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Monthly Archives

September 2012

THE COST OF NOT HAVING EMPLOYMENT PRACTICE LIABILITY INSURANCE

By Your Employee Matters | No Comments

According to insurance industry estimates, fewer than 50% of companies carry EPLI — and the smaller the employer, the lower the percentage. Although the cost of coverage varies, a $1 million policy with a $5,000 deductible usually costs from $50 to $250 a year per employee. When you think about obtaining EPLI, weigh the cost of this protection against the likelihood of a claim, settlement, verdict, etc.

Check out the cost figures on claims, derived from Jury Verdict Research and other sources:

  • Median award (2004-2010:) $199,600
  • Mean award (2004-2010): $632,589
  • Median settlement (2004-2010): $85,000
  • Mean settlement (2004-2010): $515,816
  • Nearly two in four plaintiffs’ verdict (39%) ranged from $100,000 to $500,000 range; 12% of verdicts were $1 million or more. Note: Verdicts tend to be higher in state cases than in federal ones.
  • Legal fees, stress, additional exposures, etc. — a minimum of $25,000 per claim and going up from there.
  • Loss of pre-claim non-productivity due to the fear of not letting a poor performer go because you might get sued — hard to quantify.
  • Impact on the company’s loss of reputation among all stakeholders — priceless.

Note: The mean is the arithmetical average of a group of scores. The mean is sensitive to extreme scores when population samples are small. Means are often used with samples of larger sizes. The median is the middle score in a list of scores; it’s the point at which half the scores are higher and half the scores are lower. Because medians are less sensitive to extreme scores, they’re probably a better indicator with smaller samples.

That’s the potential exposure. What’s the potential of getting hit with it? According to CNA, an employer is more likely to face an EPLI claim than a Property or General Liability claim. Almost 75% of litigation against corporations involves employment disputes. Nearly 100,000 sector charges were filed in 2011 against private employers under EEOC statutes, leading to more than $450 million in settlements and charges. This does not include statistically-based claims or settlements that never see the EEOC, state agency or courtroom. More than 40% of Employment Practices claims are filed against companies with 15-100 employees.

Doing some rough math, there are about 6 million companies in the U.S. Although many of these firms are too small to bother suing, some 2.5 million businesses have 15 or more employees. My experience tells me that tripling the number of EEOC claims give a fairly realistic number of total claims filed. Dividing 2.5 million companies by 300,000 claims comes to roughly a one in eight chance of experiencing a claim during a given year — which means the firm can expect to face at least one employment-related claim over an eight-year period (of course, this probability depends on the size of the company, location, compliance practices, culture, etc.).

By purchasing EPLI, you not only cap your risk at $5,000 to $10,000 a year, but you allow yourself the freedom to let go of poor performers without the threat of litigation. Let’s say a 50-person company pays $7,200 a year (an average of $120 per employee) for EPLI coverage. Over an eight-year period, this comes to a total cost of $57,600, plus the time value of those dollars. The chances are that the company will face a claim at some time during those eight years, which will cost an average of $85,000 just to settle, plus another $25,000 in legal fees, for a total of $110,000 (see the average premium cost and settlement figures above). You’d still come out $52,400 ahead — not to mention eliminating the hassle. If the case goes to verdict, those numbers can easily triple. Bear in mind that there is no way you can amortize this expense! Of course, you might easily face more than one claim during the policy term.

The bottom line: Not getting EPLI is a gamble that could significantly impact or even wipe out your cash flow at any time.

If you’re interested in a checklist for purchasing EPLI, please contact me at don@hrthatworks.com.

GETTING COMMISSIONS AGREEMENTS RIGHT

By Your Employee Matters | No Comments

A recent California case, DeLeon v. Verizon Wireless, involved an attack on the company’s commission program for alleged violation of a labor code section that prohibits the secret underpayment of wages. Basically, the complaint was that the Verizon employees who were paid both a wage and a commission should not have been charged back against those commissions for customers who did not fulfill their agreements.

Verizon prevailed for these reasons:

  1. The commission was clearly defined as such, and the employees already received a wage that satisfied minimum wage standards.
  2. Employees knew that the commissions were not final until the customer completed their contract period, and that anything paid was considered an advance on commissions.
  3. Employees underwent training which included the chargeback feature.
  4. The court reminded employees that “the essence of an advance is that at the time of payment the employer cannot determine whether the commission will eventually be earned because a condition to the employee’s right to the commission has yet to occur or its occurrence as yet is otherwise unascertainable.” In this case, an advance was not a wage because all conditions for performance have not been satisfied.
  5. The court reminded employers that a chargeback based on “unidentified returns” from the wages of all sale associates violates the law. There are also cases in which the employee cannot be charged with business losses i.e. work comp claims, theft, etc.

Settling commission claims can be costly — so get the agreement right!

INSPIRED HR: AN ‘INSIDE-OUT’ OPPORTUNITY

By Your Employee Matters | No Comments

Because so few companies have inspired HR practices, those that do enjoy an enormous competitive advantage. Unfortunately, all too many businesses don’t take advantage of this opportunity. Here’s why:

  1. Cultivating great HR practices must be an “inside-out” job. I’ve reached this conclusion after coaching and working with hundreds of HR executives over the years. Those who believe, achieve. There are a number of reasons why someone might not believe that they’re capable of producing great HR practices:
    • They don’t have the skill set. If that’s the case, they can learn one critical aspect of HR at a time and implement this expertise. Most people can only do things one step at a time anyway.
    • They don’t feel they have the time it takes to improve HR practices. The solution is to make the time. Great HR practices offer a cost-effective return on investment. I advise HR executives to save at least five hours a week by outsourcing or delegating these activities, so they can in turn devote this time to strategic activities.
    • They don’t believe they have the support of top management. When it comes to business owners, nothing is more important than demonstrating the potential ROI of good HR practices. This is why we’ve created the HR Cost Calculator. I start my CEO workshops with an hour-long review of this form so that participants understand the math surrounding their HR practices.
  2. Private companies, unlike their publicly held counterparts, aren’t required to have anything but basic compliance. There’s no Board of Directors demanding that they get their HR act together; as a result, most privately-held firms do little or no real HR.
  3. HR professionals don’t get managers on their side. Begin by surveying them. HR That Works members can use the HR Department Survey to have managers rank specific practices and comment on opportunities for improvement.
  4. Failing to educate everyone in the company about the opportunities that a good HR program offers them. Learn to let people know the progress you’ve made every month and how this impacts best practices and the bottom line. Show that your HR practices are better than those of the competition.

SOCIAL MEDIA BACKGROUND CHECKS MAKE SENSE

By Your Employee Matters | No Comments

There’s been plenty of HR press about the use of social media in doing background checks on job applicants. Some attorneys have gone so far as to recommend that employers should ignore social media completely. I think that’s poor advice. If people are willing to do stupid things on their social media sites, they’ll be just as willing to do stupid things when working for you. According to a Career Builder/Harris Interactive survey, more than one in three employers rejected job candidates because of their social media activity. The four top reasons were that candidates: 1) Had posted inappropriate photos or information, 2) showed evidence of drinking or drug use, 3) demonstrated poor communication skills, or 4) badmouthed a previous employer.

Risk management is not about eliminating risk. As Walter Olson once stated, “There’s no such thing as the golden shore of legal compliance.” Ask yourself: Which is the greater risk — facing a potential discrimination claim because they showed one of the bad behaviors discussed above, or hiring them and allowing them to damage your company? You get the idea of where I think the real risk lies. The bottom line: Don’t hire a candidate until you learn everything you legally can about them.

WHO’S REALLY SUPPORTING THE ECONOMY?

By Your Employee Matters | No Comments

According to a report from ADP, the companies that we help with HR That Works usually have fewer than 500 employees — a size category that produce 97% of the jobs added in the private sector during April 2012! Although most of these companies intend to maintain their current level of employment, 31% expect to add more workers, compared with only 13% that expect to reduce their head count.

Interestingly, according to a Simply Hired survey, 39% of college graduates would prefer to work for a small or medium-sized business (compared with 27% at a large corporation, 19% in the public sector, 11% for nonprofits, and 4% with a start -up). The respondents see job security as their No. 1 priority (33%) followed by salary (23%), benefits (23%), and company culture (18%).

The Catch-22 is that smaller companies often offer less job security, benefits, and salary. Looks like the greatest opportunity then is to focus on building a great culture!

EDITOR’S COLUMN: WHERE’S YOUR HR ‘EDGE’?

By Your Employee Matters | No Comments

Where’s your edge? This is the question Sounds True founder, Tami Simon, asks her New Age guests. Their answer is usually the most interesting part of the interview.

So I ask you the same question. What are you doing in HR at your company that excites you? What are you doing that’s cool, different, outrageous, experimental, and otherwise, really edgy?

If your answer is silence, you have a serious problem. What do you think will happen if your competition is focused on creating an “edge” and you’re not? Kind of like Southwest Airlines vs. American, United, etc.

Pushing for the edge helps keep us going here at HR That Works. Sure we focus on doing the HR blocking and tackling as well as we can — but we also want to make sure that our clients keep looking for their edge. For example, what if you distributed the Creativity Checklist and Employee Suggestion forms to your entire workforce? I’ll bet that you can discover a lot of edge lying dormant at your company. Trust me. Just do it. One good idea can more than repay your investment in HR That Works for years to come! It can also do wonders for your career.

Here’s what we’re doing to build our edge at HR That Works:

  • We recently produced the Job Security Program and book. You can find it in the Training Modules. There’s a lack of literature or programs on how to be a great employee. This program fills that void. I would encourage you to allow all your employees to spend the 90 minutes it takes to watch the program — and then task them to complete the exercises in the book.
  • We’ve released the Time Management Program, a project that was years in the making. We did the Webinar months ago, got great feedback from our Members, and have produced a program that I believe all your employees and executives should watch. In today’s “squeezed” economy, time is your most precious asset.
  • We’ve upgraded our website and are revamping our social media platforms to be managed by a new partner. We realized that although we knew what we wanted to do with social media, we just weren’t implementing it fast enough. So we brought on third-party experts to do the job for us. If your social media platform is in the same spot we were in, using a third party can help take you to the edge.
  • We’re providing cutting-edge Webinars. We’ll continue to push the edge with who we bring in to help educate you on growing your managers and company. HR is not, and should not, be viewed primarily as a way to avoid getting sued. We’re convinced that cultivating great employee relationships and a high level of trust helps minimize lawsuits. Last year we did 20 excellent webinars that you can now watch at any time. We’ll produce an equal number this year — giving us a library of more than 100 great stored webinars
  • We’ve upgraded site navigation. By now, you’ve been able to view the latest version of HR That Works. We’ve added the ability to attach documents to the audits, quizzes, and surveys. We’ll also be making it easier to upload your own documents to the SharePoint portal.

I could go on, but that’s plenty for now. I encourage you to keep asking yourself, “Where’s my edge?” To compete in today’s crazy business environment, you need to be creative, proactive, and ahead of the curve. Playing catch-up will guarantee the failure of your business — and your career.

TERM LIFE, ANYONE?

By Life and Health | No Comments

If you’re looking for a cost-effective way to help provide financial security for your loved ones after you pass on, Term Life insurance might well be your best bet. Here’s how it works: You take out a policy on your life for a fixed “term” or number of years. The other major type of Life coverage, Permanent or Whole Life, remains in force as long as the policyholder lives.

The amount of coverage or death benefit depends on your personal situation (age, marital status, and number of dependents) and financial circumstances (income, short-term debt, home mortgage, etc.). You should choose an amount that will replace your lost income and pay down debt for your survivors.

Before writing a Term Life policy, the insurance company will probably require you to pass a medical examination. The test results will affect your policy premium — such factors as smoking, obesity, and hypertension lead to higher rates. As a rule of thumb, the younger you are, the lower your annual rate.

If you have a health condition that keeps you from buying regular Term Life, you might prefer to buy “guaranteed issue” or “quick issue” coverage, which does not require a physical. However, in this case, the insurance company will protect itself against the increased risk of covering you by charging a higher premium and perhaps setting a yearly fee.

Term Life premiums either go up every year or can be set at a fixed rate (“level premium”).

The professionals at our agency will be happy to provide a review of your situation and recommend Term Life coverage tailored to your needs.

HMO, PPO, AND POS — PROS AND CONS

By Life and Health | No Comments

When choosing a Health insurance program, it’s all too easy to drown in an alphabet soup of acronyms — everything from ACOs (Accountable Care Organizations) to WHRN (Whole Health Resources Networks). However, the three most common types of managed health care plans are Health Maintenance Organizations (HMOs), Preferred Provider Plans (PPOs), and POS (Point of Service plans). Here’s an overview of how each type works, together with their advantages and disadvantages.

Health Maintenance Organizations. An HMO offers a “provider network” of health services professionals (physicians, nurses, therapists, etc.) and facilities (hospitals, clinics, medical offices, and so forth). A primary care physician (PCP) will act as a “gatekeeper” who will evaluate your health and recommend referrals to specialists, as needed.

As a rule, premiums and co-pays are relatively low, saving you money. On the downside, HMOs offer limited, if any, flexibility for services outside the plan. If your current physician isn’t in the HMO, you’ll have to pay for his or her services, or select another PCP who does participate in the plan. Also, if you use a provider outside the network, you’ll have to pay out of pocket.

Preferred Provider Organizations. Like HMOs, PPOs operate through a network of health care providers and institutions, and set relatively low co-payments for medical treatment. However, unlike HMOs, they’ll pick up the tab for many (although not all) medical services outside the network. What’s more, you can see specialists who participate in the network without going through your primary care physician.

Of course, you’ll pay a relatively high premium for enjoying this added flexibility. Also, if you get treatment outside the PPO, you’ll have to pick up a deductible or the difference between the charges of the plan provider and those of the out-of -network specialist.

Point of Service Plans. This option combines elements of HMOs and PPOs. A POS plan focuses on a primary care physician participating in the plan who monitors your health care at the “point of service” and recommend referrals either inside or outside the network. In the former case, the PPO will file a claim with your Health insurance company, which will pick up the tab for a high percentage of the charges; in the latter, you’ll have to do the paperwork yourself and your reimbursement will be far lower. If you see a specialist without going through your PCP, the insurer will pay even less.

As a rule of thumb, a POS offer more flexibility than an HMO and less than a PPO.

The Bottom Line. HMO, PPO, or POS — which will provide the best value for your health-care dollar? That depends on your needs and life situation. Our professionals stand ready to offer you their expert advice. Just give us a call.

HELPFUL IDEAS ABOUT HEALTH CARE

By Life and Health | No Comments

It’s a fact: Americans are living longer and healthier lives than ever. However, good health doesn’t eliminate the need for health care. Too expensive you say? There are many ways to save dollars on Health Care insurance. For example:

  • Take advantage of free educational programs offered by local hospitals, agencies, and educators. The more you know about health-related issues, the easier it is to make decisions.
  • Establish a solid relationship with your primary care physician. This should improve the quality of your care because the doctor will recognize your unique medical needs. Although going to an emergency clinic for routine care might seem easier, you’ll pay more for the convenience.
  • Select a higher deductible to reduce your policy premiums. Review the medical costs you’ve paid during the past couple of years, including insurance premiums, deductibles and co-pays, and other expenses not covered by insurance. Many people choose a lower deductible without examining their medical history — assuming that because their insurance will pay at the time of a claim, they’ll save money. However, this doesn’t hold true in all cases. In fact, you might benefit by selecting a higher deductible and paying smaller claims out of pocket.
  • Make healthy lifestyle choices. Such basic decisions such as not smoking and exercising regularly will save you money, as well as making you healthier. Regular exercise can reduce high blood pressure.

The better your health, the less you’ll pay for Health insurance.

PROTECTING YOUR JEWELRY

By Personal Perspective | No Comments

You’ve spent hours, days or even weeks, making your jewelry choices — not to mention paying thousands of dollars on your final purchase — so why fall short when it comes to finding the right coverage for your jewels? Getting the appropriate protection is easy; you just need to understand what your Homeowners insurance will cover.

The standard HO-3 policy provides only $1,000 worth of coverage for a single item of jewelry and $1,500 for your entire collection. For example, if you lost your $6,500 engagement ring, a pair of $500 earrings ,and a $1,000 class ring, you would receive a reimbursement of only $1,000, not the actual value of $8,000. So be sure you’re protected by extra insurance. The cost is minimal compared to the risk of losing expensive jewelry and being unable to replace it.

You might consider a stand-alone policy that offers broader coverage than the typical Homeowners policy. For instance, it covers “mysterious disappearance” (when you lose jewelry and have no clue where it went); and “pairs and sets” (which buys you a new set of earrings even if you lost only one).

If you have highly valuable items of jewelry, you might also take out a “rider”(separate coverage) on them. Keep in mind that, to obtain additional coverage, your insurance company will require you to have a professional appraisal to set an objective value for your property, which might be significantly higher or lower than what you think it’s worth!

For more information on insuring your valued jewelry, please feel free to get in touch with our insurance professionals.