SCORE
Employment Practices Audits are strategic and objective reviews of an organization’s policies, procedures and practices that touch employees.  They are intended to identify risk and provide workable solutions to eliminate that risk.  As small business owners it is important to understand and identify key risks within your business and put effective processes in place to reduce them.
 
Jody McLeod of McLeod Legal Solutions in Charlevoix recently provided an excellent overview of what an Employment Practice Audit is and highlighted several key areas for small business owners and managers to focus on discouraging Dept. of Labor (DOL) intervention and litigation.  These include job classification, wage and hour practices, safety management and discrimination and harassment policy/claims management. 
 
Wage and hour practices are laws impacting employee compensation such as minimum wage, overtime and classification. The DOL has had a laser focus on the correct classification of employees, (exempt, non-exempt and independent contractors) due to the loss of tax revenues because of gig workers and side contractors.  Compensation requirements vary depending upon correct classification. Wage and hour violations can be an expensive endeavor. Why? Because they are generally unintentional on the part of the employer, impacting many employees over a period of time.   This makes it a clear target for the Dept. of Labor and plaintiffs’ attorneys. Take for example a misclassification of a position as ‘exempt’.  If, based on duties, the position should be classified as non-exempt and entitled to overtime. Such a determination impacts every employee in that position as well as all former employees.  The employer will need to go back in time (3-6 years) determine how many individuals worked in excess of 40 hrs. and re-calculate the pay including overtime and interest. If the government is involved, a penalty would be assessed and could issue an order or agreement where the govt. has oversight in the business for compliance purposes. If an attorney is involved, this matter would be filed as a class action suit and could subject an employer to very expensive litigation expenses and business disruption.
 
EHS, (Employee Health and Safety) management is a critical area for all businesses. Policies and procedures for preventing accidents, ensuring compliance with OSHA (Occupational Safety and Health Administration) regulations and providing a safe workplace for well trained employees are mandatory for all businesses today. When you bring your new workers onboard, are you training them on safety concerns pertinent to your business; are you supplying your workers with the appropriate equipment needed to perform their duties safely; do you have the appropriate signage to remind/demonstrate to the workers the correct way to conduct their duties? Having robust training and safety programs communicates a clear message to the employees about your concern for their safety and well being.  You must have them if you want to hire and maintain an engaged workforce. 
 
The last area is discrimination and harassment policy and claim management. It is imperative for employers to ensure that they have an updated and appropriate policy, posted and printed in employee handbooks, routine training and a robust complaint process. Most importantly, all supervisors and managers need intensive training to ensure an understanding of acceptable and unacceptable behaviors. Failure to do so exposes the employer because there is strict liability imposed on the employer as a result of the ‘managers of people’ behaviors- they are acting in the employer’s shoes.
 
What happens if you have a discrimination/harassment claim? Businesses should have a claims process already in place and it needs to be followed quickly and religiously.  Investigating a claim: 
  • All claims are required to be investigated promptly and thoroughly in an unbiased manner and confidentially/privately (to the extent possible).
  • An impartial party to lend credibility to its result should conduct the investigation.
  • Investigations are fact-finding exercises and include relevant documents and interviews of individuals who have or may have information to assist the investigator evaluating the situation. 
  • The findings reached by the investigator should be reduced to a written report shared with the employer and those with a need to know. The reports content should clearly address the claims made as well as other information learned during the investigation process. These reports should be kept on file for future reference. 
  • Failure of a business in conducting an investigation could turn into expensive litigation and legal claims. 
Effective management involves an open discovery on process and process improvement. Employee Practice Audits are one tool to help today’s business owners and managers put effective policies and procedures in place. 

About the Author(s)

Rex Winter

Rex Winter is a retired business executive from the agriculture industry, and a volunteer mentor with SCORE’s Tip of the Mitt chapter.

Mentor, SCORE
Key Employment Practices for Small Business