views on the need, or lack thereof, for HR to be interesting and poorly conceived, not to mention controversial.

 He points out several things in his article.  First, he attacks the nomenclature by suggesting  that no one could possibly take a department that refers to people as ‘resources’ seriously.  He follows with the notion that HR departments serve two masters; both employees and employers, and that this dual allegiance creates an inherent conflict of interest that underscores the need to do away with HR departments entirely.  I guess that happens after we rename them.

Then he suggests a few alternative ideas including outsourcing non-value adding HR management functions (without telling us what those non-value added items might be) and creating two different internal, non-HR, teams to handle “people issues” including a “people support team” to provide assistance to employees and a “people analytics team” to scientifically analyze and provide information to management on employment gaps, turnover and employee performance.

 That’s all very interesting, but really?  First, we’re not crazy about the “HR” label either, largely because the function has come to encompass so much than the traditional HR functions of recruitment, hiring and performance reviews.  In addition to those traditional responsibilities, onboarding, change management, performance management, compliance and risk control are all part of the daily fabric of HR departments.   So, while we happily agree with the many companies that are abandoning the terminology in favor of more pleasantly descriptive role definitions such as “People Management,” the fact remains that the functions performed by HR and/or their ‘people management’ counterparts are quite necessary for every business of any size.  There is nothing “non-value added” about avoiding a multi-million dollar lawsuit through effective and compliant approaches to day to day workplace dynamics.   Indeed, your house might not burn down tonight, but that doesn’t mean that having homeowner insurance coverage is a bad idea.

 Second, the idea that HR departments should be primarily serving the interests of employees is absolute nonsense.  Any competent HR professional will tell you that his or her function is to serve the employer and that HR is no different than any other department in the company such as sales (where selling the company’s products or services is solely for the benefit of the company) or engineering (where research, design and product development is done solely for the benefit of the company), or finance (where analysis and reporting is done solely for the benefit of the company).  It is true; however, that HR must be instrumental in assuring that the company has an engaged, satisfied and competent workforce ready and able to do the work of the company.  And, certainly it is true that HR must often walk a middle line where service to or for the benefit of employees has the intended end result of benefitting the company.    Happy employees usually stick around.  Companies that have tenured, competent and engaged employee bases are usually those that are most successful in the marketplace.  Thus, happy employees often make happy company owners and investors and there is no conflict of interest there, that we can see.

 Finally, on the subject of “people support” and “people analytics” teams, we wonder how effective people support teams will be when the support they advocate has the result of weakening the company   or, alternatively, how they will be viewed by their constituency base when the company fails to implement recommendations that aren’t appropriately aligned with corporate strategy and goals.  As to people analytics, this seems like nothing more than yet another term for the dreaded HR function to us.

 We do agree that there are certainly advantages to outsourcing some HR functions particularly those that may require expertise not readily available with current HR staff.  Change management programs are often outsourced along with development of training and onboarding programs.  Outsourcing is a growing trend, but outsourcing the entire HR function is not the real answer to the problem.  Ask the CEOs who participated in a recent survey conducted by the Conference Board.  They unequivocally stated that their number one concern is attracting and retaining competent talent and leadership so that they will be able to grow and sustain their companies in the future.   I’m sure that many of them are outsourcing some functions, but I’d be willing to bet they all have effective, engaged and active HR departments.

 Instead of focusing on companies where the HR function is broken or at least not as contributory as it should be, perhaps Mr. Marr and his supporters should start looking at companies where HR is their prize winning department. What is it that they are doing differently?

 Take, for example, Southwest Airlines. Most graduate schools, including Stanford’s Graduate School of Business, have extensively studied the low cost, no frills carrier and the mark it has made on the airline industry. If you do a Google search of Southwest case studies, you will find page after page of white papers on the success of Southwest and how HR plays a major factor in the company’s ability to beat out the competition, even among the legacy carriers such as United and American.  Southwest considers the HR role to be one of the most important elements of its management team and it shows. Year after year, Southwest tops the list of carriers with the best record of on time arrivals and departures while working with a smaller workforce than other carriers.  The reason behind Southwest’s success is a focus on strategic planning and leveraging employees to create a fun, yet productive, work experience that, not incidentally, also makes for a pleasant and fun customer experience while also boosting the bottom line. While the airline doesn’t refer to the department as HR, the roles it plays is the same.

 So, let’s go ahead and meet Mr. Marr halfway and rename HR to something more catchy and up to date.  But, let’s also recognize that while HR it has its share of problems, viewing it as the scapegoat for a company’s issues usually only perpetuates the problem.  Before getting rid of the HR department, check to make sure you aren’t “throwing the baby out with the bathwater.”

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Expense Reimbursements: Are Your Employees Paying to Work?

September 11, 2013

employee expensesHow many times have you walked to your supply room because the printer ran out of paper, only to find that someone else took the last ream and didn’t bother to tell anyone to order more? Chances are you have had to make a run to the local office supply store on occasion, or better yet, you’ve had someone else in the office do it for you. When that happens, who pays the price for the trip?

 Whether they are buying uniforms, picking up random office supplies, or even driving to make the daily bank deposit, it is probably costing at least some of your employees to work.  So, the question becomes whether, when and for what costs employees should be reimbursed by the company. 

 Various internet sites are filled with questions posted by employees as to their “rights” when it comes to being reimbursed for business expenses.  Answers to questions vary, but for most employers the question basically boils down to a review of Fair Labor Standards requirements, state law and current policy statements on the subject.

 Federal Requirements – Minimum Wage Issues

 The Fair Labor Standards Act only requires expense reimbursements for employees when the expense offsets the employee’s hourly wage and results in an effective hourly rate that falls below the minimum wage standard. For example, a delivery driver making $7.25 an hour who is not afforded a company owned vehicle for deliveries, must receive a mileage reimbursement at the rate of at least $ 56.5 cents per mile. However, if that same driver makes $15 per hour and drives 15 miles in the course of a workday, an expense reimbursement is not required as the effective hourly wage (actual wages less calculated mileage) is $13.94 per hour.  For example: ($15 per hour * 8 hours) – (56.5cents per mile * 15 miles) = $13.94 per hour.

 State Requirements

 With only two exceptions, state law is silent on an employer’s obligation to reimburse business related employee expenses.  California requires employers to reimburse their employees for business related expenses; however, Massachusetts only requires mileage reimbursements. California’s covered expenses include, but are not limited to:

 ·         Travel required for making bank deposits,

·         The purchase of supplies,

·         Travel between business sites,

·         Travel required for the delivery of inventory or equipment.

 Best Practices

 Regardless of your business location or state wage and hour law, following best practices in the area of expense reimbursement may mean the difference between attracting/retaining talented employees or increasing other expenses related to high turnover rates. Expense reimbursement policies should detail which expenses are covered, and to what extent. For example, if your policy covers a computer case for those employees who frequently travel, a limit of $100 (or whatever your organization defines as “reasonable”) can be put in place.  Expense policies should include the use of proper documentation, authorization, and an appropriate time requirement for submitting the reimbursement request.

 Policy Considerations

 An expense reimbursement policy does not need to follow a “one size fits all” approach. Depending on the organization’s culture and the individual employee’s business travel or expenditure requirements, the policy can be tailored to fit business needs without causing the organization  undue hardship to the company.   Things to consider include:

 ·         Job responsibilities

·         Employee classification (executive, professional, etc.)

·         Company culture

 Additionally, expense reimbursements can be negotiated at the time of the employment offer. For some employees, reimbursement of out-of-pocket expenses may be an important consideration. For example, an executive level sales position may require a great deal of overnight travel which may require the reimbursement of meals. But, company expense for meals away from home can be limited by imposing a per diem limit.  Other expenses to consider include:

 ·         Cell phone reimbursements – Does the company issue cell phones for work purposes?  If not, what percent of an employee’s cell phone bill is the organization prepared to reimburse?

·         Internet – Which employees work from remote locations?  Is this a requirement of their position? How much of their internet expense is for work and personal use?

·         Travel Upgrades – Does the company want to pay for an upgrade to first class for those employees who spend most of their time traveling to client sites?

·         Personal Equipment – If it is used for work purposes, is the company willing to reimburse the expense of iPads or other personal electronics?  What about app’s that allow the employee to remotely access their computers?

Irrespective of the type of expenses the company is willing to reimburse, and for which employees, the key is to implement a policy that is well thought out and clearly communicated. The best approach in developing an expense reimbursement policy is to solicit feedback from multiple department managers including finance, HR and operations.

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Combining Cultures: Business Sale Success Depends on People

June 17, 2013

new managementThe sale of a business always has implications for the seller and employees of the company being sold.  In some cases, employees will lose their jobs, while in others, they will have a new boss, new policies and procedures to follow, and new expectations.  An owner may have to make the transition from entrepreneur to employee.  The ease or difficulty of making the transition to new roles and reality, depends on the seller’s preparation for the hand-off to the new owner and the new team’s integration strategy.

How Will the Seller Fit In After the Sale?

A seller’s knowledge of his business is often critical to the continued success of the company, and for that reason, the seller’s role after the sale is a significant negotiating factor.  Sellers are kept on to help the new owners reach their goals, but typically without the control they are accustomed to.  It can be frustrating when new management ignores advice or overrules a decision.  Making the mental switch to being employee on a team can be very challenging for an entrepreneur who has had deep involvement with the management of operations, staff and customers.   The best way to overcome the pitfalls of this situation is to negotiate well and be prepared to play by someone else’s rules.   Compensation, vacation time, how long the seller is required to stay on,  revenue goals and decision-making authority should all be addressed in the contract.  Even when the seller believes there is clarity on how he will fit into the new owner’s plans, there are often surprises.    For this reason, a seller may decide not to be part of the transition and accept a lower sales price rather than work for someone else.

What Will Happen to Employees?

Often one of the trickiest aspects of a business sale is what will happen to the company’s employees.  Most business owners realize the professional and personal loyalty they owe to their employees.  After all, the success of the business would not have been possible without their hard work.   As a general rule, employees’ jobs are secure in a small business sale.  Smart buyers know that the ongoing success of and profitability of the business is highly dependent on the company’s employees who typically wear many hats and perform a variety of tasks that ensure operations run smoothly.  Additionally, they are intimate with customers and suppliers and have built solid relationships in these areas that are vital to the competitive advantage of a prosperous business.  A new owner is most likely to keep employees if the seller has taken steps to ensure the company team is working at their highest level even before an owner looks for a sales opportunity.  Lean, efficient operations reduce the likelihood that headcount will be trimmed after a business sale.  Developing a solid management structure that requires accountability will provide the new owner with a team who can make decisions in the absence of the seller.

But when and how to disclose a pending sale to employees can be one of the most difficult decisions a seller must make.  Business owners and experts are divided on the best approach to take when it comes to addressing the subject with employees.   Some assert transparency throughout the process is the wise choice, while others contend that revealing sales intentions to employees will adversely affect the outcome of the sale.  Here is a look at both options.

Keep People Informed

The rationale for this course of action is that the nature of business sales negotiations make it nearly impossible to keep them a secret.  It does not take long for employees to realize that a sale is planned.  Rather than risk rumors which cause a mass exodus, morale problems, distractions which impact productivity, or unnecessary stress on staff, an open-book culture will allay employees’ concerns and keep them engaged in their work.  The likelihood of a successful sale increases if the owner can assure the buyer that the team will remain intact.  Such guarantees are not possible if employees are kept in the dark.  Additionally, an owner can emphasize that consistent high quality work will encourage the new owner to keep staff after the sale. 

Keep Plans Quiet

·        News of a possible sale can cause confusion, anxiety and staff departures.  Sales negotiations are far too volatile and discussing a deal with employees can put them on a roller coaster when things fall apart at the last minute.  The length of time it takes to complete a sale—2 years is not uncommon—can create a long period of uncertainty.  If a large number of employees or key individuals leave during sales negotiations, the buyer may walk away, or the seller may have to accept a lower sales price.  Another risk of disclosing sales plans is that employees may tell customers about it.  Apprehension about the changes may trigger the loss of business at the time when it is most important to keep sales strong.

Successful businesses typically have key employees who would need to stay on to assure a smooth transfer of ownership.  Sharing confidential information with these individuals about the sale is necessary in order to provide assurances to the buyer that the knowledge and skills of these employees will remain with the company, for at least a period of time.  Retaining these employees is a point of negotiation with the seller who can offer bonuses and compensation packages to encourage employees to work for the new owner.  Creative retention plans that provide incentives for employees to stay on through the transition period reduce the risk of declining morale, decreased productivity, loss of employees, and possibly, customers.   The seller must use his best judgment as to the ideal time to bring these employees into the confidence of sales discussions.

Even when the buyer shares his staffing plans during the sales process, the eventual outcome may be different than what was contemplated.  Some employees may lose their jobs, or the new owner may bring in new employees.  It is up to the buyer to manage the integration of all employees into the new culture.  A seller and his employees who continue to work for the new owner should be prepared for change.

This is Part IV of a four part series on selling a business.  Read C3 Advisors’ blog for Part I: Build for the Buyer, Part II: Process Pays and Part II:  Tax Tactics.

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The Cost of NOT Offering Health Insurance to Employees

May 30, 2013


ACA is here to stay, and employers, large and small, are assessing their workforce composition and the obligations or penalties which will kick in next year.  Businesses which are deemed to be small employers under the regulations are breathing a sigh of relief that the burdensome requirements of the new legislation do not apply to them.  Large employers, those employing 50 or more FTEs as defined by the law, are deciding whether to “play or pay”, meaning to offer health insurance or pay an IRS penalty for not doing so.  Whether an employer is exempt from the requirement or calculates that the penalty is less expensive than paying health insurance premiums, the consequences of not offering health insurance can hit the bottom line hard.

Unfortunately, the sensibility of offering health insurance is escaping many employers.  The 2013 Aflac Workforce Report examined issues impacting employee benefits.  As shown by the results below, a gap exists between employer and employee perceptions of the importance of benefits.


Employers believe benefits are extremely or very influential on:

Employees believe benefits are extremely or very influential on:

Job satisfaction – 56%

Job satisfaction – 79%

Loyalty to employer – 50%

Loyalty to employer – 66%

Willingness to refer friends – 39%

Willingness to refer a friend – 54%

Work productivity – 32%

Work productivity – 62%

Decision to leave company — 34%

Decision to leave company – 55%

Read the full study at

Employers who fail to recognize the value that employees place on benefits put their business at a disadvantage for talent attraction and retention.  Losing an employee who defects to a competitor for a more attractive benefit package creates costs which are no less important or real than the costs associated with paying vendors for goods or services.  These are very real costs to the employer, but rarely are they measured because no process is in place to tabulate the costs; such costs are not reported to top management; and many employers view turnover as an inescapable cost of doing business.

Numerous sources provide estimates of the cost to replace an employee.  The range is anywhere from $2,000 to $7,000 for an $8.00 per hour employee, or 30-50% of the annual salary of an entry level employee.  For middle level employees the replacement cost is estimated at 150%, and for specialized, high level employees or management the cost can be as high as 400% of their annual salary.   Consider the direct and indirect costs of hiring a new employee:

Terminating the Departing Employee

Processing a terminated employee includes:

  • ·         Conducting  an exit interview, stopping  payroll, and revoking passwords and other security privileges
  • ·         Processing the various forms needed to terminate an employee and updating personnel records
  • ·         Communicating the termination to the existing staff


Recruiting a Replacement Employee

Finding a replacement for the terminated employee requires:

  • ·         The internal or external recruiter’s time to understand the open position requirements and the desired qualifications
  • ·         Placing and paying for advertisements and job postings for the open position or incurring outsourcing costs for a search firm
  • ·         Conducting interviews, discussing assessments and selecting a finalist. Keep mind the multiples associated with this process                  as generally there are several candidates for a position.
  • ·         Incurring costs of educational, credit, criminal background, and other reference checks

Managing the Vacant Position

The time between the employee’s resignation notice and hiring of a replacement places additional burden on supervisors and staff which includes:

  • ·         Identifying and assessing the status of incomplete or pending work
  • ·         Re-assigning work to other employees, shifting the responsibility to supervisory personnel or hiring a temporary employee.   It may also be necessary to explain and review work assignments more carefully if the work has been assigned to someone who normally does not do it.
  • ·         Following up with customers to communicate change in personnel
  • ·         Assessing the impact on potential loss in sales, production delays or new product introductions

Orientation and Training of the New Employee

Once a new employee is hired, onboarding and training are required to:

  • ·         Add the new person to payroll, establish computer and security passwords, and issue  identification cards
  • ·         Establish an email account, telephone extension, and credit card accounts
  • ·         Assign  equipment such as a desktop, laptop, cell phone, or automobile
  • ·         Train the employee on duties, expectations and responsibilities
  • ·         Integrate the employee into the right team of peers
  • ·         Introduce the employee to the organization and  customers

Impact on Customer Relationships

When a knowledgeable employee leaves, taking experience and customer service ability with him or her, customer relationships can suffer if:

  • ·         The employee takes the customer with him or her to the new employer
  • ·         Customer commitments are not met after the employee leaves because of the intimate knowledge the employee had of a transaction or arrangement
  • ·         Customers become frustrated or annoyed dealing with trainees

Replacing key personnel, such as those with highly technical or industry knowledge or management experience, magnify many of the costs described above.   And the longer a specialized or management position is vacant, the potential harm to a business grows.

In light of the cost to replace an employee, is it a wise decision to not offer health insurance?  It hardly seems so when the actual costs to replace an employee can easily exceed the employer’s share of health insurance premiums.  And if administration costs of a group health plan are a concern, they will only be substituted by the administration of terminating and hiring replacements.  Failing to offer health insurance will not only cause employees to seek benefits elsewhere, but will also place a company at a competitive disadvantage in attracting new talent.  The best and brightest will find the employers with the most attractive benefit package, leaving those who do not with a mediocre workforce.

The complexity of the new healthcare requirements can be overwhelming, especially for an organization which does not have the resources in-house to deal with them.   But working with the right team of experts can assist a business in developing a strategy for managing costs and attracting and retaining the talent needed to support growth and long term viability.  A knowledgeable insurance broker and a healthcare reform consultant can help develop a workforce structure and benefits package to ensure a business has the human capital to meet its goals.

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Balancing Business Strategies: Workforce Realignment Considerations Under ACA

April 30, 2013

ERISA510Like most employers, you’ve probably spent the last several months wading through a sea of information on the Patient Protection and Affordable Care Act (“ACA”). You may have even begun devising a strategic plan that addresses the Employer Shared Responsibility rules released earlier this year by the Department of the Treasury dubbed as the “Play or Pay” provisions.  But just when you think you have it all figured out, there is another set of potential issues to consider before implementing an ACA compliance strategy; the provisions of the Employee Retirement Income Security Act (ERISA).

Most employers are familiar with ERISA when it comes to vested benefits such as retirement plans, but ERISA also applies to non-vested benefit plans including health insurance coverage.  Section 510 of ERISA specifically prohibits certain actions that could interfere with an employee’s attainment of a right to a benefit. The statute provides, in part, that “it shall be unlawful for any person to  . . . .  discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan . . . or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan.”  And, that is where the rub comes in.

ERISA §510 and Workforce Restructuring

In 2014, under the ACA, large employers (those with 50 or more full time equivalent employees) will be required to either offer affordable health coverage to full time employees (classified by ACA as those working 30 or more hours per week) or be subject to a “No Coverage” excise tax as codified in §4980H of the Internal Revenue Code.   The ACA’s mandate is an either/or proposition and this key point should not be overlooked during ACA compliance planning.

Many large employers have indicated that they will consider adopting financial strategies aimed at minimizing their exposure to Play or Pay penalties through workforce realignment initiatives designed to replace full time employees with part time workers and further limit hours worked by part time employees to fewer than 30 hours per week.   This is a strategy that may be particularly attractive to employers with variable, per diem workforces; high turnover and/or lower paid workers.   In certain cases, however,  workforce restructuring efforts may open up ERISA §510 exposure and, as a result, employers considering realignment strategies will want to tread carefully and ensure that their actions to minimize exposure to penalties under the ACA don’t end up creating replacement liability under ERISA.

To bring an action under ERISA §510, an employee is required to demonstrate that his employer interfered with an ERISA guaranteed right to participate in the employer’s health plan.   However, since health benefits are not considered vested for purposes of ERISA, employers are free to periodically modify coverage provided as well as eligibility for benefits under an existing health plan without interfering with rights guaranteed to employees.   Thus, modification of the health plan or modification of an employee’s work requirements does not, in and of itself, constitute a problem under ERISA.    On the other hand, if an employee is eligible for health care benefits under an existing plan and the employer curtails working hours specifically to create ineligibility for attainment of coverage and/or avoid a potential “Play or Pay” penalty, an ERISA complaint may be actionable.

Consider the following examples:   The employer currently offers healthcare coverage to all of its full time employees who work 40 hours per week and their dependents.  Part time employees who work fewer than 40 hours a week are not eligible for coverage.  In 2013, as a means of avoiding the 2014 No Coverage penalty, the employer adopts a workforce realignment plan that effectively reduces the hours for all current non-covered, part time employees to less than 30 hours per week by the close of the year.  Because the employer has not interfered with any part-time employee’s current or attainable right under the employer’s health plan, the realignment action would not be considered an ERISA violation.

On the other hand, if the employer goes further and similarly reduces the hours of full time employees who are either currently covered or who expect to be covered after satisfaction of a plan waiting period, a §510 claim would likely survive because, in this instance, the employer has interfered with a current or attainable benefit under the plan.

Alternatively, consider the employer who has traditionally offered healthcare coverage to all of its employees who work at least 4 days, or 32 hours, per week.  After performing an analysis of anticipated premium increases, the employer concludes that it must limit its offer of coverage to a smaller employee group working at least 40 hours per week because it simply cannot afford to continue benefits for an expanded portion of its workforce.  Thus, the employer modifies the eligibility provisions of the plan to require at least 40 hours per week as the threshold for coverage eligibility and changes other coverage provisions of the plan to reduce the impact of the expected premium increase while also, subsequently, cutting the hours of current employees who work fewer than 40 hours per week, limiting them to no more than 24 hours/3 days per week to avoid exposure to the “Play or Pay” penalties.  In this case, an affected employee who loses hours but who is no longer eligible for coverage due to the changed eligibility requirements would likely have no claim under §510 of ERISA.

In all cases, it is imperative that employers considering realignment strategies that could result in plan changes and/or workforce changes should consult with qualified counsel to determine the risk associated with HR strategies in the face of the ACA requirements.  2013 will be a year of careful planning and analysis of what the ACA means to employers and it is not too soon to start thinking about compliance strategies that will minimize risk as well as financial impact.  And, as always, when dealing with issues related to ERISA rules, consult with qualified counsel.

New Form I-9: Employers Must Use It Now

March 26, 2013



What Is New?

The United States Citizenship and Immigration Services (USCIS) introduced the new Form I-9, on March 8. Employers must use the Form I-9 to verify an employee’s work authorization in the US.  Employers should begin using the new form immediately for all new hires, re-hires and reverification.  The new Form I-9 is a two-page document with seven pages of instructions. The flow and content of the form are similar to the previous version; however, the revision provides additional space and is designed to minimize errors in form completion.  The key revisions to Form I-9 include:

  • Adding data fields, including the employee’s foreign passport information (if applicable) and telephone and e-mail addresses.
  • Improving the form’s instructions.
  • Revising the layout of the form, and expanding the form from one to two pages (not including the form instructions and the List of Acceptable Documents).

USCIS has also revised the Handbook for Employers, Form M-274 to complement the instructions and format of the new Form I-9.

When Must It Be Implemented?

Employers must use the new Form I-9 immediately; however, USCIS recognizes that some employers may need additional time in order to make necessary updates to their business processes to allow for use of the new Form I-9.  Prior Form I-9 versions will no longer be accepted after May 7, 2013. Using prior versions of the Form I-9 after May 7, 2013, will cause the employer to be subject to fines. The new Form I-9 will contain a revision date of 03/08/13. The revision date is located on the bottom left-hand corner of the form.

Employers should use the implementation of the new form as an opportunity to ensure that company policies and procedures are current and compliant. Best practices include a written policy regarding Form I-9 rules and procedures, yearly audits and training, and appointing and I-9 czar for your company.

What Are the Penalties?

I-9 inspections by the government are at an all-time high.  The number of I-9 audits multiplied over the past decade, rising from almost none—just three in 2004—to 500 in 2008 and 3,004 in 2012.   For knowing violations, penalties range from $375-$16,000 per offense.   For paperwork violations, the fines range from $110 to $1,100 per violation.

Where To Get More Information?

The new form can be found at in English and Spanish (for use in Puerto Rico only).  To order USCIS forms, employers can call a toll-free number (1-800-870-3676).  In addition, there are several free webinars hosted by USCIS covering completion and implementation of the new form. The dates and times of the webinars are located on the I-9 Central portal


Is Your Business Affected by “Blackberry Overtime?”

February 26, 2013

BlackberryWith a glance around the office (or anywhere else, for that matter) one quickly realizes that it is easier to count the number of people without smart phones than it is to count those who use one. A PEW internet survey reported that more than 45% of all adults in the United States are smart phone owners. That number jumps to more than 66% among adults between the ages of 18 and 29. Smart phones are here to stay, and so, perhaps, are the problems that they pose for businesses.

No one could have predicted in 1992, when the first PDA functions were combined with cellular phones, that the rate of FLSA lawsuits would be heavily impacted by the new technological changes on the horizon. Since then, the release of the Blackberry, iPhone and other smartphones has cost employers thousands of dollars in overtime pay and legal fees under the Fair Labor Standards Act (FLSA); a law that has gone relatively unchanged over the past 75 years.

In 1993 there were 1,457 wage and hour lawsuits filed under the FLSA. Compare that to the record breaking 7,064 lawsuits filed in 2012. The vast majority of these lawsuits are the result of misclassification of employees and the failure to pay overtime.  One reason cited for the large increase is the use of smartphones to increase employee productivity, but that increase has come at a price for many employers. Employees complain that the lines between work and personal time have become blurred. They are now expected to work evenings, weekends and even while on vacation without being compensated for their time; a practice that has not gone unnoticed.

An employee of the Chicago Police Department’s (CPD) Bureau of Organized Crime, Jeffrey Allen, filed a FLSA complaint for unpaid overtime that was the direct result of “Blackberry overtime” while off duty. Allen alleges that he would receive e-mails and one to two calls per day while he was off duty. Due to the nature of his job, these calls and e-mails were not ones that could go unanswered yet the time he spent on them went uncompensated. While the suit was initially filed in 2010, the US District Court (Northern District of Illinois’ Eastern Division) recently allowed Allen to send notice to participate in a class action to other similarly situated employees (those with the rank of Lieutenant and below).

New technologies will continue to change how we work and operate businesses. There are those who debate whether or not the FLSA is an outdated law, but until it changes, the law stands. So what can employers do to protect themselves?

Exempt or Non-exempt Classification

The first course of action is to ensure that all employees are correctly classified as exempt or non-exempt. The FLSA has certain criteria that must be met in order to make these determinations. Each employee should be aware of their classification and understand what that status means in terms of hours worked and their compensation. For those employees who are non-exempt, employers must ensure time tracking processes are firmly in place.

Unauthorized Overtime Policies

Many employers have policies in place to deter employees from working overtime without prior authorization. While the FLSA is clear that all overtime, regardless of authorization, must be paid to any and all non-exempt employees, employers can use these policies to help curb overtime abuse. Organizations that adopt these policies are legally permitted to take disciplinary action including suspension and termination. As in any case of disciplinary action, it is important that the company  implement a consistent and progressive disciplinary process.

For more information regarding FLSA classification or overtime policies, contact C3 Advisors, LLC at