Hot Topics in Total Rewards

Jennifer Liu - October 31, 2019

There are plenty of draws to having a job that allows you to work from home — nixing a daily commute being just one of them. And according to one new analysis, that daily convenience, along with boosted productivity by avoiding the distractions of office life, could add up to an extra 105 hours of free time per year per remote worker.

A new report from the Centre for Economics and Business Research, on behalf of digital workplace platform Citrix, measures the economic impact of adopting widespread work-from-anywhere policies across the U.S. The survey suggests that remote work arrangements aren’t just beneficial to workers, but they could also be good for business in more ways than one.

Time-efficiency is a huge factor, Tim Minahan, executive vice president of business strategy at Citrix, tells CNBC Make It.

“On any given day, the average employee spends nearly 65% of their time on busy work and in meetings, 20% searching for information and just 15% — or 1.2 hours a day — on the meaningful and rewarding work they were hired to do,” he says.

The ability to work from home, then, could help workers be more focused and boost productivity, essentially doing the same amount (or more) work in less time.

“We’ve essentially taken our highly-trained knowledge workers and turned them into task rabbits, who, when grappling with long commutes and distractions that come with working in an office environment, find themselves rushing, stressed out and less productive,” Minahan adds.

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In turn, a remote work arrangement could afford employees more time to attend to personal matters like grocery shopping, paying bills, doing housework and spending time with family, Minahan suggests. An increase in this leisure time has the double benefit of easing stress — a 2014 PGi survey finds 82% of workers are less stressed when they work from home — while increasing worker happiness.

To be sure, Citrix, which sells technology that makes remote work easier, could benefit if more employees had flexible work arrangements. But additional research has made many of the same points.

Flexible work arrangements are linked to higher levels of employee happiness when such policies allow workers to better manage their time. Achieving better work-life balance, after all, is the main reason why people said they switched to a remote-work arrangement in the first place, according to one Owl Labs survey. Remote workers also count increased productivity, avoiding commuting and less stress as the top benefits to their flexible arrangement.

While the average American worker spends just over 26 minutes commuting to work each way, those averages go much higher for some of the most populated areas of the country. New Yorkers have it worst with an average one-way commute time of 36 minutes, and all of the top-10 longest commutes clock in over half an hour each way.

More remote-work arrangements could eliminated dead time stuck in traffic, and not to mention, ease congestion and slow fuel waste.

As for putting more time back in the hands of workers, put another way, the 105-hour average comes out to over 13 work days that could be freed up for leisure time. That could be good for the economy as a whole, Minahan suggests.

“From an economic perspective, additional leisure hours means more time spent consuming goods and services: going to the gym, taking in a movie, playing a round of golf,” he says.

This isn’t to say office environments don’t serve a purpose. Some so-called office distractions can be beneficial to work: coworker interaction can improve teamwork, meetings can inspire ideas, and walking around provides not only physical activity but also creative boosts. In-person office culture also provides a crucial social network: 10% of Americans meet their spouse at work or through colleagues, while one-third have met at least one close friend through work.

Overall, the Cebr and Citrix report indicates widespread adoption of work-from-anywhere arrangements could add $2.6 trillion to the U.S. economy. The biggest benefit comes from employing untapped talent who would have better access to the workforce through remote options. Bringing in the unemployed and economically inactive could equate to $2.08 trillion in added value per year, or a 10.2% boost to U.S. gross domestic product.

This group alone — which includes retirees, full-time homemakers or caretakers, people who are disabled and cannot leave the house to work, and more — would be responsible for 88% of the total potential boost to productivity if they were motivated to enter the workforce through a remote arrangement (something 69% of people not currently working said they’d be open to).

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Source: CNBC 

https://www.cnbc.com/2019/10/31/cebr-study-finds-remote-workers-get-105-hours-more-leisure-time-a-year.html

By  Myrna Hellerman  - October 16, 2019

There is no right or wrong answer inherent in compensation survey data. The key is to use the information strategically. Here's how.

The compensation survey is the Oracle of Delphi of the compensation world. Compensation wisdom seekers look at all of the reported data when trying to find a definitive answer to the perennial question: “What’s the right mix of pay?” 

Unfortunately, survey results do not provide categorical insights into the intricacies of executive compensation. Moreover, the amount of information may be overwhelming, especially if all of it isn’t applicable to all organizations. 

Survey users, particularly those who seek insights into private company pay, need to rely on both the “science” and the “art” of data analytics. 

The results of compensation surveys provide the numerical foundation — the science — behind pay determination. The art is the thoughtful interpretation of the data within the context of your organization, its values and its pay philosophy. Together, balancing science and art lead to the identification of the right amount to be paid through the right vehicles for your executive in a given role as performed within the realities of your organization. 

Compensation Surveys Are More Valuable to Private Companies

In recent years, publicly traded companies have become less dependent upon compensation surveys. That’s because proxies and other SEC filings provide increasingly robust insights into the executive pay philosophy, pay levels, pay mix, pay delivery vehicles and other pay practices of the specific publicly traded companies that are the competition for executive talent. 

Private companies, on the other hand, don’t have access to such competitor-specific pay data. As a result, they’re highly dependent on published survey data as a starting point for compensation decision-making.  

Private companies should proceed cautiously to understand and interpret the applicability of published survey data to the pay for their own executives. As a first step, keep in mind the basic reporting process underlying a compensation survey: all the reported individual data points for a particular pay component of a given role are lined up from lowest paid to highest paid. The bottom quartile (25th percentile), median (50th percentile) and top quartile (75th percentile) data points are reported as survey benchmark levels for each pay component. However, it may be difficult to see how the components of pay are related across these measures. 

For example, the executive who receives the reported median base salary amount is most likely a different executive from the one who receives the reported median total cash. It is difficult to determine from the survey data results how those pay levels were derived let alone the applicability of the survey benchmark level within an individual company’s pay structure. 

Questions to consider include: 

• Does the median base salary belong to someone who has no variable pay opportunities? 
• Does the median total cash belong to someone with bottom quartile pay and extraordinary variable pay opportunities? 

At private companies, there is a high level of individuality and creativity in pay practices that a survey’s discrete data points do not capture. This, in fact, can be an advantage for private companies in recruiting and retaining executive talent. As I often tell my clients, there is no right or wrong answer inherent in survey data, but it does provide a very useful guide. However, the right answer is the one that makes sense within the context of your pay philosophy, culture and budgetary constraints. 

Considerations for Using Survey Data to Set Pay 

As you begin a pay decision-making process influenced by salary survey data, consider the following cautionary notes as well as suggestions in italics for how to address them: 

Compensation surveys represent the market value of the role, not the value of the person in your company fulfilling that role as defined by your company. For instance, your company’s president may have significant marketing responsibilities in addition to traditional presidential duties. Furthermore, in addition to differences in job content, the president’s role at your company might be filled by a high performer whose retention is critical to the success of the enterprise.

In such instances, compensation above the survey benchmark level may be warranted.

Compensation surveys represent how roles are valued at other companies, not at your company. Each company places higher or lower emphasis than the general market on its executive roles, based on its unique strategy and culture. For example, your COO may be the second most highly valued and paid role. At another similarly situated company, the CFO may occupy the second most highly valued and paid role. At a third surveyed company there may be little differentiation of pay among the key executives reporting to the CEO.

Individual executive pay determination should consider your company’s role value hierarchy. 

Compensation surveys don’t take into account the level of an individual’s experience in the role. The CSO at your company may be new to the role whereas the CSO at other similarly situated surveyed companies may be more seasoned.  

Generally accepted practice is to consider +/- 15% of the survey benchmark value (e.g., median, top quartile) as a competitive range and then to place the executive’s pay within that range as illustrated below:

Credit: Sibson Consulting

 

Compensation surveys don’t reflect the surveyed companies’ pay positioning and pay-mix philosophies. The pay positioning philosophy at your company might be to deliver total cash at the market median. To accomplish this, your company targets base salary and cash incentives at the market median. Another similarly situated company has a high-risk/high-reward philosophy, and it arrives at an overall median total-cash pay positioning with a pay mix that includes bottom quartile base salary and top quartile cash incentive opportunities.

Start with the total cash compensation survey benchmark level and then build the package consistent with your pay philosophy about how much risk to build into the package. (Note that it is common for private companies to have a different pay risk profile for each individual on the executive team.)

Many compensation surveys don’t capture the unique interplay between the current cash and long-term deferred cash/phantom ownership opportunities that commonly exist in privately held companies. For example, your company’s CFO may be a trusted advisor who has been with the company for many years, and his or her continued tenure is valued. You pay the CFO a base salary and annual incentive (bonus) on what might be considered the low side of fair. However, the CFO also has a long-term economic interest in the company that will pay out when he or she retires. In contrast, you compensate your high-performing but much shorter-tenured CTO in the top quartile for total cash but provide no long-term economic interest in the company. 

Consider creating an inventory of the value of your long-term wealth accumulation opportunities by executive. Next, determine the total cash package (as described above). Then build into this total cash compensation package the long-term wealth accumulation opportunity that makes sense for your company. The long-term wealth accumulation opportunity should be consistent with the company’s pay philosophy, risk profile, how the role is valued and the expected long-term contribution expected from the person in the role.

In your executive pay decision-making process, it is important to identify the appropriate balance between the external survey values and the internal value of the role. The framework below illustrates how external and internal values interplay in pay decision-making.

Credit: Sibson Consulting

Putting It All Together

For private companies that are considering an update to their compensation practices, compensation surveys are a valuable starting point. First, understand and interpret their applicability to the pay for your executives. Then, broaden your approach. Many factors can or perhaps should be considered, such as organization pay and retention history, future direction and strategic plans, and marketplace competition. 

To use a baseball analogy, the compensation survey data will get you to the right playing field and likely to the right section of the stands. Frequently, it may even help you find the right row. Rarely, however, will it guide you to a specific seat for a given executive. That seat needs to be the one with the best view of the game from the perspective of both the company and the executive.  

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Source: Chief Executive Group, LLC

https://chiefexecutive.net/the-science-and-art-of-using-compensation-survey-data-a-guide/

AUTHOR

Jennifer Carsen

PUBLISHED

Oct. 22, 2019

The NCAA has March Madness, and HR has its own brand of Fall Madness: open enrollment. It's a busy and stressful time for practitioners, but a good benefits broker or consultant can mean the difference between a successful, smoothly executed process and months of frantic nail biting, confusion and muddled deadlines. 

What's the best way to find the right benefits partner? And how does HR best leverage and maximize that business relationship?

Businesses first must clarify their own needs and priorities, according to Donna Miracle, executive human resources consultant at HR Strategy Group.

"[A]re you a startup that will be growing rapidly? Are you an organization with a workforce that is virtual and spread across the country?" she said to HR Dive in an email. "In the marketplace today, brokers are looking for ways to differentiate themselves. Some are focusing on technology, others wellness, others employee engagement, etc. What is most important to your organization? What value added service will be the most beneficial to your employees?"

8 interview questions

Once an employer is clear on the top priorities, research is crucial. Shelley McLean, principal at OneDigital Health and Benefits, said it's important for employers to interview multiple firms and ask a lot of questions.

Miracle suggested employers seek out a broker that specializes in employee benefits — you don't want it to be their "other thing," she noted via email. "Just as you would want a professional accountant, you want a professional broker."

She advised handling the broker selection process like an employee interview, with prepared questions such as the following:

• Describe for me the renewal process with your firm. When should I expect to begin the process? What information will you need from me and when? How do you approach the marketplace? What tools do you have in place to help us make a decision?
• How does your firm handle problems? Is there a team assigned to our company? Can employees contact your firm directly? 
• How often should I expect to hear from your firm before and during the renewal period? 
• What resources do you offer to help us stay informed about changes and reporting requirements?
• How often should we expect your firm to be in touch with us when we are not in the renewal season?

McLean offered these questions to ask:

• Do you provide the backbone to look at a benefits package with a holistic approach? How will you bring that to my employees?
• What resources do you provide outside of benefits? Is there an expanded footprint?
• How are you, consultant, going to help us build a strategy?

Both McLean and Misty Guinn, director of benefits & wellness at Benefitfocus, mentioned the importance of long-range, multi-year strategic plans.

"When creating 1- 3- or 5-year strategic plans, can the broker help map out the strategy? Can they help model different plans with a variety of voluntary solutions to meet the overall budget number from the CFO? These tools and modeling capabilities should be a deciding factor and can be a great asset when presenting your benefit plan designs to your executive team," said Guinn via email.

McLean noted that a data-driven strategy is a key differentiator: "Everyone can say they have data, but do they have data that can provide an actionable plan, and understand what the data means?"

It's also important to find a broker that knows the days of cookie-cutter benefits are over. "Employers should find a broker partner that offers creative solutions to make sure the company is maximizing their current offerings through plan designs and carrier programs and offer new solutions as part of the overall benefits strategy, rather than just another shiny toy to add on top of the benefits package," said Guinn.

The world of employee benefits is ever-changing, and it is fast, McLean said. "It's not the HR team's job to stay in front of that — it's our job. [We] need to know all the strategies out there and sort them" into what is most and least likely to work for the client, she said. She advised finding a consultant who is a "student of the industry" so that employers hear important news from their benefits partner before they hear it from anyone else. 

A true partnership

The experts all espoused the need for a real partnership between employer and benefits broker.

"Treat them the same as a valued member of your team," said Miracle via email. You want someone, said McLean, who will challenge you and help you to be "best in class as an HR department." Your broker is a partner, an extension of your team who will make you better, she said. 

Brokers "must become strategic partners; someone who acts as a true extension of a company's internal HR and benefits team while using their expertise to strengthen the company's objectives and key results," said Guinn. "Brokers must strive to closely align and enhance their collaborations with a company's benefit technology provider, carriers, vendors and other key players in the benefits industry."

Among other things, communication will be key, the experts said. "Your broker is one of your best resources for information and assistance," said Miracle, so "don't just talk to them two months before it's time for a new plan." Ongoing communication is particularly important for small HR departments that don't have a lot of other resources to turn to, she said. "That broker is there to help you."

"Frequent and ongoing communication is key to success," said McLean. The "one ask" OneDigital has of its clients, she said, is to outline expectations — the goals and objectives of the company — and how frequently OneDigital and the client will communicate.

Guinn advised that HR pros set up regular meetings throughout the entire year with the broker partner to discuss strategy — not just in the time period leading up to traditional open enrollment. She encouraged strategic sessions at least once a quarter along with shorter tactical biweekly discussions leading up to open enrollment events.

Common pain points

To steer clear of any pitfalls, Miracle said, employers should first gather the census information requested by their broker in a complete and timely manner. "For many small and mid-size businesses, getting renewal information is a pain point. There is sometimes not as much time as we would like between when we receive our renewal information and when we need to have employees enrolled. It is important to have a plan in place to evaluate the renewal data, gather the decision makers and make a decision as efficiently as possible. This will allow the time employees need to evaluate the plan offerings and enroll without getting too close to the deadline."

Guinn echoed the importance of early planning: "While open enrollment traditionally takes place in the fall, the information and data gathering process should begin early in Q1," she said. "One thing I've done with my broker partners is to arrange for a carrier summit early in the year, where vendors and carriers for all of our benefits, including medical, dental, and voluntary benefit providers come and meet with my team."

Another potential pitfall can occur when a broker develops a relationship directly with a company's CFO, resulting in the benefits director being left out of decisions or discussions, said Guinn. She recommended that benefits directors establish themselves early on as the main contact for all communication and reporting, to avoid this problem and prevent confusion about objectives and results.

The big picture

Open enrollment is certainly about benefits and the benefit cost, said McLean, but it's also about the employee experience.

Employers should strive to find a firm that will fit the mission and vision of an employer's desired employee benefits experience and one that truly understands the convergence of HR, technology and the various requirements that come into play, she said. "When the entire benefits ecosystem comes together — the employer, broker, carrier, employees — everyone is a winner."

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Source: HR Dive

https://www.hrdive.com/news/open-enrollment-2019-8-questions-to-ask-your-broker/565034/

Oct 7, 2019, 07:08am

Niall McCarthy | Contributor 

Business

Data journalist covering technological, societal and media topics

Employers added 136,000 jobs to the U.S. economy in September, resulting in the unemployment rate falling to 3.5%, its lowest level since 1969. While most Americans are no doubt satisfied with the state of the economy, how do they feel about their working conditions? Gallup has been measuring U.S. worker satisfaction across a range of different characteristics for the past two decades. According to its 2019 edition of the research, American workers are generally satisfied with most aspects of their jobs, though there are some areas where improvements could be made.

Satisfaction was highest with the physical safety conditions of the workplace with 74% of those polled saying they were completely satisfied, along with 20% who felt somewhat satisfied. The fractious political landscape doesn't seem to be having an impact on friendships at work and 92% of Americans were positive about relations with their co-workers. Despite warnings of a recession lying just around the corner, most people were also upbeat about their job security with 90% saying they were completely or somewhat satisfied.

When it comes to the areas that need improvement, health insurance benefits offered by employers was cited as the area with the least satisfaction with 64% of Americans content. Likewise, 36% of those polled said they were completely satisfied with the retirement plan offered by their employer with 30% stating they were somewhat satisfied. There is also a sense of frustration in some quarters when it comes to moving up the ladder. 44% felt completely satisfied with their chances for promotion while 29% were somewhat satisfied.

*Click below to enlarge (charted by Statista)

Share of U.S. workers satisfied with the following in August 2019 (in percent). 

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Source: Forbes

https://www.forbes.com/sites/niallmccarthy/2019/10/07/how-satisfied-are-americans-with-their-working-conditions-infographic/#740e47866b7d

September 30, 2019

Michael Heric and Pamela Yee, Bain & Company

More than half of executives who lead general and administrative (G&A) functions, including finance, expect a downturn this year or next, a new Bain & Company survey shows.

The good news is that most believe the next downturn will be shallower and shorter than the last one, and will require a lower level of savings — about half that of 2008. The bad news is that two-thirds said it will be as hard or harder to find these more modest savings than the last time around.

To understand the challenge companies may face, Bain surveyed 650 executives and professionals across finance and other G&A departments, and analyzed the G&A spending patterns of more than 450 U.S.-based companies with more than $100 million in annual revenue from 2003 to 2017.

In past recessions, many companies turned to G&A for fast, easy cuts. However, our analysis found that the track record of most companies in managing G&A spending over the entire economic cycle has been mediocre at best.

While half of companies in a given year improved their G&A efficiency (G&A as a percentage of revenue) from the prior year, the gains were transitory: Only 6% of companies achieved efficiency gains for four straight years during the period. On average, G&A efficiency deteriorated by 20 basis points, from 6.9% in 2003 to 7.1% in 2017.

Support-function leaders relied on labor cuts, without changing the underlying work, to find fully half of the savings made in 2008 and 2009. They learned the hard way that overly deep cuts take years to recover from, because of reduced service levels and lost institutional knowledge.

The stakes are high, as successful support functions help create a competitive advantage. For the average public company among the world’s 1,000 largest, we estimate that every 1% reduction in G&A spending translates to a 10% improvement in operating margin. The most efficient quartile of performers in our analysis increased EBIT 1.5 times more than bottom-quartile performers through the cycle.

To achieve greater efficiency, support-function leaders will need to step up their game on four fronts.

1. Understand your costs in detail, including their causes.

Many support functions don’t manage costs with the same rigor with which sales, manufacturing, and operations costs are managed. For example, only 54% of survey respondents tracked functional headcount in detail, and only 47% had management dashboards to measure and track efficiency and effectiveness.

Worse, many companies don’t have a complete view of support-function costs. Only 18% of survey respondents said their companies track “shadow costs” — namely, people in distributed business units performing activities that duplicate those performed by the support functions.

Full visibility requires identifying costs at every level inside and outside corporate headquarters. When managers know and measure all the costs for each process, they can target cost reductions surgically rather than spread cuts evenly.

2. Look for alternative ways of working.

To move beyond incremental improvements, companies benefit from taking a clean-sheet approach to redesigning how work gets done. This method sets aggressive cost targets, defines what the future should look like, and then works backward on how to achieve it, reinventing from the ground up rather than optimizing current ways of working.

Defining the future state involves four dimensions:

• Clear roles aligned with customers’ priorities
• A service portfolio and service levels that make the appropriate trade-offs between which activities should be best-in-class and which should be best-in-cost
• A service-delivery model that balances efficiency with value added to the business
• The right talent, processes and systems

3. Get full value from existing digital technologies.

Reinventing how work is done inevitably requires smart investments in digital technologies. Digital yields benefits beyond cost savings, including faster decision making and improved service, business insights, and financial controls.

But while almost 90% of survey respondents are investing in digital today, more than half said they aren’t getting the benefits they’d expected.

Top-performing support functions, by contrast, have learned how to get tangible business benefits from their digital investments.

A good example is Microsoft’s finance function. In the early 2000s, Microsoft faced a proliferation of internal data, inflexible technology systems with static reporting, overly manual processes, and increased regulations. Through a decade-long effort, the company’s finance group patiently invested in a digital transformation through the recession and a change in corporate leadership.

Digital enhanced virtually every corner of finance, from global business reviews on a KPI data lake to machine learning in accounts receivables, allowing finance professionals to spend more time on higher-value activities. In parallel, relative costs fell: From 2009 to 2018, Microsoft’s finance headcount grew by 14% while revenue grew by 89%.

4. Expect the best, plan for the worst.

Reducing costs by 5% to 10% might be challenging, but what if the situation calls for 30% or more in savings? Rather than wait and possibly get backed into a corner during crisis or disruption, it pays to plan early for restructuring functions to take out massive costs, whether through eliminated work, redesigned processes, shared services, or digital tools.

Caterpillar, which provides heavy equipment and related services, put contingency planning to good use. As part of its 2005 strategic plan, every business unit developed a detailed plan that could be initiated quickly during an economic downturn. Once the recession started, prior planning allowed the company to take rapid, bold steps to immediately align the G&A structure with lower volumes and revenue.

When revenue declined by 37% in 2009, Caterpillar had already started to execute contingency plans the year earlier, reducing selling, general, and administrative costs by 17%.

Come the next downturn, leaders that make the hard investments early — eliminating low-value work, reinventing processes, and making the most of digital technology — will fare better than others. They’ll provide fuel for reinvestment to go on offense and emerge from the recession in a winning position.

Michael Heric and Pamela Yee are partners with Bain & Company.

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Source: CFO.com 

https://www.cfo.com/cost-management/2019/09/fast-and-easy-ga-cuts-wont-cut-it-in-the-next-downturn/

September 03, 2019

CHATTANOOGA, Tenn. (Sept. 3, 2019) — Employee benefits provider Unum (NYSE: UNM) finds that 38% of U.S. adults rate their ability to manage finances as average, poor, or very poor. An additional 40% of respondents say they don’t have or don’t know if they have a life insurance policy to financially protect their loved ones. These findings and more are part of an online poll of 1,000 U.S. adults conducted by Unum in August. These consumer insights coincide with Life Insurance Awareness Month, promoted annually by the nonprofit organization, Life Happens.

The same study highlighted additional financial exposure and anxiety, including:

• 35% say thinking about what would happen to their family should they die unexpectedly was a top cause of anxiety; only going to the dentist (40%) rated higher.
• If the family’s primary wage-earner were to die unexpectedly, 32% of those in their prime working years (25-64) would feel the financial impact within a month.
• 34% think they need just one or two times their annual salary in life insurance to financially protect their family.

According to life insurance industry group, LIMRA, nearly half of U.S. households are underinsured, with an average coverage gap of $200,000. Additionally, the group recommends an individual have seven to 10 times their salary in life insurance1.

“While it’s not surprising that so many adults aren’t confident in their financial planning abilities, it’s concerning that such a large percentage are leaving their families financially unprotected,” said personal finance expert, Laura Adams. “For most people, their ability to earn an income throughout their life is the biggest asset they have, and term life insurance is a relatively inexpensive way to protect that asset until they retire, or their family financial obligations decrease.”

Of survey respondents working full-time, 46% purchase life insurance through their employer, most often during an open enrollment period in the fall. However, according to a separate survey by Unum of 1,512 working adults also conducted in August, 50% spend 30 minutes or less reviewing all their benefit options prior to enrolling.

The most important reason for having a life insurance policy is to financially protect loved ones. If they count on the primary wage-earner’s income or other financial resources, life insurance helps assure they’re covered if that individual passes away. It can also cover funeral expenses, pay off debt, pay estate taxes and for things like a child’s education, student loans, or a home mortgage.

In 2018, Unum’s group life insurance plans paid $1.1 billion in claims to more than 24,000 families. Visit Unum’s life insurance page for more information.

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Source: Unum Group

https://www.unum.com/about/newsroom/2019/september/liam-2019

On September 18, California Governor Gavin Newsom signed into law Assembly Bill 5, which establishes a three-part test that a business must prove to maintain that a worker is an independent contractor for employment purposes in the state. Some professions — including doctors, insurance agents, and artists — are exempt from AB5, which takes effect January 1, 2020. But transportation network company drivers and potentially other marketplace contractors are not.

The law establishes stricter criteria, known as the ABC test, to maintain a worker as an independent contractor. Specifically, a business must prove that:

1. The worker is free from the company’s control.
2. The duties performed by the worker are not central to the company’s core business.
3. The worker is customarily engaged in an independently established business, trade, or industry.

Workers that do not satisfy all three criteria will be reclassified as employees, which could allow them to start earning a minimum wage and qualify for overtime pay and paid leave, among other benefits.

New Costs and Liabilities

For employers, AB5 could represent a costly change and expansion of risk profiles. Among other effects, AB5 will affect:

• Workers’ compensation programs. Beyond the fact that more individuals will now be eligible for statutory workers’ compensation benefits in the event of work-related injuries, the reclassification of independent contractors will almost certainly increase insurance purchasing costs for many employers. If premiums increase to an extent that businesses will no longer be able to absorb their costs and instead pass them on to customers, revenues could be adversely affected.
• Employment practices liability and wage and hour risks. Misclassification of workers who are eligible for overtime could result in significant legal exposure in a state that was already at the forefront of costly wage and hour litigation and well known for the broad protections provided to its workers. California’s expansive civil rights laws will also now apply to a much larger population of workers, providing protections for oft-filed claims of harassment, discrimination, and retaliation. Any company with operations in California that uses independent contractors can expect to face more frequent wage and hour and employment litigation to unemployment insurance for these newly reclassified workers.

Take Action Now

There is still debate on the effect the new legislation will have on workers themselves, and not all have endorsed it amidst fear that new regulations will lead to the companies they work for restricting their working hours or, worse, cut them off completely. Some workers for app-based businesses worry that the new law will take away their flexibility.

Although AB5 is expected to face legal challenges and there remain some unanswered questions, including whether Dynamex applies retroactively, businesses should begin preparations to adapt to the new law. Employers should take steps now to carefully review the classification of any independent contractors in California, ideally in concert with counsel to ensure the results are protected by the attorney-client privilege. They should also consider how the reclassification of workers — including the potential for employee status to be awarded retroactively — could affect:

• Insurance programs, including workers’ compensation, employment practices liability and wage and hour liability.
• Human resources.
• Payroll.
• Benefits.

While AB5 is restricted to California, the Golden State is known as a workplace protections trailblazer, and lawmakers in other states have expressed interest in passing similar legislation, as have labor groups. That means even businesses not directly affected by the new law should keep an eye on its progress and consider how similar legislation elsewhere could affect their organizations. 

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Source: Marsh LLC (“Marsh”)

https://www.marsh.com/us/insights/research/california-ab5-impact-on-contractors.html

AUTHOR

Ryan Golden@RyanTGolden

PUBLISHED

Sept. 24, 2019

Dive Brief:

• The U.S. Department of Labor (DOL) announced today it will publish a final overtime rule, setting the minimum salary threshold for overtime eligibility at $35,568. The regulations implement the Fair Labor Standards Act (FLSA)'s overtime mandate and, according to a senior DOL official, will make an estimated 1.3 million additional U.S. workers eligible for overtime pay. The final rule will be effective Jan. 1.
• The threshold is slightly higher than the $35,308 proposed in the initial draft of the rule and also will allow employers to count non-discretionary bonuses, incentives and commissions as up to 10% of an employee's salary level, as long as those bonuses are paid annually. The FLSA's exemption threshold for highly-compensated employees will be set at $107,432, lower than in DOL's initial draft but still higher than the previous threshold of $100,000.
• A DOL official said Tuesday the agency "has not set out a time frame" for any automatic updates to the overtime eligibility threshold beyond what is included in the final rule. The official also said the final rule released Tuesday will not make changes to the FLSA's "duties test."

Dive Insight:

This is perhaps one of the most anticipated final rulemakings from DOL, and it likely won't be the last before the end of the year. Acting Secretary of Labor Patrick Pizzella told attendees at a recent DOL event to expect several proposed and final rules before the year's end, Bloomberg Law reported.

Pizzella also recognized the possibility of DOL's regs facing lawsuits ahead of implementation, Bloomberg Law said. DOL will likely face legal action of the overtime rule specifically, Tammy McCutchen, shareholder at Littler Mendelson and former wage and hour administrator in the Bush administration, told HR Dive in an earlier interview.

"It's inevitable," McCutchen said, "but that's another reason to get it out as soon as possible." 

Some stakeholders took issue with the department's methodology for calculating the new threshold announced in the draft of the rule, which was the same as that used when the threshold was last updated in 2004. That measurement ties the salary level to the 20th percentile of earnings of full-time salaried workers in the retail sector within the lowest-wage census region, the U.S. south.

McCutchen, an author of public comment submitted by the U.S. Chamber of Commerce, said the group objected to this methodology because it included parts of Virginia, Maryland and Washington, D.C., which are also three of the highest wage-earning areas in the U.S. "Because of that, this data should be excluded," McCutchen said. "If they did that, they would end up closer to $32,000 [per year]."

Employee advocates think the new threshold was too low and have spoken out against it for being lower than that proposed by the Obama administration in 2015. Heidi Shierholz, former chief economist at DOL during the Obama administration and current senior economist at progressive think tank Economic Policy Institute, wrote in a blog last month that the DOL's proposal "is a dramatic weakening of a rule published just three years ago." The group estimates more than 8 million workers who would have been eligible for overtime under the enjoined rule would not be under the new rule.

Also at issue was the rule's new minimum threshold for highly-compensated executive employees. McCutchen and others objected to the new, higher threshold for similar methodological reasons, and she noted that small businesses would likely be unable to take advantage of it. Employer groups argued that increases to this threshold should instead be implemented "more gradually over a number of years," McCutchen said.

Employers now have 99 days to comply with the rule.

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Source: HR Dive

https://www.hrdive.com/news/breaking-dol-finalizes-35k-overtime-threshold/562000/

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Andrew W. Mitchell, Managing Editor – Hunt Scanlon Media

September 18, 2019 – Each day brings new headlines about artificial intelligence, from an AI system passing an eighth-grade science test to fears of the technology replacing human workers. According to Gartner, enterprise use of AI has grown by 270 percent over the last four years. Despite this acceleration toward AI, many HR leaders feel unprepared.

Spencer Stuart recently surveyed a sample of Fortune 500 CHROs to take their pulse on how far their organizations are in the AI journey, their biggest concerns and what they see as key opportunities. While many of these HR leaders anticipate that the technology will enable strides in the personalization of the employee experience, reallocation of resources to more value-adding projects and improvement in talent retention, the vast majority, 83 percent, believe their organizations face a readiness gap when it comes to AI.

For some, it’s financial. “Fifty-three percent 53 percent of our respondents reported that their organizations do not have a budget set aside for AI,” said Fleur Segal, author of the report and a member of Spencer Stuart’s human resources practice. “For others, it’s people: Almost half of the CHROs listed change management and employee experience/receptiveness as top concerns for AI integration. The good news is that HR leaders can greatly influence how the technology is applied in their organizations by focusing on a few key areas.”

Battling Bias

A few CHROs commented in the Spencer Stuart survey that they are worried that AI will reinforce bias. AI, for example, can be used to help identify candidates with attributes similar to executives who have been successful in the organization. But if these successful executives all have similar backgrounds, then the technology could potentially limit diversity.

“Instead, HR leaders can help put safeguards in place to ensure AI works to eliminate bias by challenging assumptions with data (for example, that only candidates with experience in the organization’s specific industry can contribute meaningfully) and participating in the development of robust leadership assessment processes,” said Ms. Segal.

Protecting the Employee Experience

The impact on the employee experience emerged as a top issue in the Spencer Stuart survey. While it’s natural to be concerned about what this technology will do to the human element of work, AI can actually be used to enhance the employee experience and improve employee engagement.

“AI can make the onboarding process more tailored and create a sense of belonging for remote workers,” Ms. Segal said. “Additionally, it can free up time previously taken up by administrative tasks so that employees can focus on more strategic work and career growth opportunities.”

Honoring the Human Element

Workforce readiness and adoption — and the lack thereof — are also on the minds of CHROs. Resistance can often be the result of fear (for example, will AI replace my job?)

“HR leaders can help ease these anxieties by clearly communicating how AI will directly affect employees, as well as helping to shape the overall cultural journey that often goes along with AI implementation,” said Ms. Segal. “We’ve seen organizations make shifts to more learning-oriented cultures in response to digital disruption; two-thirds of CHROs say they are most likely to use AI for learning and development purposes.”

Spencer Stuart said that in this environment CHROs should be asking: How do we enable learning? How do we ensure there is psychological safety for people to fail fast and learn?

“Ultimately, HR will be charged with understanding the people side of AI, from its role in the employee experience to the impact on the organizational culture,” Ms. Segal said. “And they need to be ready.”

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Source: Hunt Scanlon Media

https://huntscanlon.com/hr-leaders-report-readiness-gap-when-it-comes-to-ai/

Friday, September 13, 2019

To the surprise of no one who’s been following this story, the Equal Employment Opportunity Commission (EEOC) announced on September 11, 2019, that it would not renew its request for authorization from the Office of Management and Budget to collect EEO-1 Component 2 pay data after the current authorization expires. If you saw this news and are hoping it means you can skip filing your 2017 and 2018 EEO-1 Component 2 data by the current September 30 deadline, we’re here to both burst your bubble and tell you there’s hope for the future.

Bad news first — the Notice of Information Collection regarding the Employer Information Report (EEO-1) published in the Federal Register on September 11 does not affect the obligation of EEO-1 filers to submit Component 2 data for calendar years 2017 and 2018 by September 30, 2019. However, in the same notice, the EEOC said it would seek authorization only to continue collecting EEO-1 Component 1 data, as it has been since 1966. Thus, the good news is that the EEOC will not collect Component 2 pay data beyond what’s due on September 30 because, according to the EEOC in the notice, the “unproven utility” of the pay data is “far outweighed by the burden imposed on employers that must comply with the reporting obligation.”

So if you’re one of the estimated 90,000 EEO-1 filers, you’re still on the hook to submit your 2017 and 2018 Component 2 pay data by the September 30 deadline, but there’s hope you won’t have to go through this wasteful exercise again, at least not when you file your next EEO-1 report in March 2020. In the meantime, if you have any questions about submission of your Component 2 pay data, consult your employment counsel, as the clock is ticking.

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Source: The National Law Review

https://www.natlawreview.com/article/eeoc-cans-component-2-pay-data-collection-rule-after-september-30