Dodging Bullets is all about managing risks & identifying the bullets! Successful business owners understand that managing risk is the name of the game. Managing risk requires identifying exactly what risks your business faces and then, quantifying as best you can the downside related to each risk. Having prioritized your risks, you’re well positioned to strategize how best to minimize those risks. There’s always a catch though – it’s the bullet you don’t see that you don’t dodge. Or, put another way, it’s the risk you don’t identify that will end up causing lasting harm to your business. What “bullets” are you and your key people NOT identifying in your risk management process? Hopefully they’re few. However, a significant risk I’ve observed many business owners disregard is their business’s exposure to worker misclassification between hourly and exempt status. Over the years, at least per their job descriptions, more and more workers have migrated away from the hourly time and a half category, over to the exempt category.
- But how many of your workers’ job descriptions match what they do every day on the job?
- Do your workers even have written job descriptions?
- When is the last time your business performed a thorough self-audit of worker classification?
- Could some of your exempt workers technically fall into the hourly time and a half category?
If you haven’t analyzed your workers’ classifications, you can’t begin to know or quantify the risk to your business. An unquantified amount of back wages, payroll taxes and penalties could be the unseen bullet headed your way. You may say “the Department of Labor would never bother to check my business” or “my auditors would have caught that if there was a problem” or “my CFO is on the ball about these kind of issues”. Let me start first with the DOL: The DOL may not have visited your business before, but they’ve been staffing up to become much “friendlier”. The DOL senses a big payday in the form of back wages, payroll taxes and penalties and is poised to make many more face-to-face visits to businesses just like yours. What about your auditors? Your auditors’ overall focus is to determine if your business’s financial statements are materially misstated, not to dig into the details of your business’s worker classification. Your outside auditors rely on your representation that your business has adequate systems and people in place to properly interpret and implement worker classification guidance. Finally, since when did your CFO become an HR specialist who can intimately discuss worker classification rules? Most CFOs I know have their hands full elsewhere. So, armor up and add worker misclassification to your list of identified risks and then take steps to manage that risk away. The bullet you see is the one you’ll successfully dodge.
By Karen Price, CPA, This article was originally featured on The Westberry Group’s blog, HR Life Line.