On the site now we’ve added this HR on-demand program. You were driven to add this to your services for several reasons. And as I understand it, one of the main reasons is some problems that some of your clients had. Maybe could you share with us a couple of examples of what got you to this?
We’ve set up hundreds and hundreds of companies for micro and small businesses. What we’ve seen over time is that problems that people run into tend to fall into three big buckets. One is that they will mess up the formation of their business entity and the maintenance of the business entity. Two, they will use poor contracts or not have any contracts or run into contractual problems with people they do business with. And then three, they run into problems with their own employees. Kind of the internal problems. The employee internal problems become really challenging because larger companies solve this problem by hiring a full-time HR person or an HR department. And they can cost three, four, five thousand dollars a month. And my clients who are frequently single owner, or a partners, or a family-owned business. They don’t have the resources to hire an HR person to take care of all their employees. This has really been a struggle for a while that we’ve gone through is how do we get that HR department for a micro or small business? Or do they all just have to stumble through and pray to God that they don’t run big problems? Over time what we thought is that there’s a service that we could create that would be a little bit of self-serve, a little bit of when you really need to speak to an HR person, you’ve got access to him. We could take that three to five thousand dollar cost and reduce it by 90%, and get the small micro business kind of exactly what it is they need and yet it’s their budget.
Sounds too good to be true!
Well, I’ll tell you. I mean if we hire a full-time HR person, they’re down the hallway. And they will cost you three to five thousand dollars because you can’t just get your secretary and say these days, “Hey I need you to read up on what’s happening on the new changes in employment law, what’s happening with sick leave, how do we track our meal time breaks, and what do we do on payroll?” It’s overwhelming! And it’s a subspecialty within the law.
The sense I get is that a lot of business owners don’t understand how important that is or the implications of getting that little wrong.
The people who understand it are those people who fall into the bear trap and just get that trap slammed on their leg, and then all of a sudden it comes home crystal clear. You understand that ones the trap snaps on your leg, how bad this thing is? Right?
In other words, you’re saying a lot of business owners learn the hard way.
That’s how you become an experienced business owner. What we try to do is provide a service where you don’t necessarily need to stick your hand into the fire to figure out that you’re going to get burned. I’ve worked with a lot of accountants, and accountants tend to be pretty smart people and deal with a lot of small businesses. And they’re a small business themselves. So I had an accountant that I was working with that ran into a problem with what he considered to be a rogue employee.
So the accountants owned business and the accountant staff as a small business that you’re talking about?
Not their client but actually them.
And you would think that an accountant would be all over this.
Well, you would think who would know better than a guy who deals with lots and lots of small business.
Because accountants tend to be the most trusted business adviser for small business. And so small business owners call their accountants about everything. Some things accountants can help with and other things they can’t but they hear a lot about employee issues, because the accountants are working with their clients on payroll issues, filing of payroll taxes, and things of that kind. So they can be the more knowledgeable than the average guy. Right?
So I got an accountant who was running his practice. It’s a small business. And you would think, who would know more about this than a guy that hears these stories all day long, plus runs his own small business. However, the situation came up with him where he had this rogue employee. And what had happened was that once the employee left his company, the employee went down to the labor department and he filed a claim. And he said that the accountant had worked him more than he should have and didn’t give him breaks for his meal times, didn’t give him the morning and afternoon break, and furthermore, worked him more than eight hours in one day and didn’t pay him overtime. California is very aggressive with these kinds of claims. So the employee goes down to the labor department. The labor department helps him basically go out their claim. And then the accountant receives a letter from the labor department, “Greetings! You now going to come to a hearing with us and you got to explain yourself whether or not you did or did not mistreat this employee. Because if you did, we’re going to pound the hell out of you!” So we get this letter and now we’ve got to see the labor department.
Now, I take it you’re adding your own subtext there?
Yes. I am. I’m adding my own subtext, my own prejudice of kind of how the system works.
And I think a lot of small business owners will see it somewhat the same. This conversation is looking at it from the perspective of this little guy that owns his business. And frankly, it’s a challenge. I mean, it’s a challenge to run your business. It’s a challenge to figure out how to get customers. It’s a challenge to deal with all of the administration that goes on with running a small business, and this is a real significant component. So when we went into the labor hearing, the labor commissioner says, “Okay, here’s what I’d like to see. I’d like to see all your payroll records relating to the breaks that you gave this person., your payroll records that show the breaks in the morning and the afternoon, that showed the mealtime breaks, and furthermore, your payment or not of overtime. And by the way, I want to see your employee handbook, which would outline the company policies.” Well, the accountant did not have an employee handbook. So, we got nothing in writing, which would typically be signed by the employee that they’d received the handbook and that they were familiar with the policies. So I’ve got no written policy created in advance of this hearing that shows that the employer and the employee are on the same wavelength. So I don’t have that. The records that the accountant kept rather than doing it with an offsite service, they did it internally. And this employee, before t they left, grabbed their own records and took them. So we didn’t have any records of what breaks that they’d had. We didn’t have any records of what mealtimes that they’d taken. And we had very just rough records of how they were paid overtime. So I asked the accountant, since we didn’t have the records, we suspected that the employee took them. I said, “Just recreate for me your record-keeping process and we’ll go in an explain this is the process to the labor commissioner.”
So was the record-keeping process physical or was it computerized?
Theirs was done by hand. Today, payroll companies are pretty sophisticated. You can pay a small amount of money and you can set up your system like a system we use in our office is that it’s one where an employee will come into our office. They get on to the computer. They login in the morning. When they go to lunch, they logout. When they come back for lunch, they login again, and they logout at the end of the day. And it’s all captured on a computerized basis, so there’s no question in terms of the record keeping that we kept. But a lot of people don’t do that. A lot of people just keep it on a piece of paper, on an Excel spreadsheet, on some form that they’ve grabbed from the Internet, because they don’t understand what the problem is until they find themselves sitting in front of the labor commissioner. Really, it’s the employer’s responsibility to keep these records. If there’s a tie in terms of the story, the employee says one thing and the employer says another thing. Just anecdotally, my experience is the tie goes to the runner. In this case, it’s the employee. And the claims that they’re making are found to be true and that the employer ends having to pay for that. So what they did not have in this situation was the records of the breaks and the records of the mealtimes that they took. And the employee basically said that, “I arrived at work. I worked for 10 hours straight and that they wouldn’t even let me take a bathroom break.” Which was ridiculous. There were witnesses in the office that would say, “Hey look, she would goof around on the computer all day. I saw her get up regularly and go to the bathroom.” But the problem was without the records, without that documentation, in this case, the employer was in a very vulnerable spot. So at the end of the hearing what happened was that we were able to substantiate part of the employer’s position and that was that she actually did take breaks, that she did actually go to lunch, that she was spending a lot of time goofing off on the computer. So instead of winning the whole case, which they should have done with good record-keeping, they ended up splitting the difference. That is, the employee claimed that they were owed 20,000 dollars. The employer legitimally owed nothing. And in order to avoid a further prolonged extensive hearing, the employer ended up spending 10,000 dollars when they should have spent nothing. It was their own fault. It was due to poor record-keeping. The learning from that experience was all employers should have an employee handbook, which is given to each employee when they’re on-boarded to work for the company, which the employee will sign that they’ve received it and read it. They should also have good records of if they’re giving mealtime breaks to their employees, have them memorialized. If they’re giving lunch breaks to their employees, have that memorialized. And certainly, when the employee works beyond an eight-hour day, that also has to be memorialized. With the payroll keeping services available, all of this is a very simple process, but had we gone into that hearing with an employee handbook and with the records that we’re describing here, the employer would have paid nothing. Well, what happens sometimes, when there’s a little bit larger company and they’re sort of one rabble rouser employee from the employer’s perspective, they start talking to one another and sometimes it’s not one leaves but it might be five leaves. And when you have five do this thing in this particular case, it could have gone from a 10,000 dollar loss to a 50,000 dollar loss, which could have put the guy out of business. It’s a very serious problem and you don’t really quite realize the magnitude of it until you go through one of those kind of hearings. So the solution of the problem is getting access to someone who has got a lot of HR experience. And these days, there are people out there who will go through training programs and they actually become certified in HR. Then further, if you can get access to that kind of person and not spend three to five thousand dollars a month. But instead, pay 300 dollars a month or 400 dollars a month, then you’re getting the best of both worlds. You get someone who’s certified, especially to know what all the rules are, what are the forms you should have with your employees, what does your employee handbook look like, how frequently should you have the handbook updated, things of that kind. You can basically call this person, say this is my situation, they know your company, and they can tell you, “Here’s the form you need. Here’s the update that you need to make to your employee handbook.” So it’s really important to have that component. And then finally, that’s what we’re starting to now deliver to our client as access to that expertise on an as-needed basis.
And having done through the program ourselves, what we’ve discovered is that the way it actually works is much better than we anticipated. It’s not a whole term administration. They’re an HR consultation on-call, so that they can guide us through how to set these handbooks up properly fofr our business specifically. So what we’ve got is we’ve got now a recording of the conversation that we’ve had with our clients inside of our business where they talk about how they actually experienced the program and what they got out of it and how it’s helped us to make our business safer. So what we should do is switch over to that and that will give you more insight into the actual use case, the usage nature of the program and what the benefits are.