The holidays are upon us, and for many employers, this means bonuses and performance reviews. While both activities may seem harmless \u2013 even positive \u2013 handled improperly, they become legal landmines. So, how do you handle these year-end rituals without exposing the organization to unnecessary risk?<\/p>\n
Bonuses<\/p>\n
Year-end bonuses, especially when unexpected, are arguably one of the most appreciated gestures organizations do for their employees. So, where\u2019s the harm in that? It\u2019s not necessarily the bonus itself that creates the potential for liability; rather, it\u2019s the process of determining who gets one and how much.<\/p>\n
Simply put, the less subjective the criteria, the better. Amounts that appear arbitrary from one employee to the next or unrelated to anything employees can understand open the door for claims of discrimination and favoritism, particularly when it appears members of a protected class (age, race, sex, etc.) receive lower amounts than others. The following are best practices for creating a bonus system free of discriminatory bias that employees are more likely to trust.<\/p>\n
\u00b7 Criteria should be objective and measurable, such as documented productivity or pre-set performance standards. Any reductions in bonus amounts should be documented with legitimate and quantifiable data.<\/p>\n
\u00b7 Be mindful of when absences and\/or a correlating reduction in productivity that result in a lower bonus may be viewed as retaliation for exercising a legal right, such as the Family and Medical Leave Act (FMLA) or the Americans with Disabilities Act (ADA). Criteria impacted by these things should be documented with extra due diligence.<\/p>\n
\u00b7 Ensure bonus amounts, particularly those rooted in discretionary criteria, are reflective of the employee\u2019s performance reviews or any issues with attendance or conduct. If an employee has been under disciplinary action, higher bonus amounts call into question the employer\u2019s motives.<\/p>\n
\u00b7 Managers involved in the determination process should be trained in issues surrounding discrimination, retaliation, and bias.<\/p>\n
\u00b7 Carefully review bonus amounts for unintended effects, such as those in a protected class consistently receiving lower amounts. Even outcomes that are meant to be fair and neutral can result in illegal discrimination if the effect appears discriminatory or has a particularly negative impact on those in protected classes.<\/p>\n
\u00b7 The entire process should be documented, and documentation used in calculations should be maintained. Any contractual obligations \u2013 explicit or implied \u2013 in employment agreements, company policies, etc., should be considered.<\/p>\n
As an aside, under the Fair Labor Standards Act (FLSA), non-discretionary bonuses must be included in non-exempt employees\u2019 regular rate of pay when calculating overtime, whereas discretionary bonuses do not. Even holiday bonuses may be considered non-discretionary, depending on employee expectations of such bonuses and the criteria used for calculation. Employers should scrutinize their bonus structure closely to determine if it is non-discretionary. See https:\/\/www.dol.gov\/whd\/StateandLocalGovernment\/CA_Tutorial\/media\/OT%20Examples%20Final.htm for additional information about overtime calculations with non-discretionary bonuses.<\/p>\n
Performance Appraisals<\/p>\n
The annual performance review is also a year-end ritual for many employers. Used as a basis for pay decisions, promotional opportunities, and disciplinary action, a poorly designed or executed performance management process is a hotbed of legal liability. So, what are some common risks in this process?<\/p>\n
\u00b7 Assessing the person instead of the performance. Focus on definable activities and measurable results, not personal traits.<\/p>\n
\u00b7 Infrequent or insufficient feedback. Feedback should be thorough, ongoing, and in real-time. Formal performance reviews are merely one possible step in an effective performance management system.<\/p>\n
\u00b7 Lack of facts or specifics. Relying on memory or using \u201cI think\u201d or \u201cI feel\u201d statements does not result in quality feedback that the employee can translate into action.<\/p>\n
\u00b7 Not measuring the right things. Irrelevant factors or focusing solely on final output does not result in meaningful feedback that promotes growth and development.<\/p>\n
\u00b7 Lack of manager accountability. Missed, late, or sloppy reviews should not be tolerated. A manager\u2019s performance review should address adherence of the process with his direct reports.<\/p>\n
\u00b7 Lack of manager training. A manager who is not trained on how to measure and document performance is arguably the most dangerous element of the process.<\/p>\n
\u00b7 Focusing only on problems and not solutions. Effective performance management means ensuring employees have the skills, knowledge, and resources to succeed or correct deficiencies.<\/p>\n
\u00b7 Misalignment. There should be clear correlations between the employee\u2019s job, the goals of the department\/organization, what performance appraisals measure, and rewards.<\/p>\n
\u00b7 Surprises or avoidance. An \u201cofficial\u201d review should merely formalize what the employee already knows and has been coached on throughout the year. Unexpected negative feedback calls the manager\u2019s motives into question and erodes trust and morale.<\/p>\n
\u00b7 One-way process or communication. Employees should be active in the goal-setting and review process, including a means of challenging an appraisal with which they disagree.<\/p>\n
A closing thought about rewards in general: While bonuses and pay raises are certainly the most familiar outcome of performance reviews and year-end activities, the importance of non-financial recognition cannot be overstated. Appreciation that is personalized and sincere goes a long way toward increasing loyalty and morale. A personal letter from the CEO, a gift to the employee\u2019s child or pet, or a donation to a charity of the employee\u2019s choosing are just a few examples of thoughtful recognition that show you know your employees and appreciate what matters to them. Financial rewards fill financial needs, whereas these other types of recognition bring social and emotional satisfaction. Just be certain to always consult with your accounting team to determine the taxability of any rewards you are considering. Cash, or anything that could be construed as a cash equivalent is nearly always taxable, no matter how small the amount.<\/p>\n
By Charlotte Jensen, Vice President, HR Compliance \u2013 Affinity HR Group Inc.<\/p>\n","protected":false},"excerpt":{"rendered":"
The holidays are upon us, and for many employers, this means bonuses and performance reviews. While both activities may seem harmless \u2013 even positive \u2013 handled improperly, they become legal landmines. So, how do you handle these year-end rituals without exposing the organization to unnecessary risk? Bonuses Year-end bonuses, especially when unexpected, are arguably one […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-7452","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"aioseo_notices":[],"yoast_head":"\n