Happy Monday! Re-publishing this fantastic update from Mike Miller regarding joint employment.
Who would have thought that PEOs would have anything in common with McDonald’s, Hamburger University, and joint employment? Well, earlier this month a three judge panel of the United States Court of Appeals for the 9th Circuit issued a decision interpreting California law regarding a joint employment issue that PEOs will be able to utilize with regard to the bourgeoning number of wage claim cases in California and elsewhere that have been filed against PEOs. In this California case, the Plaintiffs, among other allegations, alleged that they were denied proper overtime premiums, meal and rest breaks, and other benefits in violation of the California Labor Code. Most significantly, the Plaintiffs also alleged that McDonald’s and its franchisee are joint employers and that McDonald’s is, therefore, liable for the wage violations. The district court had held that McDonald’s is not a joint employer of the franchisee’s employees and was not liable for these wage claims and had dismissed these claims in a summary judgment action. On appeal, the 9th Circuit affirmed the lower court ruling.
Similar to how PEOs operate, the franchisee, and not McDonald’s, selects, interviews, hires, trains, supervises, disciplines and fires its employees. The franchisee also sets the employees’ wages and their work schedules and monitors their time entries. There was no evidence that McDonald’s performed any of these functions. Interestingly, evidence in the record, if viewed in a manner most favorable to the Plaintiffs (as must be done in a summary judgment proceeding), would have permitted a finding that McDonald’s could have prevented some of the alleged wage-and-hour violations but did not do so, and yet this did not impact the Court in its decision.
Under the franchise agreement, McDonald’s required the franchisee to use its Point of Sale (“POS”) and In-Store Processor (“ISP”) computer systems every day. Managers of the franchisee took various courses at McDonald’s Hamburger University and then trained other employees on topics such as meal and rest break policies. The franchisee also voluntarily used the McDonald’s computer systems for scheduling, time keeping, and determining regular and overtime pay through applications that came with the IPS software.
Under the applicable California Wage Order, an employer is defined as one “who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.” In construing this Wage Order, the California Supreme Court has set forth three alternative definitions as to what it means to “employ” someone. These three alternative definitions, any one of which can establish an entity as an employer, are as follows:
(a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law relationship.
With regard to whether McDonald’s exercises “control over the wages, hours or working conditions” of the employees of the franchisee, the 9th Circuit pointed out that McDonald’s does not “retain ‘a general right of control’ over ‘day-to-day aspects’ of work at the franchises.” The Court held that McDonald’s involvement with the workers did not represent control over wages, hours, or working conditions.
With regard to the “suffer or permit to work” definition of employer, here too McDonald’s did not meet the test for being an employer. In one of the more significant aspects for how this case may impact PEOs, the Court stated:
The question under California law is whether McDonald’s is one of Plaintiffs’ employers, not whether McDonald’s caused Plaintiffs’ employer to violate wage-and-hour laws by giving the employer bad tools or bad advice.
I have written previously about the importance of not referring to the manner in which PEOs do business in California as being the “leasing of employees.” The 9th Circuit gave credence to this position when it referred to a staffing agency supplying employees to another entity and having such a manner of doing business fit under the “suffer or permit to work” standard for being an employer. Clauses found in PEO Service Agreements stemming from the early days of the industry such as the PEO shall have the power to “withhold employees’ services from the client,” not only is not an accurate representation of the realities of the PEO/client relationship in 2019, but also is a worrisome clause. As the 9th Circuit pointed out in this decision, the determination of whether an entity is an employer under the “suffer or permit to work” standard turns in part on whether an entity has “the power to prevent plaintiffs from working.” Consequently, in California, a PEO’s not retaining or assuming “a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee’s employees” is crucial in avoiding the determination of employer status under California law.
Lastly, with regard to the third part of the test, “to engage, thereby creating a common law relationship,” the Court concluded that according to California common law “[t]he principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” The Court stated that while perhaps arguably there was evidence that McDonald’s was aware that its franchisee was violating California’s wage-and-hour laws with respect to the franchisees employees, there was “no evidence” that McDonald’s had the requisite level of control over the Plaintiffs’ employment to establish a joint employer relationship.
While the Court went on to dispose of other peripheral issues, the Court’s discussion did not change the fact that McDonald’s did not have sufficient control to make it an employer. I have talked for many years about making sure your service agreements are 21st century service agreements and this case drives home the importance of updating service agreements.
On Sept. 24, 2019, the U.S. Department of Labor (DOL) announced a new final rule that updates the salary thresholds that some individuals must meet in order to qualify for a
minimum wage and overtime exemption under the federal Fair Labor Standards Act (FLSA). The final rule becomes effective on Jan. 1, 2020. The final rule affects the exemptions for executive, administrative and professional (EAP) employees, highly
compensated employees (HCEs), employees in the motion picture industry and individuals who work in various U.S. territories.
The final rule’s Jan. 1, 2020 effective date leaves little time for employers to prepare for the changes. Employers should:
- Determine which currently exempt employees have
salaries below the new threshold; and
- Decide whether to increase salaries for these
individuals or reclassify them as non-exempt
The 2019 Overtime Final Rule
As expected, this final rule includes updates to the standard salary level for the EAP and HCE exemptions and allows employers to count up to 10 percent of an employee’s nondiscretionary bonuses and incentive payments (including commissions) as part of the employee’s standard salary level. The rule also creates special standard salary levels for the exemption that applies to employees in the motion picture production industry and some U.S. territories. The table below shows the salary levels for the EAP and HCE exemptions that will apply on Jan. 1, 2020. The final rule’s salary levels are different from the 2016 rule and the 2019 proposed rule.
The final overtime rule will allow employers to use up to 10 percent of an employee’s bonuses to satisfy salary level requirements if:
- The bonus, commission or other incentive pay is nondiscretionary; and
- The employee receives this incentive pay at least annually (during any given year or 52-week period).
The final rule also contains a “catch-up” provision that enables employees to remain exempt when their nondiscretionary bonuses aren’t enough to meet the salary level required by an FLSA exemption. Under this new rule, employers must make a “catch-up payment” within one pay period at the end of the 52-week period before losing that employee’s exempt status. The DOL has warned that any catch-up payment “will
count only toward the prior year’s salary amount and not toward the salary amount in the year in which it is paid.”
The final rule sets a special salary level of $380 per week for American Samoa, and sets a special salary level of $455 per week for employees in Puerto Rico, the U.S. Virgin Islands, Guam, and the Northern Mariana Islands. The rule also establishes a base rate threshold for employees in the motion picture producing industry of $1,043 per week. This new threshold can be prorated based on the number of days the employee has worked. The DOL intends to update the standard salary and HCEs total annual compensation levels more regularly in the future through notice-and-comment rulemaking.
Being a Professional Employer Organization (PEO), you are in the business of helping others run a successful business. With the sustained low unemployment rates we have experienced over the past several quarters, human capital has become a precious intangible asset for many companies. Your clients are among them.
Helping your clients identify, hire and retain employees successfully is a tremendous value add which can help set you apart from other PEOs. After all, an organization is often said to be only as good as its people.
To this end, I hope you find the following article from the Harvard Business Review on 7 Ways to Set Up a New Hire for Success by Michael D. Watkins both helpful and informative.
For more content on successful hiring and related topics, visit your Libertate myWaive portal, or speak to a Libertate representative.
No one has a bigger impact on new employees’ success than the managers who hired them. Why? Because more than anyone else the hiring manager understands what his or her people need to accomplish and what it will take — skills, resources, connections — for them to become fully effective.
Managers also have the biggest stake in onboarding their new hires effectively. Research has shown that being systematic in onboarding brings new employees up to speed 50% faster, which means they’re more quickly and efficiently able to contribute to achieving desired goals. Effective onboarding also dramatically reduces failure rates and increases employee engagement and retention.
The earlier bosses start supporting their new hires, the better. The time between when someone accepts an offer and comes to work is a precious resource that can be used to jump-start the process. But even if new employees already are on the job, there are many ways to get them up to speed faster.
Of course, the starting point is to take care of the “onboarding basics” — such as documentation, compliance training, space, support, and technology. Fortunately, most companies do a reasonably good job with those elements.
It’s the deeper work of integrating new hires where the real work of bosses begins. Here are seven key ways to accomplish it:
Understand their challenges.
Onboarding is among the toughest types of job transitions. Why? Because new hires, even if they are experienced professionals, are unfamiliar with the business, don’t understand how things really work, lack established relationships, and have to adapt to a new culture. Research has shown that challenges in the latter two categories are the biggest reasons for quick turnover. New employees have to learn a lot and may be feeling quite vulnerable, even when they seem outwardly confident. That’s even more likely to be the case when people have relocated for their jobs, so also face change in their personal lives, or if they’re moving up a seniority level, so must adjust to a new managerial role.
Some might respond by playing it safe and sticking too much to what they already know; others may overcompensate, behaving like they have “the answer,” rather than asking questions and figuring out how to add value.
So it’s important for bosses to reassure recent hires that learning is more important than doing in the early days.
Accelerate their learning.
The faster a new hire learns about the organization and their role, the more they will be able to accomplish in the critical first months. To accelerate the learning process, managers must first focus on what focus on what they need to learn in three areas. Technical learning is insight into the fundamentals of the business, such as products, customers, technologies, and systems. Cultural learning is about the attitudes, behavioral norms, and values that contribute to the unique character of the organization. Political learning focuses on understanding how decisions are made, how power and influence work, and figuring out whose support they will need most.
Bosses should also think about how they can help new employees. This means not only personally providing, as early as possible, the best available information but also thinking about who else is best placed to impart those important lessons.
Make them part of the team.
While it’s possible that new hires will work independently, it’s more likely they will be part of a team (or teams). The sooner they build effective working relationships with their peers, the better, and there’s a lot a hiring manager can do to make this happen.
The starting point is to make sure the team understands why the person has been hired and what role(s) they will play. It’s also important that bosses formally introduce new employees — to everyone — as soon as possible after their arrival and make it clear that teams are expected to help their new colleagues acclimate and move up the learning curve. A small initial investment of time and effort in connecting the new hire with the team will pay long-term productivity and performance dividends.
Connect them with key stakeholders.
Outside of the new hire’s immediate team, there are likely to be many other stakeholders who will be critical to not only their learning but also their success on the job. And it may not be obvious who those people are, why they’re important, or how best to connect with them.
One simple way bosses can facilitate these connections is to make a list of names, including brief notes on each, and then make introductions, explaining why it’s important that they connect. Then schedule a date, perhaps in 30 to 45 days, to check in with the stakeholders to make sure that the new hire’s network is taking shape.
Give them direction.
Employees can’t — or shouldn’t — get to work before bosses set clear expectations. The right guidance helps them answer three key questions:
- What do I need to do? This means defining their goals and the timeframes for accomplishing them, as well as the measures that will be used to evaluate their progress.
- How should I go about doing it? This means being specific about what strategies they should use to accomplish the goals, including what activities they should and should not prioritize.
- Why should I feel motivated to accomplish it? This means communicating a vision for what the organization is striving to accomplish and helping new hires see the part they play in realizing it.
Even if expectations were discussed during the recruiting process, you need more in-depth conversation as soon as new hires start to make sure they’re not coming in with any misconceptions about what they need to do to be successful.
Help them get early wins.
Early wins are a powerful way for incoming employees to build confidence and credibility. People new to a job and organization often want to prove they can do it all and fall into the trap of trying to take on too much, too soon, thereby spreading themselves too thin.
The manager’s job is to instead keep new hires focused on the essential work they should prioritize and by pointing them to ways they’ll make rapid progress on these goals. Part of this is teaching them how to “score” wins in ways that are consistent with the organization’s culture. You want employees to get their early wins in the right way.
Coach them for success.
Finally, bosses who are serious about onboarding don’t just provide intensive early support then leave new hires to “sink or swim.” It takes time for new employees to become fully integrated and able to operate 100% autonomously and productively, so it’s important for hiring managers to continue to connect with and coach their people. This can be as simple as scheduling regular “how are things going?” check-ins, perhaps every couple of weeks, until there is nothing left to talk about.
Also, when managers see new hires struggling, they should intervene. It’s a common mistake to treat new hires too gently, thinking it’s best to give them time to adjust and that early issues with, say, peer relationships and cultural fit, will resolve themselves. But this can easily create vicious cycles in which employees unknowingly dig themselves into holes from which they can’t climb out. The longer a negative dynamic persists, the more difficult it is to reverse.
As bosses apply these guidelines, they should keep in mind that “effective onboarding” is not just about helping external hires. Employees making internal moves can face challenges that are as tough or tougher. This is especially the case when they are coming from different units, have been shaped by different cultures, or are moving from different geographies. Managers should can the same approach to accelerate everyone joining their teams.
See below from our friends at NAPEO. Solid results!!
AUSTIN, Texas, Sept. 17, 2019 /PRNewswire/ — The average client of a professional employer organization (PEO) can expect a return on investment – based on cost savings alone – of 27.2 percent, according to a new study released today by the National Association of Professional Employer Organizations (NAPEO) at its annual conference in Austin.
Conducted by noted economists Laurie Bassi and Dan McMurrer of McBassi and Associates, the study is the seventh in a series. Previous research by Bassi and McMurrer examined the benefits of using a PEO, finding increased profitability and growth, higher employee satisfaction, and lower employee turnover for companies that use a PEO.
The new report focused solely on costs and calculated savings for PEO clients in five HR-related areas:
- HR personnel costs
- Health benefits
- Workers’ compensation
- Unemployment insurance (UI)
- Other external expenditures in areas related directly to HR services (payroll, benefits, etc.)
The average cost savings from using a PEO is $1,775 per year per employee, according to the study, which also reinforced the findings of earlier research, again showing notably lower employee turnover, higher rates of both employee and revenue growth, and enhanced employee benefit offerings.
“We have known for some time now that using a PEO is good for a company in a variety of ways, and we now have a compelling and impressive number on the actual ROI of using a PEO,” said NAPEO President & CEO Pat Cleary. “When you put this new data on costs savings and ROI together with the data we already had on business growth, turnover, survival and employee satisfaction, it’s clear that there really is no better value proposition than PEOs in the HR space.”
PEOs provide HR, payroll, benefits, workers’ comp, and regulatory compliance assistance to small and mid-sized companies. By providing these services, PEOs help businesses improve productivity, increase profitability, and focus on their core mission. Through PEOs, the employees of small businesses gain access to employee benefits such as 401(k) plans; health, dental, life, and other insurance; dependent care; and other benefits typically provided by large companies. A copy of the full study is available here.
The National Association of Professional Employer Organizations (NAPEO) is The Voice of the PEO IndustryTM. NAPEO has some 250 PEO members that provide payroll, benefits, and other HR services to between 175,000 businesses employing 3.7 million people. An additional 200 companies that provide services to PEOs are associate members of NAPEO. For more information, please visit www.napeo.org
SOURCE National Association of Professional Employer Organizations (NAPEO)
Is this the tip of the iceberg on this front?…
“In some arrangements, a pharmacy will bill the insurance program for the reimbursement, then provide a referral fee as high as 40% to doctors who prescribe the medications, and another fee to teams that find the injured workers and other patients who are referred to certain doctors, Oberheiden said.
For years I have seen TPA’s get “bonused” for referrals to allocated loss adjustment expense providers and that is bad. A physician getting the same by routing claimants to specific pharmacies for personal benefit is Godawful and directly in violation of the AMA’s Code of Medical Ethics.
“Section 7. In the practice of medicine a physician should limit the source of his professional income to medical services actually rendered by him, or under his supervision, to his patients. His fee should be commensurate with services rendered and the patient’s ability to pay. He should neither pay nor receive a commission for referral of patients. Drugs, remedies or appliances may be dispensed or supplied by the physician provided it is in the best interests of the patients.”
From our friends at workcompcentral.com
Friday, September 20, 2019
Federal Comp Cream Scheme Probe Widens; New Charges Added to 2017 Indictment
The arrests all across Texas represent the latest round in a 12-year crackdown by federal authorities against what they call “pill mills,” many of which also produced high-priced compounded creams for injured federal workers.
“As we continue to dedicate resources to battle health care and opioid fraud schemes in Texas and elsewhere, we are shining an inescapable light on dirty doctors, clinic owners, pharmacists and others who may have long believed they could perpetrate their frauds behind closed doors,” Assistant U.S. Attorney General Brian Benckowski said in a statement Wednesday.
Eight of the defendants, charged with defrauding the U.S. Department of Labor’s Office of Workers’ Compensation Programs, are no strangers to prosecutors. They were indicted in 2017 on charges that they and three pharmacies in the Dallas area billed the federal compensation program as much as $28,000 per tube for pain and scar creams.
Some of those defendants may be in the midst of plea negotiations on the 2017 charges, but now face the superseding indictment handed down last week. The new indictment adds several new charges, according to federal court records and the U.S. Attorney’s Office in Dallas.
As a condition of their release after the 2017 charges, the defendants were prohibited from billing for compounds, said spokeswoman Erin Dooley.
The latest wave of charges related to the federal cream scheme comes as something of a surprise to some criminal defense lawyers. Although the Department of Labor’s workers’ comp program was slower than some other federal insurance programs to react to exorbitant compounded creams, the office did announce new restrictions in 2016, and dozens of people have been prosecuted across the country since then.
The latest arrests may be part of the tail end of the prosecutions for the schemes, which were allowed to fester because the federal comp agency was slow to react, said attorney Nick Oberheiden, of Dallas. He said he has represented clients in about 150 federal compound-cream fraud cases in recent years.
“The question is, how was it possible that the Department of Labor kept offering these incentives and paying the crazy reimbursement without some better auditing or controls?” he asked. “It created an opportunity for people to try and get lucky.”
The Texas arrests are part of the Medicare Fraud Strike Force, a joint effort by the U.S. Department of Justice and the Department of Health and Human Services to deter fraud, and stem overprescribing in the age of a nationwide opioid addiction crisis, prosecutors said. Since 2007, the operation has charged almost 4,000 people with health care fraud.
Prosecutors are right to go after the blatantly fraudulent pill mills that have devised ways to bill insurance programs for drugs that are unnecessary and overpriced, Oberheiden said. But in some cases, he said, doctors and pharmacies are getting caught up in investigations because they may not realize that prosecutors often treat any type of referral arrangement as a kickback.
“Under federal law, that’s illegal,” he said.
In some arrangements, a pharmacy will bill the insurance program for the reimbursement, then provide a referral fee as high as 40% to doctors who prescribe the medications, and another fee to teams that find the injured workers and other patients who are referred to certain doctors, Oberheiden said.
He recommended a two-part test that medical providers must pass to avoid federal prosecution.
“First, was the prescription medically necessary? Did the doctor have a valid reason for the prescription?” he asked. “And second, does the patient’s chart contain those reasons for the prescription?”
Of the 58 defendants arrested this week, the nine charged in connection with defrauding the federal workers’ compensation program, laundering money and evading taxes, are:
- Jamshid Noryian, also known as James, the owner of Ability Pharmacy, Industrial & Family Pharmacy and Park Row Pharmacy, all in the Dallas area.
- Dehshid Nourian, also known as David, a pharmacist and president of those pharmacies.
- Christopher Rydberg, an official with Bandoola Pharmaceuticals.
- Leyla Nourian, a dentist and business owner.
- Ashraf Mofid, also known as Sherri, an official with Bandoola Pharmaceuticals.
- Dr. Leslie Benson, an occupational medicine physician and owner of three clinics in central Texas.
- Dr. Michael Taba, and orthopedic surgeon.
- Ali Khavarmanesh, co-owner of Park Row pharmacy.
- Dr. Kevin Williams, a former orthopedic surgeon.
All except Khavarmanesh were indicted in the 2017 investigation, prosecutors said. Two people who worked for Benson’s clinic also were charged with health care fraud last October.
For those of you who missed out, definitely take a look at Paul’s “Big Data” presentation he did at NAPEO this year.
Libertate Insurance wanted to thank you for joining us at NAPEO 2019 in Austin! I hope everyone had a great time and learned a lot from the breakout sessions!
We hope you gathered some valuable information about the impact that Big Data and AI/ML can have on you and your PEO! We look forward to a great year ahead!