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Top 5 Employee Benefits Mistakes Made By HR Professionals

April 27, 2015


April 27, 2015

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Handling employee benefits is among the most important task which HR professionals have to accomplish. It is also among the easiest to get wrong. And yet a mistake with benefits can be hugely disastrous. The legal, financial and reputational costs can be massive. As such, every HR needs to do whatever it takes to avoid employee benefits mistakes.

The starting point is to understand what these mistakes are. Although there are numerous benefits mistakes, the 5 most common ones are the following:

1. Wrongful FLSA Exemptions

One of the trickiest provisions under the Fair Labor Standards Act (FLSA) is the issue of overtime exemptions. Although the FLSA sets clear guidelines of how employees who work overtime should be compensated, it also states that some workers are exempt from its payment guidelines.

FLSA Exemptions can provide an opportunity for a company to save some money from overtime compensation. The reason for this is simple: non-exempt workers are paid per unit of time (usually hour) spent on overtime. This payment is standard irrespective of the amount of work accomplished during the overtime. FLSA Exempt workers can be paid depending on their task accomplishments. This is a more equitable measure for employers because it means that they can pay for actual work done (rather than hours spent on overtime).

The main problem is that the criteria for FLSA Exemption are a little complex. In fact, deciding which employee is exempt is a perennial challenge for HR professionals. The over-zealous ones end up issuing wrongful exemptions. This opens grounds for lawsuits which are not only financially disastrous but also bring unwanted negative publicity. Overly-cautious HRs, on the other hand, do not apply FLSA Exemptions at all. This of course costs the company in terms of unnecessary overtime payments.

The most common mistake is the wrongful application of FLSA Exemptions. It is also the most potentially disastrous. Careful HRs strive to avoid this mistake. The only way to achieve this is through a rigorous study of the FLSA Exemptions. A great checklist which can be used to examine which employees are eligible for FLSA Exemptions is provided here.

2. Poor Implementation Of ERISA Plans

The Employee Retirement Income Security Act (ERISA) is perhaps the most exhaustive employee benefits legislation available. It is also among the most sensitive because it deals with pension-related issues. Pensions can be highly volatile both to workers and regulatory bodies like the Department Of Labor(DOL) and Internal Revenue Service(IRS).

The main challenge faced by HRs is that ERISA Plans are not compulsory. ERISA does not demand that employers provide pension plans. However, if an employer decides to do so, then they absolutely have to do it right. And the implementation requirements for ERISA Plans are quite stringent.

Many HRs don’t understand this apparent contradiction in ERISA. They assume that since providing ERISA Plans is voluntary, implementing them is also a matter of preference. As a result, many implement ERISA Plans poorly. This is not to say that they do it sloppily and haphazardly (although some do), it is just that some implement the plans according to their own standards. Often these standards are not at par with ERISA recommendations.

Among the common ERISA implementation mistakes are: poor formulation of plans, improper documentation, improper exclusion of some employees (especially “part-time” workers) from the plans, inconsistent deposit of employee contributions and failure to follow proper procedures for disclosure, notification, claims and appeals. Such mistakes often open grounds for sanctions from regulatory bodies like the DOL and IRS.

3. Unclear “Off the Clock” Policies

The growth of technology is transforming the nature of work. With integrated systems, workers can work remotely, and at any time. Although this is can improve overall productivity, it has one potential downside when it comes to payments and benefits.

The downside arises when employees choose to work outside normal working hours. Such “off the clock” work is often a matter of choice. An employee can choose a time in which they feel most productive. Unfortunately, according to FLSA guidelines, such off-the-clock work is considered overtime. Because the rate of overtime is one-and-a-half times the normal working rates, employees can end up with huge off-the-clock wage bills.

Such situations typically arise when employers don’t have clear off-the-clock policies. Unfortunately, this is a mistake which many HRs make. When they begin to take on remote workers or telecommuters, many HRs don’t draw clearly-defined working hours. They then get surprised when an employee, under the auspices of a crafty attorney, demands for extra pay. Such situations can be easily avoided by setting up clear off-the-clock policies – especially for remote workers.

4. Offering Top Talent A Blank Cheque

Every HR wants to attract the best talent available on the market. Almost every HR has a wish list of top-talented individuals in a given industry. Scoring such individuals is usually a big scoop. In an attempt to attract them, HRs often put together attractive compensation packages.

Unfortunately, the biggest mistake HRs make is offering top-talent a blank check. Under normal circumstances, compensation should be tied to quantifiable performance. With top-talent, HR sometimes neglect putting performance conditions to the lucrative compensations. This is because they assume that given the top-talent’s high profile, the results they bring will be obvious.

Sometimes, it doesn’t work that way. The top-talent may arrive and fail to deliver the expected results. Meanwhile, their huge compensation packages begin to cause resentment among fellow employees – especially if they don’t see any tangible results which justify the compensations. At that point, it is awkward for HRs to begin amending the contracts. They almost always end up releasing the individual with a severance package which costs the company lots of money.

5. Not Tapping The Power Of Voluntary Benefits

Voluntary benefits are perhaps the greatest untapped resource available to companies today. This is because studies have linked them to job satisfaction, employee engagement and decreased turnover. Basically, employers who provide voluntary benefits end up improving their image among their current employees and becoming attractive to talented individuals.

As such voluntary benefits can offer HR professionals with a potent tool with which to achieve their objectives. The best part is these benefits can cost employers very little or even nothing. Unfortunately, not many companies enjoy the benefits which are offered by voluntary benefits. This is because many HRs don’t even bother to utilize them. This is a grave mistake.

In a nutshell, managing employee benefits is among the most delicate tasks which are carried out by HR professionals. They are delicate because benefits have the potential to determine the destiny of a company. Unfortunately, small employee benefits mistakes can have disastrous results for the company. Therefore, every HR needs to ensure that they avoid the 5 common employee benefits mistakes which are highlighted above.

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