Salary and Wages - Part 3

How should we pay our employees?  Obviously with money, but I meant, should we compensate them hourly or give them a salary?   Let’s define both very briefly first. 

An hourly employee is compensated for the hours that he has worked.  A salaried employee, on the other hand, has a fixed pay, typically paid on a monthly or bi-weekly basis. 

When considering who should be paid based on salary or wage, you should consider who is entitled to overtime.  As a general rule, everyone is entitled to overtime, even salaried employees, but, there are certain employees who are exempt from overtime. 

Here are the steps in determining how you should compensate your employees:

Step 1:  Classify your employee.  First you have to determine your employee’s primary role.   The role of your employee will determine whether he is exempt from overtime or not.  Just calling your employee a manager does not mean he is a manager if he doesn’t manage anyone. 

Step 2:  Determine if the employee is exempt from overtime. To do this, you have to look up your state’s labor laws.  If you need help with this, please send me a message. 

Step 3:  Decide on how you will compensate your employees.  If your employee is exempt from overtime then I would suggest making him a salaried employee.  If he is not exempt, it is better to pay him by the hour.

Recently, I have to evaluate an employee who has been working for me for a year and had to decide whether to pay him salary or wage.   

My first step, I defined his role.  He started off as a picker/packer and is now supervising a team of four members in the night shift crew.  He is responsible for training and managing the team.  He has input on who to hire and who to terminate. 

My second step, I referred to the list of employees who are exempt from overtime.  According to New York State Labor Law an executive employee is exempt from overtime.  An executive employee is one who customarily and regularly directs two or more other employees.  Has the authority or suggest and recommend as to hiring and firing, and customarily and regularly exercise discretionary powers. 

My final step, I determined if my employee is exempt from overtime.  In my case, my employee falls into this exemption as defined in Step 2. 

This is a very simple procedure.   For more information on compensating your employees, refer to the Federal Labor Standard Act (FLSA).   The FLSA is a federal act.  To complete your homework, you will also have to check your state’s labor laws. 

As always, if you have any questions, please leave a comment. 

Handling Salary and Wages - Part 2

In my last post we talked about the nightmare that my father went through by not properly protecting himself when it comes to payroll. As promised from last week, I will share with you what are the best practices in recording employees' hours, wages, and salary. Before getting into that, here are some things that you definitely should not do:

1. Be Lazy - Do not treat an hourly employee as if he were a salaried employee. This is where a business owner is being lazy. The business owner does not want to go through the hassle of recording the employee's hours, instead he just pays the employee a set amount per week
2. Be Stingy - Don't be stingy and not pay the first hour of overtime. Some employers do this so that employees will think twice before clocking in overtime. If they go over, they do not get paid that 41st hour of work. The problem is, this is illegal and could get you into big trouble.
3. Be Old-Fashioned - Stop using paper punch card systems. There are many cloud-based solutions now, and the market is full of good options. You can find a vendor who can offer it at a very reasonable price. 

The previous point above leads us to the best practice of recording employees' hours and wages. The answer is simple: use a cloud-based time clock. In today's world, it is very easy. There are tons of cloud-based time clocks on the market. The options are many, including having your employees punch in at a desktop, kiosk, cash register, a time clock, a tablet, or even on their phone. Since there are so many cloud-based time clocks in the market, it is up to you to decide what type of system works best for you and what falls within your budget.

While doing your research, keep in mind that each vendor offers different features. There are time clock vendors that just cover your bare minimum of recording when employees clock in and clock out. Then there are other ones that are very sophisticated with biometric scanners, can track vacation and sick days, statistics on employee's lateness, and even lock out employees from punching in late or punching out early.

If you need help with picking out a time clock vendor, feel free to send me a message and I can point you in the right direction.

Next week, I will cover the difference between an hourly and a salaried employee.

Handling Hourly Wages, Salary and Overtime Rates (Part I)

          

Wages, salary, and overtime rates are all expenses that we have to keep an eye on. Not only is it probably one of our highest expenses, but it also has legal implications attached to it. If not handled properly, you, as the business owner, can be personally liable for it (regardless of how your company is set up). In other words, even if you dissolve your corporation, your obligation to pay your employees will not be discharged due to the dissolution of your business. You will be personally liable for it. Furthermore, not only will you be obligated to pay your employees, the IRS will start an investigation to see if you owe any unpaid taxes.

Here is a nightmare experience I’ll share with you that happened to my father’s business while I was in law school, and before I was involved. My father recorded employees’ hours with a primitive paper-card-punch system. Anyone and everyone had access to the punch cards. At the end of each week my father would spend hours tallying up everyone’s hours. On payday he would issue everyone’s pay, half in the form of a check and the other half in cash, the way the employees requested it. This was a can of worms that was about to burst wide open, and it did.

A disgruntled employee went to the Department of Labor (“DOL”) and claimed that he had never received the cash portion of his pay. Other employees then knew that DOL had begun investigating the business and decided to be destructive. They started to break things in the business and purposely wreck some of the company’s assets, such as our cargo vans. All the while, my father’s hands were tied. He needed to contain the situation. And containing the situation meant he couldn’t fire anyone.

All of this could have been prevented if proper procedure had been followed. Want to find out what the proper procedures are and avoid creating a similar nightmare?  Tune in next week when I cover best practices in managing hourly wages, salary, and overtime rates.

Delegating Tasks

Delegating tasks: Where do we start?, Whom do we trust? How do we do it? Delegating may sound simple, but when it comes down to doing, it proves to be complicated.  Have you ever been asked, “Why don’t you just delegate it to someone else?” as if we didn’t realize this was an option and just love doing all the work ourselves. We all know this is far from the truth.

This week I met up with an Apple Certified Mac Expert, Peter. Peter is my go-to Mac expert who also has become a friend.  This time he called me because he needed some business advice; he is buried in work and wanted to learn how to delegate.  Since I happen to oversee a staff of 40, he knew I was well seasoned at delegating responsibilities.

Peter’s primary business is to help families as well as small businesses troubleshoot their Apple products.  His business ranges from giving a recommendation on which Mac to purchase all the way to solving complex networking issues. Currently, he is a one-man-band.  His office is in his home and he travels to his customers charging a competitive rate of $150/hour.  His business is built on his charisma and added value to his customers.  Peter’s business is doing so well that he has no time for himself anymore.  During the day he is busy on the road, traveling to his clients.  At night, he locks himself up in his home office to invoice customers, and conduct research on issues he needs to troubleshoot for his clients. 

We had lunch one nice afternoon in Brooklyn, NY, to discuss what tasks he could delegate so that he can have a balanced life and grow his business.  I started off by hearing him out; I wanted to know what his struggles were and what he was planning on doing to alleviate his stress.

He thought about hiring staff that could replace him in the field.  Peter thought about running the backend of his business; such as, scheduling appointments, issuing invoices, and conducting research from the comfort of his home.

I mulled that over for a moment and realized, if he did that, he would give away his competitive advantage.  As mentioned before, his business is built on his charisma.  If he is not having face-time with his customers, that which made his business great would disappear.  I advised him to flip the roles.  He should start by hiring someone to do the backend, and he should continue making personal visits to his customers.  This way, Peter will do what he loves most, meeting customers and working on their Macs.  More importantly, he will keep his competitive advantage intact. 

You might be wondering if Peter continues making personal visits to his customers, how can he grow his business?  After all, he doesn’t generate revenue from invoicing and conducting research at home.  Fees are incurred from his customers when he is at his client’s location.  However, growing a business is a different topic.  Here in this article, my goal is to show that Peter should not get rid of the core of the success of his business, but instead delegate the less important tasks that would alleviate his stress.

Please let me know what you think.  Should Peter hire people to run his operation and take the backseat?  Also, please share with us some of the tasks you’re having trouble finding help for.

You're Fired!

“You’re Fired!”  Never pleasant words to hear; and not a pleasant moment for the boss nor the employee. Nevertheless, sometimes it has to be done.  As a young entrepreneur, this is actually one of the most difficult tasks for me to tackle.  How do I tell someone that they’re not of use to me and that I do not want to see them again?  That might not really be what I think of the person, but when I’m using the words “You’re fired,” it is exactly what my employee is hearing.

I have fired a countless number of people since I started running my business. And it is never easy and I always second guess myself.  Is it the right decision?  What if he has his side of the story?  Maybe something is happening at his home that is affecting his work performance. A ton of “What ifs,” and “Maybes” fly through my head before I actually drop the axe.

Just about a week ago, I had to let go of someone who I considered a friend.  We used to have wine together on a weekly basis. It was extremely hard for me to make the decision to fire her. She was an hourly employee, and she decided to milk the clock by arriving an hour and a half earlier and leaving work forty minutes later than scheduled. I wouldn’t have had a problem with this if she could have shown me she was also producing more.  To the contrary, she had been producing even less with the extended hours.   I could see she was clearly taking advantage of my company -- I had to let her go.

With some experience, I have come to realize that there is one sure test of whether or not I should fire someone.  It is all premised on trust.  I ask myself, “Do I trust this person?”  If the answer is “Maybe” or “No,” then I simply let that person go.

New York City Paid Sick Leave Law

Bill DeBlasio is not an easy guy to like: He kept schools opened during the winter of 2013-2014;  he bickered with Al Roker on twitter; and now he is trying to abolish the Standardized High School Admission Test (SHSAT). Nevertheless, he probably did get one thing right: He passed the Paid Sick Leave Law.  It is still a very new law and how it may affect businesses is still unknown.  The law has been in effect since April 1, 2014.  What does this mean for us as entrepreneurs?

As a general rule, if you have four or fewer employees, you do not need to provide paid sick leave.  If you have five or more employees who work more than 80 hours per calendar year, then you will have to comply with the new Paid Sick Leave Law.

Here are some simple ways to comply with the law:

1. The generous way  - Give all of your employees 40 hours of paid sick leave regardless of how many hours they worked.  In fact, the law does not require you to provide your employees all 40 hours of paid sick leave. Actually, the law requires you to give your employees an hour for every thirty hours worked and he/she can accrue up to 40 hours of paid sick leave. Nevertheless, forty would be generous.

2. A way around - Give all of your employees a total 40 hours of leave regardless of whether the employee is taking off for personal reasons, vacation or because he is sick.

3. The stingy way - The most tedious way to comply with the law is by keeping track of the amount of hours worked per employee. As mentioned above, an employee accrues an hour of sick leave per every thirty hours worked. If you have a way to keep track of how many hours were worked per employee and it doesn’t take a considerable amount of time for you to calculate, please share it with us.

Option 3 is doable if you have a very efficient and easy way of keeping count of how many hours your employees worked and the amount of hours they have accrued and used. I recommend options (1) or (2), because it is easier to keep track of and you, the business owner should, can focus on what you’re good at: running a business.