What are the important HR requirements for small business?
Terry Martine 0:10
Hello, everyone, and thanks for joining the sailing to retirement podcast. Today’s episode is a little bit of a special episode we’re gonna do an interview. And we’re going to focus on HR basics for small business owners. So we reached out to Doug Murphy from paychecks, who has years and years of experience. And we really want to try to help folks that run a small business, avoid some of these issues, HR faces, so that we don’t end up paying 1000s and 1000s of dollars in fines. Doug has been doing this for many, many years, he’s got tons of nightmare stories where just a couple of hours spent for human resource basics, paperwork, filings, forms, things like that would have prevented people from paying 1000s and 1000s of dollars in fees and fines. So let’s jump over to the interview. Now.
Doug Murphy 1:01
Everyone talks about you know, you’re an HR and small business consultant, what is HR, and people use the same two words all the time. So it’s always HR and compliance. So when I say that, it’s always HR is the fun part of HR, its culture, its benefits, it’s making all the employees move together. Like that’s the easy thing to talk about. More of the compliance and scary side is where most people aren’t aware, a lot of small business owners are super reactive, right? They just kind of think they fly under the radar until something happens. My goal, whenever I’m speaking to a small business owner, is to get them to realize what can happen to them the basic few items that they need to put in place for HR compliance to protect their business, just to make sure that when something comes down the road at some point, they’re prepared for it.
Terry Martine 1:52
Yeah, I mean, even for me, I mean, as far as doing like an employee manual, and all these other things, I mean, that you made me aware of that’s, by the way, in full disclosure, I am a I do use paychecks for payroll, but
Doug Murphy 2:05
small businesses, a lot of people don’t realize even the basic money they’re wasting. Obviously no one wants to spend money on a lawsuit, an audit, no one wants to give the government more money, right? Unfortunately, you have a good year in business, go for the government gets in your pocket and take some of it. So I’ve even had small businesses where I asked a basic question is do you know what your state unemployment tax rate is? And most of them just stare at me dumbfounded. They’re like, I don’t know, my payroll company does that or my accountant. They don’t even realize what that means. And when I sit there and educate them slightly on that, I say, okay, say you’re in Florida, you got 1520 employees, one unemployment claim that you may ignore. So a notice comes in the mail, one of your employees may be moved, they got married, they moved out of town, if you don’t respond to that letter in time, in some states, it’s only 234 days you have to respond, that employee automatically gets the unemployment. Most people say, Oh, that’s not my money, the government’s paying them. But they don’t realize that then their tax rate goes up. So unemployment taxes is one of the only controllable taxes that a business has. And when I sit with people, and I say, you have a 5.4% tax rate, the guy I met the other day had a 1%. For a point one got like, What’s that mean? And so on 20 employees, you’re spending about $6,000 more than the guy across the street, because you didn’t respond to that one letter that showed up in the mouth. And they’re just dumbfounded that letting an employee get unemployment truly is costing them extra tax dollars. So little things like that. blew my mind. I ran a company with with my buddy for about nine years. And one of my best friends my college roommate actually moved. Unemployment notice came in like, Oh, yeah, he’s looking for a job, I didn’t realize that it was costing us 1000s of dollars to pay my college roommate to pretty much sit on his button play golf. So those are the little things that are super important, not just the big losses that can happen as well.
Terry Martine 4:08
And it only takes like one or two employees, right? I mean, in that case, it only took one and is there a way to go retroactively to fix that? Or is that just done?
Doug Murphy 4:18
Those days, you can’t some allow you to make a one time payment but again, that’s more money out of your bank account anyway. So things like that are very important and the smaller your business, the more of an impact one claim has. So if you’ve got five six employees one unemployment claim picture you haven’t paid a lot of taxes you only have four or five employees. So one claim Jacks your rate up because the government’s got to make that money back. So yeah, the small businesses they get hurt by these things more than some of the large guys were it’s more of a drop in the bucket for them. And they don’t even know what’s coming and most don’t even know they’re, they’re paying that tax until I kind of bring it to light and say your eyes you spent six grand because One guy filed unemployment last year. And that’s where, you know, their ears perked up, their eyes open up, and they’re like, what else do I need? And then we kind of get into all the HR compliance, which is the scary part. But those HR pitfalls are super important right now for small business.
Terry Martine 5:16
So how does paychecks help with that? So do you guys get the letter? Is that who you act as kind of the middleman between you and the government?
Doug Murphy 5:25
Yeah. So what happens is, when that notice comes in, it would come straight into paychecks instead of getting lost in the mail on the guy’s desk, and pretty much picture a rubber stamp or declining every one of them saying, nope, nope, don’t pay it out. So we respond in time. And then if there’s an appeal, and now it becomes employee versus employer, that’s where all the HR compliance items come into play to help prove your case why that person was rightfully terminated, or they left on their own accord. A small business should never lose an unemployment claim. Most people say I’ve never won one, we’re really you should never lose it. The only way to lose one is really if you’re a seasonal business. So picture you’re up north a golf course, you close for a few months, yeah, those people can get get unemployment for the winter, or that you have a true layoff. But most small businesses aren’t closing down a division of two people. If they’re getting rid of somebody due to certain reasons, they’re picking the worst employee. So it’s going to be due to performance or policy or reason they chose that person. And that’s actually a termination. That’s not a layoff. So terminating someone properly, you should win every claim. If you let someone go for no apparent reason, then they would win that claim. And that’s money out of your pocket.
Terry Martine 6:41
So you have to have full documentation is what you’re saying. So if you’re gonna fire somebody, you can’t just I mean, or is there a threshold under five employees? You can terminate? It will? Or is that state by state as well? I think right?
Doug Murphy 6:53
Yeah. And at will is probably the best concept. So I’ve worked in multiple states. And I usually count down in my head when I’m meeting with a business owner, how long is it until they say, wait a minute, Florida, but well, Maryland’s that Well, the thing is, almost every single state has a state laws of the employment at will. It’s at this point, almost an outdated concept, because so many new laws have come in. So you can let an employee go for no reason. You don’t need to tell them. After that. Everything’s Open Season, so an employee can come back. And this is probably the most important part about HR compliance, is what’s called the Civil Rights Act. So the Civil Rights Act was a big act that came in 1964. But all the way up until 1991. It wasn’t a huge, huge deal. Now, it did stop discrimination on gender and race and a lot of items in the workplace. But in 1991, This, to me is the biggest change in HR for small business, is really put the burden of proof on the business owner. So what that really means is if you let somebody go perfectly just cause they come back and say this was due to discrimination, you know, whatever it may be, whatever either they made up or they believe is true. You have a lawyer, calm guy is going to come asiyah and all of a sudden, they’re gonna say, okay, Mister business owner, my this employees saying they were terminated due to whatever the discrimination claim is, prove that that’s not the case. And that is where all the documentation comes in. So an employee handbook, job descriptions, all of these items that you’ve heard of that you may have never done. You got to post it note on your desk somewhere that says do an employee handbook and it’s been sitting there for three years, He’s never done one. These are the items that are going to protect you. If something comes back and someone comes back to try to sue the company.
Terry Martine 8:48
Yeah, I think one of the stories you’re talking about, was it somebody that did not have an employee handbook, I forget which one you were?
Doug Murphy 8:55
Yeah, I’ve run into a lot of them over the years then. But I always try to tell everybody is every small business owner that has an audit a lawsuit, something terrible happened to them. They always say I didn’t think it happened to me. So it could happen to you. And usually it comes back to not being prepared because most people don’t put these things in place until something happens. So when we talk about saying an employee handbook is one of the most basic documents, but you need to do it but you need to do it custom to business, right? If you’re a smaller mom and pop organization, you may not want all these corporate structure and all these rules. You may have worked at a large company left it to get away from that to create your own. But the problem being is if you don’t have a lot of the basic items and writing, you’re open to liability. So the client I was speaking to this wasn’t that long ago either. is a rough situation occurred but pretty much an excavator flipped over at work. Apparently happens more than you think on job sites. The guy was injured a little bit not too bad, he just banged the shoulder. The workers comp compensation comes out, they do an audit to make sure there was no drug or alcohol or anything at play before they pay the claim out because the gentleman was injured at work. And what happened was he tested positive for alcohol. So now you have an employee who was drinking under the influence and slipped over heavy machinery says everywhere, right? Do not drink alcohol and operate heavy machinery. So common sense says, amen. You’re fired. So the business owner, let the guy go for drinking and driving the machinery. Long story short, the guy came back with a lawyer. Whoever got in his car gave him the idea. And he sued for wrongful termination and discrimination. The business owner pretty much rolled his eyes and was like, I have a report right here that says you had alcohol on the system at the time of the injury. The guy goes during discovery and attorney can ask for certain documents and goes, let me see your employee handbook. Business Owner pulls out the handbook handed over flip through the pages and he goes, we’ll take the case. Business owners like are you kidding me? What? You have a letter right here that says that he had alcohol on a system. But when he looked at the employee handbook, he realized the guy shouldn’t have been fired. business owner was kind of baffled on what the situation was. And really, when it came down to it, the policy pretty much he just pulled some random thing off the internet for policies that was one page long his handbook. And it pretty much said you can’t drink at work. The guy drank at lunch, he had a few beers with his buddy who was in town met them off site off the clock. But he wasn’t drinking on the worksite. He wasn’t drinking during company business hours because he was off the clock. And by the time he tested he was below the legal limit. So he wasn’t legally drunk. So he wasn’t legally drunk, didn’t drink at work, didn’t drink on the clock. He technically did nothing wrong and company policy. So he should not have been terminated. Really, a guy drank and flip an excavator and that one too often doesn’t have to work for the next few years. Written properly.
Terry Martine 12:13
Yeah, it’s just one little handbook too, right? I mean, and then handbook? And then how hard are they to come up with? Like, I would think that there’s a lot of business owners out there that probably have searched the internet found employee handbook? Does it need to be customized to each small business? Are they generally pretty good or not? What’s the
Doug Murphy 12:33
I get asked all the time that and to me, there’s, as customers, you there’s two important things, customizing it to you. And then also having it legally done. Right? In today’s world, you’re missing a comma period totally throws off the meaning of a policy. So you’re always gonna want some labor law attorney or someone who knows the wording to write it and protect it. Right? If you spend a few grand on a handbook, it’s gonna save you the $200,000 lawsuit. If you spend so much money as a business owner, right? I always say 100 200 bucks in real life, a lot of money in business that comes and goes quicker, and you know what to do. But the thing is, if you have it done legally, you are protecting your company, right? You’re gonna protect the what if situation, but the customization is just as important. So for instance, like when paychecks works with somebody, we actually are going to have an HR consultant, talk to a business owner, because there might be seven ways to write one policy. So the thing is, if you put in a policy and owner says, I want to write it this way. I go, well, that means if your employees one minute late, you fired, are you gonna fire your best guy was a minute, late tomorrow because his kid was sick. They’re like, No, I’m like, well, we don’t want to write it that way. There might be different ways to write it. But then if you’re the, you know, the turnpike and you’re the tollbooth operator, if you are one minute late, you are fired, because you can’t have a 37 mile backup on the highway because your employees are late. So there’s different rules for every single company based upon company culture needs, how strict you are, what’s your risk tolerance? So it sounds like a lot. But really, when you have an HR consultant to someone with paychecks, they sit one on one just like this with a business owner. They talk through all this they figure out their staff, How comfortable are they how loosey goosey is environment. But they may say we want to be a little stricter here and here because you’re open to liability. If someone cracks a funny joke, the new guy doesn’t think it’s fun. They go Yeah, let’s put that in there. So we need to customize it. And even the county or in your employee, count the industry, the state. All of these things do apply because state and federal laws sometimes completely contradict each other. And I usually ask a room if I’m in front of a bunch of business owners. I say do you go by state or federal law? It’s split every time like state laws, federal laws. Well, in reality, of course, everything betters the employee. The technical answer is whatever’s to the betterment of the employee, the easy example of that is minimum wage. So make up easy numbers. If the state you’re in says the minimum wage is $8. But federal are seven, you have to pay them eight, because it’s better for the employee. But if also the federal government new president comes in and Jackson minimum wage to 10. Well, guess what? That $8 was now invalid, the whole country has to pay 10 because federal better. So that $8 in your state just sits there doesn’t do anything. Everyone’s getting 10 unless the state decides to jump above it. So even knowing which law to go by, sometimes you need a little help getting that correct.
Terry Martine 15:42
Yeah, so that’s a lot for the employee handbook. I mean, and for me, like one of the things you brought up to me was the fact that I got the PPP loan, and that you needed certain documentation. Technically, you need certain documentation. You want to touch on that, because that was something eye opening for me as well.
Doug Murphy 16:01
Yeah, and that’s the thing. There’s so many items that everybody needs, right, but you don’t know when you’re going to need it. So I always tell people, I hope a lot of items just sit on your shelf and collect dust, right? It’s like if you’re driving around with no driver’s license, you might drive for a week, a month, 10 years, but if somebody hits you, you’re in trouble. Same thing with document. And a lot of people didn’t realize when the loans came out. If you look at the application, I think it was page four. It’s the fine print no one reason. But then there are talks about you agree to abide by the Civil Rights Act Fair Labor Standards Act a bunch of acronyms, right, this idea DLL, f LSA. All these things are one says, oh, f AJ, which is OSHA. So OSHA is a whole nother animal. because technically, if you run a business in this country, you’re going to fall under some sort of OSHA regulations. So some sort of safety. Just like the burden of proof is on the owner, everything falls upon the owner, OSHA is another one. So really, you got to think of it as as a business owner, you need to offer a safe work environment, the employee doesn’t need to be safe. So you need to train them, you need to provide the certain equipment to them. And a lot of people skip this unless they’re in some heavy construction, and they kind of have to have their toolbox talks. A lot of businesses don’t do this. There’s a restaurant bunch of OSHA stories and happens all the time. But we had a restaurant where a guy walked over took a folding chair, set it up stood on its official label, but just one of the normal servers, that folding chair flap fell down, twisted his knee, knee surgery, knee surgery, all these things happened. So now you have an injury. You have a worker’s comp claim, all this time, all this money going into a place where in that setting, that simple OSHA safety meeting and manual can protect them. Hey, got it. This is situation, here’s where our ladders we step on this we don’t step on. You want everything documented to protect the business owner, you want to be extra cautious. And a lot of people say I don’t, I’ll never be audited by OSHA, you know, I got 10. Guys, five guys, 15. Guys, whatever the employee count is, and a lot of times they don’t realize that just because you’re under, say 15 employees and OSHA magic number where you have to do certain reporting requirements, doesn’t mean you can’t be audited. So I had somebody, this is probably the most ridiculous story I’ve ever had. I was in the West Palm Beach area, Florida. I sat down with with a small business, he probably had eight 910 employees. 72 year old I’ll never forget his age, because he told me he was gonna retire soon. 72 year old artists, a lot of people and I say artists, they’re picturing like Bob Ross, you know, it’s in their little canvas. But a little bit more going on in that he had picture like an industrial park. He had a little front office and one day door. So maybe you’d have like a body shop or something like that. But in that Bay door, he had, you know, his little sanding things in sculpture, stuff like that. So we have a little bit more going on. When I sat down and talked to him, I said, you know, tell me about your OSHA safety manual. I was expecting the typical response of I don’t have one or do I need that. And when I asked them about do you have an OSHA safety manual? He goes, don’t get me started on OSHA was like, What happened? He goes, I just had a $32,000 audit. I’m like, what, what I shut my binders like forget what I’m here to talk about.
Tell me about this. He goes, Well, it started at 4000. I’ll never forget that your numbers are like your artists with like, 10 employees. How did you have an $84,000 audit? And long story short, what they ended up doing was it was a random audit. So picture OSHA is going to self generate money to stay as an organization. And what they did was they pulled up na ICS code of business code and zip code. So they pulled his random zip code, and they pulled any company that had to do with metalworking. They figured that was a high risk industry. It could be the scaffolding. It could be a big high rise building with steel beams, but because of his sculpture that pulled up as the Cody works with metal. So it’s just terrible luck that this guy gets on and he’s been in business for over 45 years. First time you ever got audited? You never know when it’s gonna happen. And when the OSHA person showed up, it was a young ladies, that was one of our first weeks on the job. She comes in and she goes, may I please see your OSHA safety manual on posters on the wall? You had the posters? Yeah, no OSHA safety manual. And after we talked to her and got to know her, because she was there for two days. Now auditing after this, he pretty much realized she said, In layman’s terms, if you don’t have an OSHA safety manual, we take it as a middle finger, that we’re here to make sure you’re offering a safe business and you don’t have the most basic document. If he had it, she would have walked out to the construction site, down the street to audit them for big bucks. He didn’t have anything in place for OSHA safety. So they did this full, they called it a magnifying glass inspection, they’re going to search for everything. The few highlights. In the back, she had a little decibel reader to check how loud the machines were. Because if they’re too loud, you need earplugs, you need personal protection. So as long as you turn one on wasn’t too bad. But once you turn to one, there’s enough decibels in the air, it’s too loud, require this picture these fines of say it’s making some sales $5,000 for not having earplugs. But guess what if there’s five, six employees back there, now you got five guys times five, now you got a $25,000 fine. And so this guy got absolutely hammered might as well shut his business down, because of just bad luck and the luck of the draw. So you never know when it’s gonna happen
Terry Martine 21:35
to you. Yeah, that’s pretty impressive that, you know, for an artist, you wouldn’t think about that.
Doug Murphy 21:43
No, and that’s the thing is to be had the right document, she’d be on our way.
Terry Martine 21:48
So one of the things that you guys provide, though, when you meet with somebody, obviously, you’re going to talk about all these different documents and forms and all this kind of stuff you meet. But I wouldn’t think for the typical person, they they pretty much maybe they know that they need an employee manual. I mean, I mean, people you walk into that have absolutely nothing and you just sort of gotta put your arm around them say, Okay, look, this, this is gonna take a little time, but we need to have a serious conversation and you need to bring everything up.
Doug Murphy 22:18
Yep, it’s, it’s probably half and half, there’s a lot of people because when they’re small, they don’t think they need it. And that’s the biggest thing. There’s a bunch of employment laws. So meaning, you know, certain discrimination doesn’t come in till say for employees, then one at 1520 4050. The larger you get, the more laws come in your cross 50, you have almost every single law in the country, you cross 100, you might as well be Coca Cola. But the thing is, people don’t realize that when they only have a handful of employees, whether it’s four or five, six, whatever it may be, they have a ton of laws that they have to abide by, and a bunch of documents. So same thing like say the OSHA thing, right? You don’t need to report via OSHA till you have 15 most days, but you can still be audited. So there’s a lot of things that don’t realize some discrimination comes in for employees. So people don’t quite realize that so someone who has nothing. It’s exactly what you said. It’s like, okay, let’s stop the meeting right now, let’s at least get these few basics in place that you can continue function, right. It’s like you need an employee handbook, you need an OSHA book, a job description, even basic forms, and a personnel file can be audited. There’s certain forms and one of them is an 11 $100 fine if you’re missing the form per employee. So there’s little things so just picture all these revenue streams for different government organizations,
Terry Martine 23:39
that a state form, it’s 11 $100 for just the
Doug Murphy 23:43
federal the I nine, if you don’t have an i nine, just go to the government website, print it, fill them out right now. So there’s basic basic forms that you need to have in place
Terry Martine 23:54
to give me a minute, I need to fill out an i nine here while we’re talking here. And they show you how to do this here and keep it in the line because you filled out wrong. I’ve seen I mean, it’s like three things right. So so security number, name and address. I think it’s just simple.
Doug Murphy 24:11
It’s basic, and even on a nine, nine. So for people that don’t know what it is, it’s really the right to work in the US, right? So everybody needs to fill it out. You’re going to be born down the street, everything like that. We’re not you know, an immigrant where this right now if you were born here, you still need to fill it out. And the thing about it is that people don’t quite realize is I’ve had people in certain industries that call me aside after a meeting and they’re done. They’re like, I don’t have this stuff. But some of my people i don’t i don’t think they’re actually legal to work here. I say Well, I’m not I’m not the police here I my job is to protect you as the business owner. And what happens is the I nine is designed in a smart way because it says okay, employee, fill this out, put your social security number and so on on here, and then sign that it’s it’s legit And then they give it to the owner and say, sign that you saw these items, your job is not to know if that’s a legit social security number. So as long as you’re filling it out, if something ever occurred, the business owner is safe. That’s the employee. That’s that trouble for falsifying a document, just not filling it out and thrown your head in the sand, you’re in trouble. And the same thing with OSHA books and handbooks and job descriptions and all these things, is it is never going to hurt you. The only time some people get scared of putting stuff in is they don’t want that corporate feel. They don’t want that giant employee handbook. But the thing is, when I talk to him, we’re gonna customize it to you. You know, you might have 30 policies, the guy across the street has 300. But we need to least have those 30 in there to protect you.
Terry Martine 25:48
And I think once you get it done, how often do you come back and make changes to it, you probably once you’ve got that, and you’ve had no issues, it’s probably a one time one and done right until you hit a certain threshold. Again,
Doug Murphy 26:01
that’s the thing that I tell most people, small businesses, I mean, obviously you can keep updating these things all the time, but get it done right the first time, you’re going to be better off even if you never touch it again. But occasionally new administration comes in some laws change. But a lot of times, even the law changes don’t affect the five man company. They hear all these things, you know, Obamacare, if that goes away, it doesn’t affect the five man anyway. You don’t have to worry about updating it all the time. Sometimes you might update an internal policy. I’ve had companies I’ve nor even the old company where I worked. When we were trying to put policies in place. It was more, we weren’t thinking protection. It was more putting rules in place. It’s kind of like herding cats, right? When you have all your employees, it’s like having a bunch of kids you need you need a bedtime unless the kids are going to be up all night. So we’re we were up in Maryland, where obviously snows in the winter time. And we were like, Alright, supposed to be this big storm, only a few inches. Go figure, the owner and myself. We pull into the office. Like No one’s here yet. Now whatever we get to work, we start working, no one shows up. Not one person. So we started calling people like, oh, the roads were icy. I couldn’t get on my driveway. I’m like I got here and my little piece of junk. You know, old Honda Civic, you have an SUV you couldn’t get here. And we’re like, we don’t have a policy on snow. So what do we do? We saw something online. And it pretty much said in this area in that Maryland, Virginia DC area. Why don’t you just go by the government rules the government closes, you close the sale. That’s genius. That way, it’s out of our control that the roads are scary, even though I’m going to get there because we need to make money. My employee doesn’t feel safe, let them stay home. Go figure big storms come in big threatening storm government closes the night before we wake up. Not a flurry in sight. We go to work. No one shows up, because our policy said we were closed. So now we’re like scrap that idea. So not only do we keep changing policies, we’re losing productivity, we’re losing money. And we look like idiots because our employees are like, why did you guys change the policy three times in a week. So the thing is your internal policies as the management team or the owner, you don’t want your employee saying this guy doesn’t know what he’s doing, or your new hire to sit down during his onboarding. And he said, fill this out. What’s this one? I don’t know what that is just fill that thing. Often, the guy’s gone? Did I make the right move by coming here? Am I gonna get paid next week, you want that mom and pop field to some degree. But there’s some areas that you want to do things properly. So that’s my goal with every business owner is number one, protect them. Number two, let’s get a few basic structures in place that just help them walk run a more kind of well oiled machine. And number three, the biggest waste of money and the largest line item of most, almost every business is payroll. Picture, you got a guy that has four employees, and if they’re making 50 grand a year, we got 200 grand plus taxes. So just take our guy, the guy spending a quarter million dollars. If I talk to him and say, How are your employees? Almost every time Oh, they’re great. They’re great people. They’re like family, like, Who’s the worst one? But like, oh, Joe, I’m like, oh, okay, so one of them’s not the best. How long’s Joe been here? Like, three, four years now. Like, like Joe’s not that good. He’s been here for four years, you know, four times 50 years plus taxes. That’s a quarter million dollars you spent on employee who’s not that good. Right then in there. If I don’t say a word, the owner won’t talk for like 10 minutes, because the wheels are turning his head. He’s like, I don’t have a penny in my bank account. But somehow I’ve pissed away a quarter million dollars on a bad employee who’s on his phone and sleeping in the warehouse. The thing is, if you can get structure in place, you can empower a business owner to then say you’re late tonight. You’re late again, you do to get on the right job. All that you’re doing. disciplining and curbing behavior, you either get Joe worth the money, or you have three strikes, and Joe’s out the door and you find someone that is worth the money. So my goal is, if you spend a few grand to do HR, right, it saves you a lot more headache, lets you sleep at night, don’t worry about being audited, and then saves you a lot of money on these bad employees.
Terry Martine 30:20
That’s pretty good summarization, but your stories are always good. I love hearing these stories about people just abuse the system and or get caught flat footed. And, you know, it’s always a disaster. Because as a small business owner, you got a lot to do. I mean, HR, thinking about this kind of stuff. I mean, that’s one of the reasons why I like talking to you about this stuff is like, it’s really kind of out of sight out of mind. It’s only until you need it. It’s like car insurance, you know, you hate paying for car insurance. So somebody backs and you get in a car accident, then you’re like, Oh, crap, I should have had more car insurance. So I like, you know, it does take some time, and you got to put some effort into making sure your business is kind of bulletproof. But obviously, HR issues are a huge thing and making sure everybody’s safe. And make sure you don’t get sued by something as silly as not spending a little bit of time and effort doing it. It is time consuming, though, unless you have I mean, how much time do you think it takes for an average business owner to walk through your whole process of getting like a Oh, five, five? employee business?
Doug Murphy 31:29
Yeah. So our goal is is that paychecks is to streamline that process, right? They’re so busy, like you said, doing everything. And most of them don’t even want to do it. Like most of the time, I’m sitting there with them that I guess I have to do this now. And they realize they should and they need to but they don’t want to. When we start talking about the waste of money on employees, and how there’s a lot of small businesses, the problem is they fire too slow, right, someone bad, they don’t want to go through posting an ad and find someone new, the guy already knows the process, even if he’s not good at it. So they keep a bad employee wait too long. And then if someone leaves quits, gets fired, they hire the first person that walks through the door because they need a gap. And they’re thinking really short term. So really, it should be the other way, you should hire very quickly. Because these people are a waste of your money, you should take your time to find the right person. But when you’re in the kind of trenches taking grenades, it’s hard to think that way. So my goal with them is to use the least amount of time as possible, to get all the structure in place to protect them, and then empower them to run their business successfully. And the time it takes I mean, it really depends obviously how much we’re doing. But if an employee handbook may take three months, that’s going to scare people, where I say, Hey, listen, that’s one conversation with the HR manager in month one, let us go write the draft, get everything ready for you, as we’re working on maybe your OSHA book, your job description. And maybe we say here’s the draft one, read it, see if there’s anything you want to change on it, they might sit on it for a few weeks and say, here’s a few changes. So I always tell people, maybe three months, so you have a book in hand, a lot of the delays will be on the business owner because they’re so busy. But I want to limit them to, you know, a half an hour an hour phone call, once or twice a month, you know, I don’t want them to sit there and spend all this time on this. I want to sit there and get what we need from them from customization and risk tolerance. Let us do the heavy lifting, let them run their company. And then I want to be there as things come up. And they say, should this employee be a 1099, he said he wants to be a 1099 he always has been there were like not a choice. They are really obviously gonna let him be a 1099. And that could be in a giant audit. So every time we talk to a business owner, they don’t realize how many little things can either be a waste of their time a waste of their money or a big risk. So we want to be there along the way I tell business owners, the quicker you can talk to someone like paychecks HR, the better it is, whether you’ve been in business for 42 years, like an artist or you’ve been in business for three days and haven’t hired a single person yet. Then let’s get your handbooks and job descriptions and all these things in place before you hire someone. So on day one, you have all the documents ready, and they know what to expect. So we’re here to help everybody I love what I do because they meet with 10 1520 business hours a week for eight years, I learned a lot of what to do, what not to do, what makes them successful. When is it time to invest in some benefits for the employees? Or when are you still too small? Is there no cost benefits to put in place to record really reward your core staff? So all these things are kind of a puzzle. And if you do it right, a business can thrive. I’ve had two guys across the street from each other. But 10 man electrician, 10 men electrician, they both have the same amount of money. They open up across the street, one thrives and one fail. And the only thing that’s different that start is just the business owner. And a lot of people don’t realize that they they don’t do things correctly. They don’t hire the right people they don’t know Power employees, they try to do it all on their own, they don’t delegate correctly. So HR is really a lot bigger than than just the handbook, OSHA book, job description, I nine. But those are the easy things to get done quickly. So you don’t have that $84,000 lawsuit or on
Terry Martine 35:17
and one follow up, and then I’ll let you go because I know you have other calls today. Like, for instance, if now that people have a lot of folks working remotely, right, even I do, would that be considered a consoler? I nine, are your billing out? Or is that considered an employee? Because they’re working out of their house? How do you deal with that? For folks in my position?
Doug Murphy 35:41
Yeah, so it’s obviously been a big shift for everybody with COVID. And people have shifted to work at home. And then it’s, how do I monitor somebody if they’re on the clock, and then they get up and go do dishes and laundry and take a three hour lunch break? I mean, so there’s a lot of uncertainty with a work at home. Most businesses realize that they can actually be equal or more productive and save real estate costs, commuting costs and a lot of risk. But in terms of classifying, so mainly any business owner, doesn’t matter, the industry or what when you’re hiring someone, there’s actually set protocol. And you can even use this one you can Google, there’s really a 20 point test. So 20 questions you ask yourself, and it will this person be a 1099 or w two, W two being an employee 1099 being an independent contractor, so no taxes, nothing like that. So the question of the day is, when you actually do these 20 questions, it’s gotten so strict, and Department of Labor versus state versus IRS, even all of their definitions are slightly different. But it’s gotten very hard to have 1099. Go figure that government wants that tax money right away. They’re making it harder and harder to have a 1099 contractor. And there’s things where if someone makes a certain amount of money, if they’re making 80%, or more of their income from you, they’re probably a W two. The thing is a lot of people, they just work at one place. So even if they hit every other thing for 1099, they should be a W two. Are you training them? Are they using company tools, logos, uniforms? Is there a schedule? Do you have financial or behavioral control? All of these things are almost every single employee employer relationship, and most people fall to be w two. Now there are exceptions. And there are some legit 1099 times out there in certain industries and certain roles. But that’s a big mis classification that happened. And then if a 1099 so you classify someone as a 1099. And then they go File unemployment down the road, that they quit, they move your firearm, you don’t need them anymore. The government’s gonna go, Wait a minute. You’re, you’re not an employee, you’re a 1099, you’re a contractor. It’s a well, could I get unemployment? No, you’re not eligible, what you do there. And also, we just trigger an audit, just because someone didn’t know they couldn’t file for it, then that happened to a business for mine years and years years ago, he had a lot of 1099. Back wages, back taxes, penalties, voila, his company was gone, because he didn’t realize he misclassified people. So that whole thing happens. And then even when you put them as a W two employee, now all of a sudden, a whole nother test comes in, are they salary hourly? Are they getting overtime, exempt or non exempt. So all these little things business owners do need to do. But if you have somebody like say paychecks HR, as we’re doing documents, we’re just giving the basic education on how to do things as they hire someone, fire someone, write them up. And next thing, you know, they’re in power, they understand the few basics. And they can either use us forever as a resource on that, or some people use us to kind of get the house in order and learn. And we’ll train ourselves out of a job because the guy knows kind of how to run a business from an HR perspective. We did our job and then we move on to help the next one.
Terry Martine 38:59
That’s good stuff. I mean, I could talk to you all day, especially. I got a lot of small business owners that have people are working from home. So you know what happens if somebody is doing the dishes and they drop a glass and they were technically on the clock because they weren’t in their lunch? I mean, you know this. It’s all a whole nother issues set of issues coming up. But anyway, thanks for being on the call. If you want to get ahold of Doug, I’ll put Doug’s information in the comments below. If you have any HR issues, or I certainly I can get you over to Doug, and thank you for being on the call and we’ll talk to you soon. pleasure to talk to you soon.
FRS Disclaimer 39:33
You should consult a financial advisor familiar with the specific circumstances of your unique financial situation before making any financial decisions. Nothing in this broadcast constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature, and are not a guarantee of future returns. Terry Martine is an investment advisor representative of FRS investment advisors, a Florida investment advisory firm.