Article Index:
Top 10 HR Mistakes


The contents of this document are for informational purposes only. Nothing in this document is intended to be legal advice, nor should it be relied upon as legal advice. Please seek the assistance of your legal or other professional advisors regarding any particular questions or concerns that you have regarding the subject matter of this document.

Top 10 HR Mistakes
What you don’t know about HR can Co$t you

Large or small, every company can fall into bad habits. Getting sloppy about paperwork or not staying up to date on compliance can get a company into a great deal of trouble. The following areas in Human Resources can, and have, cost employers large sums of money. Money in fines, back pay or other required employment actions. It is important to note that industries, size of employer, geographic location and other factors impact the following and if, after reading this document you believe your business may be at risk, consult with an expert. KM Consulting Group has worked with many businesses on an individual basis to ensure Human Resources practices are in compliance.

One of the most common omissions found when conducting compliance reviews for businesses are mistakes in the correct completion of the I9 forms when hiring. Following are some of the most common gaps:

  • Asking the new hire to complete Section 2 which is the employer’s responsibility
  • Attaching copies of documents but not writing the information in Section 2
  • Failing to sign the I9 acknowledging that the information has been verified
  • Use of outdated forms – the most recent was issued in 2013

Incorrect or incomplete information on I9 forms can result in paperwork violations in the event of an audit. Paperwork violations can run anywhere from $100 and up depending on the type of violation, with failure to inspect the documents being a more serious violation. These fines can add up.

In addition, maintaining your I9 forms inside the employee personnel file opens the door to inspection of every document the auditor has to sift through when doing an I9 audit. Keep your I9 forms in a separate folder – alphabetical or by hire date.

I9 forms must be retained for the later of 3 years after date of hire or one year after termination of employment.

Third party background investigations are governed by the Fair Credit Reporting Act. A release, separate and distinct from the employment application must be obtained prior to conducting any 3rd party background check, criminal history check or credit check. In addition, should information from the 3rd party background check cause an applicant to no longer be considered, there is an established process for informing the applicant and allowing them to correct any incorrect information. Many employers have a break down in either failing to obtain the proper release from the candidate or in executing the appeals process in the proper manner.

In addition the use of Credit Background and Criminal Convictions has been a key focus of the Equal Employment Opportunity Commission. Any information obtained in a background check should be considered as part of a whole review of the candidate including qualifications, education, training, experience, etc. Choosing to eliminate candidates based on one criterion could expose your business to discrimination complaints.

For most employers, deductions from an employee’s paycheck are fairly straight forward. Take statutory deductions, authorized deductions for benefits and court ordered deductions. Those are all pretty safe bets. However, what happens when you want to take additional money from a paycheck? For example: Let’s say your hourly employees can drive a company vehicle to meet with customers and your handbook says that any accident or damage to the vehicle is the employee’s responsibility. Makes sense, right? Your employee crashes your brand new delivery truck; they should pay for the damage. Not so fast - under both the FLSA and most states laws this is a “cost of doing business” and you may not deduct damages from wages. This is a performance issue – you cannot recover the money from the employee. Be sure to check your individual State and Local regulations for details on what is a permissible wage deduction. Additionally, even if the deduction is permissible you may not reduce an employee’s salary below minimum wage by taking that deduction.

There are advantages to employers in being able to classify an employee as exempt: flexible scheduling, no time tracking and no overtime pay. However, as the old saying goes “you can’t have your cake and eat it too” – you can’t treat an employee as exempt for overtime and nonexempt for under time. So, no docking hours if that exempt employee comes in late or leaves early, and no docking days except under very specific limited circumstances.

Examples of improper deductions can include:

  • Partial day absence to close on a house
  • Full day deduction because the employer closed due to inclement weather
  • Any absence where the employee was ill and the employer does not offer wage replacement benefits for illness (sick pay).
  • Deductions for damage to or loss of company equipment

Whether you call it a pay advance or an outright loan, many employers loan money to employees. This can cause all sorts of issues - from putting a strain on the working relationship, creating a perception of favoritism and ultimately inability to collect the loan. However, if you are determined to help out an employee, do your homework. Make sure you have a signed agreement which outlines how you will be repaid. Make sure it has a provision for loan collection in the event of termination or resignation of employment. As covered in Mistake #3 and Mistake #4– you may not just deduct an unpaid balance from final pay, particularly if that would violate minimum wage law or exempt status. Bottom line – proceed with caution if you intend to loan money to employees.

It may be more convenient to hire people as independent contractors, but treating an independent contractor like an employee will set you up for some significant risk. There are substantial differences between independent contractor classification and employees. Here are some examples from the Small Business Administration that should help identify when to put someone on the payroll.

An Independent Contractor:

  • Operates under a business name
  • Has his/her own employees
  • Maintains a separate business checking account
  • Advertises his/her business' services
  • Invoices for work completed
  • Has more than one client
  • Has own tools and sets own hours
  • Keeps business records

An Employee:

  • Performs duties dictated or controlled by others
  • Is given training for work to be done
  • Works for only one employer

Even if you have a contract that the contractor has signed which states independent contractor status it will not stand up if the actions outlined above are not followed. Further information on the eleven factor test for Independent Contractor status can be found at the IRS web site:

Having a probationary period as part of the employment arrangement can erode the “at-will” nature of employment. In essence, there are no advantages to an employer for probationary periods. If you are in an “at-will” state, employment may be terminated for any reason that is not illegal or discriminatory at any time. In fact, you risk negating the ability to terminate at will with your probationary provisions.

Many employers are under the mistaken impression that having a probationary period has a benefit in the event of an Unemployment Insurance claim. Probationary periods have no significance in unemployment claims and can actually mislead an employer into a false sense of security if they think that a probationary period will insulate the company from such claims. The UI law does not care how long someone worked for a particular employer prior to filing a UI claim.

It seems pretty simple, your employee worked a trade show on the weekend and you just give that person a day off sometime in the future instead of paying them overtime. Both you and the employee are perfectly happy with this arrangement, so what can go wrong? Under the Fair Labor Standards Act, giving non-exempt employees time off in lieu of payment of overtime is a violation of the law. If an employee works in excess of 40 hours during a “work week”, that employee is entitle to 1.5 their regular hourly rate as overtime pay. Work week is not the same as pay period unless you pay your employees on a weekly basis. Therefore a company that pays biweekly or semi-monthly and fails to look at hours worked in each individual week runs the risk of not paying overtime correctly. In addition, many state laws have more favorable overtime regulations than FLSA. Check individual local and state regulations for information on your state.

The Fair Labor Standards Act governs the definition of whether a position is exempt from overtime or nonexempt from overtime. To qualify for exemption, positions must pass three tests: job duties, salary level, and salary basis. Job titles do not determine exempt status. All three requirements must be met in order to qualify for exemption. In other words, you must prove the position is exempt or you should pay overtime.

Mistakes in this area can be very costly, including up to 2 years back overtime wages for positions that are misclassified plus interest and possible damages if assessed by the investigator. This is one area where businesses should use an expert who knows the details of FLSA. It isn’t something that should be left to anyone without the appropriate expertise.

Bottom line on employee classification is “when in doubt, pay overtime”.

Letting an employee go because of serious performance issues is never easy. However, if everything has been done to allow the person to succeed and improve, the discussion should not be a surprise. Thinking that moving someone to another position or department will avoid a law suit or unemployment claim is very short term thinking. At the very least, you now have a very disgruntled employee in a new position and will need to start over on any performance documentation; at the worst you have an angry saboteur who can alienate clients, poison other employees and still has access to internal documents. Demoting isn’t the kind, thoughtful solution most employers think it is – letting the person go so they can find a better fit and move past issues with their current employer is actually a better solution.

Case in Point – Over the course of a year, Joyce has been counseled regarding missing deadlines; incomplete work and problems working with coworkers. Nothing changed and the employer is at the point of termination. Instead of making the tough decision and terminating Joyce, she was given the option of termination or accepting a demotion. Joyce took the demotion and used the next couple of weeks to copy files, emails and other confidential documents on the company server. Then, Joyce simply stopped showing up to work. The employer treated it as a resignation and moved on. Not too long after Joyce left, the business owner began getting complaints from customers about being contacted, and harassed by this former employee. Copied documents and emails ended up on Facebook and in the hands of competitors. This decision to allow Joyce to remain in the organization at a reduced position ultimately created a PR nightmare for this business owner.

Bottom line is – never choose demotion as a solution for performance issues. You leave yourself open to having an angry employee inside your organization. Firing someone will certainly make them angry, but the employee can get over it and move on. Demoting someone and having them continue to report back to that same office day after day doesn’t allow the person to move on to something else. And, while it looks like you are being compassionate, it really isn’t the best alternative for someone who doesn’t fit.

Each of these situations can cause compliance issues for a business owner. Every employer is different and unless you are well-versed in the differences both at the state and federal law level, consulting an expert is always the best alternative. This document is intended to be broad and applicable to a wide variety of industries and work environments. Regulations may vary based on state laws, company size, industry, organizational culture and other factors. The information is not all inclusive and should not be considered legal advice and does not reflect all state or federal laws and regulations.

KM Consulting Group has been in the business of providing creative and comprehensive, turn-key human resources expertise to small and mid-size companies for over 10 years.

KMCG specializes in filling the gap for companies with no Human Resources function or a limited Human Resources function. Outsource all of your HR work to us or call us in on a project basis. KMCG specializes in bringing expertise to clients in the broadest range of the company’s people needs and in creating efficient, innovative processes that are vital to organization effectiveness and growth.

President Kathy Meyer brings 30+ years of experience in Human Resources as a consultant and corporate Human Resources executive. She has been called upon as an expert witness in Human Resources matters and regularly contributes to various industry publications.

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