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Creating an Employee Compensation Plan with Mindy Flanigan and Sonia Chapin · Budget Your Business

• 0:00
  Scott: Hello, and welcome to Budget Your Business, the podcast for small business owners who want to learn how to financially plan for every aspect of their business.
• 0:10
  Scott: I'm your host, Scott Geller.
• 0:13
  Scott: Today I'm actually joined with two guests.
• 0:16
  Scott: I have Mindy Flanagan, Mindy Flanagan, and Sonia Chapin of Inspiring HR to talk about creating an employee compensation plan.
• 0:28
  Scott: Thank you for joining me.
• 0:30
  Scott: Thank you.
• 0:31
  Scott: Thank you for having us.
• 0:33
  Scott: For folks who are just meeting you for the first time, could each of you share a little bit about who you are and what you do?
• 0:42
  SPEAKER_00: Sure, I'll go first, as Sonia knows I do often.
• 0:46
  SPEAKER_00: What's going to be fun for me?
• 0:47
  SPEAKER_00: This is Mindy speaking, is I'll tell you what we do and what we are.
• 0:51
  SPEAKER_00: And I'm also the head of marketing and sales, so I'll probably have somewhere, some semblance of my 30 seconds built into here.
• 0:57
  SPEAKER_00: But I'm always curious to hear how other team members describe us.
• 1:00
  SPEAKER_00: So not to put Sonia totally on the spot, but forewarned, I'm going to see if she what she has to say that might be different for me.
• 1:07
  SPEAKER_00: So inspiring HR provides HR support, human resource management support services for small businesses.
• 1:14
  SPEAKER_00: Those with typically less than 50 employees who have no need nor typically any desire to have a part-time or full-time HR person on their payroll.
• 1:23
  SPEAKER_00: It's often the office manager, admin catch-all person that is trying to figure out HR on the fly merely because somebody said here, run payroll, and now you're supposed to be an HR expert with no training.
• 1:33
  SPEAKER_00: So we fill that gap.
• 1:35
  SPEAKER_00: Or simply put, we solve employee pain for small businesses.
• 1:40
  SPEAKER_00: Now Sonia can go.
• 1:42
  SPEAKER_02: So my name's Sonia.
• 1:44
  SPEAKER_02: It's very nice to be with you all today.
• 1:45
  SPEAKER_02: Thank you again for the invitation.
• 1:47
  SPEAKER_02: I joined Inspiring HR about three years ago, and my prior to that I worked for over 20 years as a consultant with a focus on federal contractors.
• 1:57
  SPEAKER_02: Currently, I get to support small businesses, which has really been where I've thrived because I really enjoy watching businesses grow and taking a data, a data-driven approach to HR problems.
• 2:12
  SPEAKER_02: And I think that that's that comes out a lot, especially in my my specialty with regards to compensate compensation.
• 2:21
  SPEAKER_00: And Sodani, you have a unique on our team.
• 2:31
  SPEAKER_02: I do.
• 2:32
  SPEAKER_02: I have my CCP from World at Work, which is a uh professional certification.
• 2:37
  SPEAKER_02: It's a certified compensation professional.
• 2:39
  SPEAKER_02: And it wasn't just one exam, like a lot of industry certifications are, there were actually nine that I had to pass, including accounting for small businesses.
• 2:48
  SPEAKER_02: So wow.
• 2:49
  Scott: So they they snuck a little accounting in there for on you as well.
• 2:53
  SPEAKER_02: They absolutely did.
• 2:54
  SPEAKER_02: They told me that accounting is the language of business, so I needed to be able to speak it.
• 2:59
  SPEAKER_00: Totally true.
• 3:00
  SPEAKER_00: I'm really glad I studied to be an accountant for two years before I got into HR.
• 3:04
  SPEAKER_00: I hope it made me an effective business owner.
• 3:07
  Scott: I I will say that is a uh a skill not too many business owners have, but the ones that do, I think it makes a big difference.
• 3:15
  SPEAKER_00: Yes, I really like it when I talk to my team about the PL, and I know for sure Sonia knows what I'm talking about.
• 3:21
  Scott: Thank you both for that quick explanation and the CCP.
• 3:24
  Scott: So so you know, interesting to hear about that uh very unique uh certification.
• 3:30
  Scott: So today we're we're talking about putting together employee compensation plan.
• 3:35
  Scott: And just to start us off, what does that mean to you?
• 3:38
  SPEAKER_00: Well, since I'm HR trained, I'll do an HR geeky thing and say we talk total compensation on our team.
• 3:46
  SPEAKER_00: And what I mean by total compensation, it is not just base pay, although that's what a lot of employees feel.
• 3:53
  SPEAKER_00: If they happen to be a group of employees that actually still get a live check or check their bank account regularly, the number they see is often just base pay, which is net pay, by the way.
• 4:06
  SPEAKER_00: It's not the amount of money the company is paying you, it's the net pay gross to net after taxes and other deductions come out of that gross amount of money.
• 4:16
  SPEAKER_00: So that's pay to a lot of employees.
• 4:18
  SPEAKER_00: But then the business owner HR side of the house, total compensation is base play, base pay plus incentives, commissions, value of health and life benefit premium contributions, value of paid time off, value of any other perks and benefits, expense reimbursements.
• 4:41
  SPEAKER_00: I don't know, you name it.
• 4:42
  SPEAKER_00: Sonia, you add to that.
• 4:44
  SPEAKER_00: Total compensation.
• 4:45
  SPEAKER_00: What did I forget?
• 4:46
  SPEAKER_02: Um, in addition to that, there's the taxes that the company pays that assumes, you know.
• 4:52
  SPEAKER_02: I mean, I I think employees are very familiar with the taxes that come out of their net pay or that that result in their net pay, but I think that there's also a certain amount of of um there there should be a certain amount of um transparency with regards to the total cost of the employee for the employer.
• 5:15
  SPEAKER_02: Um and we often accomplish that through total compensation statements where we actually detail out what uh the total cost to the employer is for having the employee, including things like benefits, insurances, and the employer's part of the taxes as well.
• 5:31
  SPEAKER_00: Yeah, it's a really good point.
• 5:32
  SPEAKER_00: I mean, a lot of people, Scott, even when we talk to companies about, hey, I have contractors that are employees, and I'm going to admit to you, they probably shouldn't be contractors any longer, according to state law.
• 5:45
  SPEAKER_00: If I'm paying them$80 as a contract,$80 an hour as a contractor, does that mean I pay them$80 an hour as an employee?
• 5:51
  SPEAKER_00: And the answer is, Lord, no, that is not the way you do it.
• 5:54
  SPEAKER_00: Because often what's forgotten by those small business owners in particular who are new to all of this is remember when you pay gross pay, there's also payroll taxes that go with it.
• 6:04
  SPEAKER_00: You're matching the Social Security, you're paying federal unemployment taxes, state unemployment taxes, and workers' compensation premium.
• 6:13
  SPEAKER_00: And if you're in a particularly risky type of business for which the work comp risk is high, that's not just as simple as 10 cents per hundred dollars of gross payroll for, say, a clerical worker who sits at a desk all day.
• 6:25
  SPEAKER_00: So you gotta plan for those costs for sure.
• 6:28
  SPEAKER_00: So it's a really complicated way to go about it.
• 6:31
  SPEAKER_00: But when you talk the big picture of all the dollars associated with compensating employees, this is what HR means by total compensation.
• 6:38
  Scott: You listed several items there, but I'm I'm gonna back up a little bit and start with that base pay because it is the most common, right?
• 6:45
  Scott: That that's what people, as you said, they think about base pay.
• 6:49
  Scott: That's not the only thing or shouldn't be the only thing.
• 6:51
  Scott: And you know, a lot of times when um you're you're starting with that base pay, it's hard to come up with that number for for what a role is, especially within when it's not only a new an existing role within a business where you're hiring somebody new, but maybe it's a brand new role for a business.
• 7:08
  Scott: So I always like to see pay ranges, but that's just me personally.
• 7:12
  Scott: So I would like to see what your opinion is, like how and and maybe why do we set pay ranges for roles?
• 7:19
  SPEAKER_00: Well, we're gonna love to talk about this.
• 7:23
  SPEAKER_00: Because pay ranges used to be what was considered to be a best practice, and everybody's got their own opinions about what best practice is.
• 7:30
  SPEAKER_00: But generally, for a modern-day workplace, long before this became regulation or law, a really transparent has their act together organization would have, if you're a larger company, pay grades on a job description, or a smaller company pay ranges.
• 7:47
  SPEAKER_00: On then there's preferences in the HR community on how broad you want that pay range to be.
• 7:52
  SPEAKER_00: I like a broad pay range, but it has its risks, and then too narrow of a pay range has its risks.
• 7:58
  SPEAKER_00: So you have to kind of soul search on on what you're comfortable in terms of the span of that range.
• 8:03
  SPEAKER_00: Um, but the history on this is what was once a best practice, now when I've lost count how many states now actually require it under pay transparency laws.
• 8:14
  SPEAKER_00: So I'm sure to guess there's at least 20 states, if not more.
• 8:18
  SPEAKER_00: So my team knows our state labor law tracker off the top of their head better than I do.
• 8:22
  SPEAKER_00: But there are at least 20 states that if you're going to put a job posting out there on one of those uh job boards, you know, indeed, zip recruiter, one of those.
• 8:33
  SPEAKER_00: Those are the two most popular these days.
• 8:35
  SPEAKER_00: State law requires you to be transparent in that what that specifically what that position pays or the range for which you'll be hiring somebody into that role.
• 8:44
  SPEAKER_00: So best practice now went to mandated in several okay.
• 8:48
  Scott: That's interesting.
• 8:49
  Scott: I I did not I didn't know.
• 8:50
  SPEAKER_00: No, Virginia is not one of them yet.
• 8:52
  SPEAKER_00: Yes.
• 8:53
  Scott: Oh, okay.
• 8:53
  Scott: All right.
• 8:53
  Scott: Well, living in Virginia, I'll use that as an excuse, although a lot of my clients aren't in Virginia.
• 8:58
  Scott: Uh but yeah, that's interesting to know.
• 9:00
  Scott: So a lot of people are.
• 9:36
  Scott: And do you recommend having that full transparency?
• 9:39
  SPEAKER_00: Always, because I I try to lead by example not only internally, but with our clients, and I would hope that's one of the reasons our clients are inspired to join our community is they've come to us to help them improve their culture.
• 9:53
  SPEAKER_00: And a lot of times improving on transparency with employees is something they have not been brave enough to do.
• 9:59
  SPEAKER_00: And we help them get there with a really solid infrastructure, HR infrastructure to depend on.
• 10:04
  SPEAKER_00: And pay ranges on your job descriptions is one of those elements.
• 10:09
  Scott: The other piece of base pay that that a lot of times I have conversations um with small business owners, particularly my clients, are the annual or the merit, or sometimes they're called cost of living increases.
• 10:25
  Scott: And that's always a great area on how to adjust that.
• 10:28
  Scott: I feel like a lot of people have their own opinions on what to call it and how to handle it.
• 10:32
  Scott: So I'm really curious about how do you handle it with your clients and what approach do you take?
• 10:38
  Scott: Or do you what approach do you recommend?
• 10:40
  SPEAKER_00: Well, I could give you a history lesson on all of this from where it once was in HR to what's reality now.
• 10:45
  SPEAKER_00: But since Sonia is on the front lines with servers more than I am, I'm gonna like let her take this one first.
• 10:51
  SPEAKER_02: So this so with regards to merit increases or cost of living increases, first off, this is not an area that is regulated by and large.
• 11:00
  SPEAKER_02: So this is up to the business owner.
• 11:02
  SPEAKER_02: And when you're looking at when to make those types of adjustments, you should take a look at a lot of times merit increases will come along with anniversary dates, meaning when the person joined the organization.
• 11:15
  SPEAKER_02: So you'll have multiple increases over the course of a year, a little bit harder from a budgeting standpoint.
• 11:21
  SPEAKER_02: Um, but that's oftentimes when we'll see merit increases.
• 11:25
  SPEAKER_02: Um cost of living increases often are as of a single date.
• 11:29
  SPEAKER_02: And so it's a little bit easier from the paperwork side and the budgeting, um, and and as well, you know, actually making those those increases go into place, but it also uh focuses in a lot of those, it also serves to change cash flow, right, all at one time.
• 11:46
  SPEAKER_02: Um, I would say whichever one you choose, communication to your employees is the most important thing because they need to know when they're going to get their next increase.
• 11:56
  SPEAKER_02: And so if they're if you're on a focal date and they join halfway through the year, letting them know either you'll get a prorated increase six months in or we're not going to increase you for another 18 months will get you on cycle and then we'll give you one and a half times the regular rate, another prorated increase.
• 12:16
  SPEAKER_02: Whichever you choose to do is fine as long as the employee knows about it and that it's not a surprise when it when you get to the six-month point, they're expecting it and they're not going to get it for whatever reason.
• 12:28
  SPEAKER_02: Um, there are a couple of things that companies can do with regards to figuring out how much that increase should be.
• 12:37
  SPEAKER_02: Um, and so there are some things like the social security cost of if you're doing cost of living increases, the social security increase is published every year.
• 12:46
  SPEAKER_02: That's something that you can reference.
• 12:48
  SPEAKER_02: And there are often major many data points that are available from SHERM, which is a Society for Human Resources Management, from World at Work, which focuses on compensation and benefits, and other industry groups come out with, you know, here's what we think a reasonable sort of mirrored increase is going to be for this year.
• 13:09
  SPEAKER_02: This year they're trending between about three and a half and four percent.
• 13:12
  SPEAKER_02: Um, so many of them come out and are available, but business owners should really take a look at two things.
• 13:19
  SPEAKER_02: One, their industry, and two, their geography with regards to inflation is impacting these different areas as well as that's that's really helpful because I know that this is a common conversation I have, and it's always about well, how do we find out what what percentage do we increase?
• 13:40
  Scott: So that that's you listed a couple there, which is really helpful.
• 13:44
  Scott: And and just from my perspective, personally, you know, it's easier to budget for cash flow and other purposes to have a cost you know, cost of in cost of living as well as merit around the same time.
• 13:56
  Scott: And but but one question that always comes up is okay, if we hire somebody, how long should they be on staff before they qualify for either a cost of living or a merit increase?
• 14:09
  SPEAKER_00: A year.
• 14:11
  SPEAKER_00: You just ask for a quick, precise answer because that's what I give these days.
• 14:14
  SPEAKER_00: It's let's let's answer this and move on.
• 14:17
  SPEAKER_00: It's a year.
• 14:18
  SPEAKER_00: Now, is that set in stone with everybody?
• 14:20
  SPEAKER_00: No, of course not.
• 14:21
  SPEAKER_00: I get that HR people sometimes get creative with offer letters and say, we can hire you at X, but if you knock the cover off the ball in the first 90 days or six months, you have the potential to move to Y.
• 14:33
  SPEAKER_00: And we have to get creative with that sometimes when we're attract attracting top talent.
• 14:39
  SPEAKER_00: I I get it, but I still believe the norm should be a year.
• 14:43
  unknown: Okay.
• 14:44
  SPEAKER_00: Sonia, do you feel is that generally what you agree with too, the year, unless there are special circumstances to consider upon hire?
• 14:52
  SPEAKER_02: Yes, absolutely.
• 14:52
  SPEAKER_02: I think 12 months is a is an excellent time to revisit uh what base pay was at that particular time.
• 14:59
  SPEAKER_00: And then, Scott, you can see when you embrace that 12 months, you end up with a cadence of giving out annual increases every 12 months and not at the same time, one-time calendar year, because typically you have employees hired throughout the year.
• 15:12
  Scott: Right.
• 15:13
  Scott: Right, fair enough.
• 15:14
  Scott: Let's go back to some of those, some of the the non-traditional forms of of compensation, because I do think that's a really tough area to know what all else is out there.
• 15:26
  Scott: You threw a couple out there, but maybe we can go back and and talk about some of those areas.
• 15:31
  Scott: Uh there's the bonus, an annual bonus sales commission plan.
• 15:35
  Scott: But but what else?
• 15:36
  Scott: Maybe if you can walk us through what some other forms are.
• 15:40
  SPEAKER_00: Well, I'm gonna dangle a really geeky HR thing out there that we could have an entire podcast about another time.
• 15:45
  SPEAKER_00: Sorry, I'm putting my HR geek hat on right now.
• 15:48
  SPEAKER_00: Um, when you talk about bonus, that everybody should remember, particularly if you're a compliance-minded trying to follow the rules organization, which we certainly applaud you for, there is a difference between discretionary and non-discretionary bonuses.
• 16:02
  SPEAKER_00: And if you have non-exempt, subject to overtime employees, non-discretionary bonuses fall into being subject to overtime regulations and other wage and hour rules.
• 16:15
  SPEAKER_00: So make sure you're clear, which I am not going to explain the difference between them right now, discretionary and non-discretionary bonuses, um, that you pay attention to the compliance obligations that surround those, both at the federal and state level.
• 16:28
  SPEAKER_00: Sonia, anything you'd add to that, just in terms of discretionary and non-No, I agree.
• 16:33
  SPEAKER_02: I with regards to bonuses, I think one of the most important things that you can do as a business owner is to make sure that you consider the the what I call the equal and opposite reaction, right?
• 16:45
  SPEAKER_02: If you if you put in place something that is a structured bonus program that is rewarding, let's say, productivity, right?
• 16:54
  SPEAKER_02: The number of things that people are doing, you want to also concern yourself with the quality, right?
• 17:01
  SPEAKER_02: So if we if we're increasing productivity, we want to make sure that we also make sure that the quality is accounted for too in that structured bonus system.
• 17:10
  SPEAKER_02: Um, so always try to think ahead and to say what could be a potential negative downside of putting in place a bonus um program, and then uh try to incorporate that into uh guardrails for that into this into the system as well that you're putting in place.
• 17:28
  SPEAKER_00: Yes, be careful what you incentivize, contingency plan out for that for sure.
• 17:32
  SPEAKER_02: Right.
• 17:33
  SPEAKER_00: You know what I think of in that example is when Wells Fargo got itself into hot water with whatever regulatory agency went after them for incentivizing opening new accounts, and branch employees were opening phony accounts with one dollar balances in them and being paid a bonus.
• 17:50
  SPEAKER_00: And then you had consumers complaining about accounts being created that they never authorized.
• 17:55
  SPEAKER_00: So again, that's sort of an extreme example, but an example of where what you incentivize can create bad behaviors and negative consequences.
• 18:04
  SPEAKER_00: So back to your original question, though, certainly discretionary or non-discretionary bonuses or a non-traditional form.
• 18:10
  SPEAKER_00: Um sometimes tuition reimbursement, a non-traditional form of compensation.
• 18:16
  SPEAKER_00: Um, getting creative with additional benefits that you can offer, like on-site child care or child care subsidies.
• 18:26
  SPEAKER_00: I mean, there's just there's a whole host of them.
• 18:28
  SPEAKER_00: Sonia actually just did um a whole workup on um total compensation.
• 18:34
  SPEAKER_00: Sonia, what else?
• 18:35
  SPEAKER_00: What am I forgetting?
• 18:36
  SPEAKER_00: Commissions, bonuses, something that you might not think of, like a child care subsidy?
• 18:42
  SPEAKER_00: What are some other those more common outliers these days that seem to move the needle in terms of being attractive in a compensation package?
• 18:50
  SPEAKER_02: Sure, especially for young professionals coming into the workforce, a lot of times we're looking at tuition repayment programs.
• 18:56
  SPEAKER_02: There you go.
• 18:57
  SPEAKER_02: Not just assistance with current, you know, furthering your education, but also helping them pay off the education that they've already that they've already undertaken and has helped them get the job, right?
• 19:10
  SPEAKER_02: So uh tuition repayment is another program that we're seeing sort of coming more into play.
• 19:15
  SPEAKER_02: I'm a big fan of profit sharing with regards to you know setting an overall company goal and then working, everyone working towards that goal throughout the year.
• 19:27
  SPEAKER_02: Um, from a smaller perspective, of course, there's commissions, which is are sometimes easier, sometimes more difficult to put into play, depending upon the type of jobs that you're supporting.
• 19:39
  SPEAKER_02: There's also spot bonuses with regards to, you know, these are just little thank yous that people happen, you know, that happen throughout the year.
• 19:47
  SPEAKER_02: Um and then it can be something as simple as lunches or group outings where you know we take a moment and we build the team together.
• 19:56
  SPEAKER_02: Um, those are all ways that we can can help to sort of build team cohesiveness across across the organization.
• 20:04
  SPEAKER_00: Scott, I'll throw one back at you as the finance trained person on the podcast here.
• 20:10
  SPEAKER_00: We have clients ask us a lot about what about gift cards and what about trips and travel.
• 20:17
  SPEAKER_00: And the this is where HR and tax intersect, and I really wish they didn't, but they do, but where sometimes HR people being payroll trained is helpful.
• 20:26
  SPEAKER_00: I mean, I believe current IRS rule says anything over$25 has to be declared as income and taxed on it.
• 20:32
  SPEAKER_00: Um so for again the compliance-minded organizations who have a stickler of a CPA they're working with, they may want to steer clear of that.
• 20:41
  SPEAKER_00: Where I know there's plenty of other accounting professionals that figure out a creative way for the business to do that, and no one look here.
• 20:49
  SPEAKER_00: We didn't really do that type.
• 20:51
  SPEAKER_00: So I we leave that up to the client's discretion.
• 20:53
  SPEAKER_00: But again, those are examples of other creative ways to compensate and reward employees.
• 21:02
  Scott: What they are doing.
• 21:03
  Scott: I think the the common example there are the sales trips.
• 21:09
  Scott: Yes, and so and the common one that I see a lot are the sales trips, right?
• 21:13
  Scott: They they they hit a certain goal and go on a sales trip, or or they provide these gift cards.
• 21:18
  Scott: And it's not so it's definitely the tax piece and really has to really need to have uh you know the the the tax play or the tax opinion there.
• 21:29
  Scott: I'm not a CPA, so I even go to the tax individual to make sure that it's passes the tax um codes.
• 21:38
  Scott: On top of that, it's it's also an administrative burden if if you give out these trips and it's a reimbursement type of situation.
• 21:46
  Scott: So I find what's easier is okay, if if there's one of these situations, there's a fixed amount.
• 21:52
  Scott: If somebody is eligible, then they get this fixed amount.
• 21:57
  Scott: And it gets standard across the business.
• 22:00
  Scott: as well as avoid some of the administrative burden that goes along with it uh so yeah so um we we touched on one piece i that i also want to go back to here and that's a difference between say w-2 and 1099 workers and taking 1099 workers over to w-2 as well and do you have any kind of rough rules or recommendations for handling that well i don't want to generalize but it seems to help people there are so many people out there that are still misclassifying and it's just Scott there's like three things in HR that we on the team just accept that we're going to have the same conversation about all week long that's exempt versus non-exempt under the Fair Labor Standards Act.
• 22:54
  SPEAKER_00: That's contractor versus employee and then sometimes I-9 related conversations I mean these seem to be the repeat conversations so that like the Fair Labor Standards Act has been around since 1938 and still people can't keep straight exempt versus non-exempt.
• 23:10
  SPEAKER_00: Form I9's been around since 1986 and people are still confused by this form.
• 23:15
  SPEAKER_00: And then there's 1099 versus employee which is you just raised the IRS had long ago defined the difference between contractor versus employee and everybody's been getting it wrong since.
• 23:26
  SPEAKER_00: And now it's getting um further regulated by state agencies.
• 23:30
  SPEAKER_00: Why?
• 23:31
  SPEAKER_00: Because it's creating major tax problems.
• 23:34
  SPEAKER_00: I I can't quote this precisely but for those of us in Virginia lamenting about the state of Virginia scrutinizing 1099 versus employee more, I believe I read that sometime in 2021 there was some sort of projected where was our shortfall in particular with state unemployment taxes.
• 23:54
  SPEAKER_00: And yes they were probably taking a look at it because they handed out too much money during COVID.
• 23:58
  SPEAKER_00: There's something to the tune of$26 million tax shortfall merely attributed to misclassifying employees as contractors.
• 24:07
  SPEAKER_00: That's a problem and if you think about it it it happens easily right we've got a person who wants to work from home is skilled at X, small business needs X, and small business doesn't want to match Social Security and pay federal unemployment taxes and state unemployment taxes and work not premium.
• 24:28
  SPEAKER_00: So that that person wanting to work from home with X skill says all right cool I'll charge you$40 an hour and they say great but problem is that$40 an hour turns into a certain amount of money they make quarter over quarter and that skilled well-meaning person doesn't know or doesn't intend to pay quarterly estimated taxes on that money they're being paid.
• 24:53
  SPEAKER_00: Now comes tax time they report that they earned that money money from the 1099 and they did not hang on to a portion of the cash to pay those self-employment taxes.
• 25:04
  SPEAKER_00: Or the other danger is person didn't really understand what a contractor was business no longer needs them.
• 25:13
  SPEAKER_00: Contractor goes to file for unemployment and unemployment says we don't find you on any of these quarterly reports and then looks to the business and says why wasn't this person on payroll they are central to how you operate they should have been on payroll you controlled their hours you gave them tools and equipment they clearly were not an independent entity well now you owe us back payroll taxes.
• 25:37
  SPEAKER_00: So it it can become a mess.
• 25:39
  SPEAKER_00: And this is the cautionary tale with all of this as to why you'd want to get it right before you spiral yourself into a mess that you didn't intend to have.
• 25:47
  Scott: Yeah that that does sound like like a mess that most don't want to be in no they don't and I a lot of people are well meaning.
• 25:54
  SPEAKER_00: I mean they just think about it like I often joke particularly in Virginia since that's where I started inspiring HR and for which where I'm located I knew what I was doing for the most part when I went to the Chesterfield County Business License office in 2007 and got a business license that says inspiring HR exists.
• 26:13
  SPEAKER_00: Paid$10 for it.
• 26:14
  SPEAKER_00: That was in 2007 do you think anyone in that office asked me if I knew how to manage QuickBooks and pay work comp taxes and of course not or even hire employees.
• 26:23
  SPEAKER_00: So you just they you know what I don't know I didn't know is in a defense and that's why you surround yourself with employees and support partners that know more than you do so you begin to learn and mitigate risk and start following all the rules as you see fit knowing that some of these rules there's a gray area judgment call to be made here's the easiest way I can tell you 1099 versus employee you enter into a service agreement with a 1099 they are not central to the services you provide or the products you make.
• 26:55
  SPEAKER_00: They supplement your workforce or your operations with a skill or an ability you need that is not central to your day-to-day service.
• 27:06
  SPEAKER_00: The easiest example is if you are a c if you are a call center providing customer services customer service support your customer service reps are not 1099 it's it's really that simple but you enter into a service agreement with a 10 you enter into a service agreement with a contractor and you issue a 1099 at the end of the year or you hire employees and they fill out new hire paperwork and you add them to payroll that is the dividing line.
• 27:35
  SPEAKER_02: Sonia is there a simpler way to explain it one of the best ways that I've heard is that a small business owner can hire 1099 to install a phone system but cannot but a the person actually answering that phone is a W-2.
• 27:51
  SPEAKER_02: There you go.
• 27:51
  SPEAKER_02: And so interesting I like that right so it's you know is it something that you need for just a a defined period of time probably a 1099.
• 28:00
  SPEAKER_02: But if you have similar positions on payroll or if you need them for an ongoing period of time then that's probably either a part-time or a temporary employee but they're W-2, they're not 1099s.
• 28:13
  SPEAKER_02: That's correct.
• 28:14
  Scott: Got it I I like that example that that's I need those kind of examples where I can I can almost put a face with this so thank you for that.
• 28:21
  SPEAKER_00: Yeah.
• 28:22
  SPEAKER_00: The other thing is other things real quick to remember if it's a contractor who we hope has their own business license their own federal ID number knows how to manage their self-employment taxes they likely also have other clients which is why you don't control their schedule they do.
• 28:39
  SPEAKER_00: You can agree to it but they propose it and you agree to it and then the other thing to keep in mind is no you do you unless it's written into the service agreement there's a lot of danger in saying okay it's a contractor but I'm going to provide their entire workstation and I'm going to reimburse them for all their expenses.
• 28:59
  SPEAKER_00: The fee they charge you should cover what it costs them to run their independent entity.
• 29:05
  SPEAKER_00: So I would be very careful to issue expense reimbursements to contractors.
• 29:10
  Scott: That's more of an employee I agree on that one.
• 29:12
  Scott: Definitely agree on that one.
• 29:14
  Scott: Well I like to to to wrap up all my shows with with one of three media takeaways that lit that list our listeners could literally put into action as soon as they turn off the podcast.
• 29:27
  Scott: And you've covered a lot here already so so if if it's already something you've mentioned that's fine just remind us but what what can you share with us today?
• 29:36
  SPEAKER_00: Well I'll go up top and not granular and say that I was a better business owner when I started preparing in advance.
• 29:47
  SPEAKER_00: Preparing in advance and making sure whatever we prepared for in advance aligned with our values.
• 29:53
  SPEAKER_00: So if you're a growing business and you're just starting to define your culture start to think about what the values are the organization and the decisions that go along with it that align with those values.
• 30:05
  SPEAKER_00: Other employees current and future will be watching and looking for that alignment.
• 30:09
  SPEAKER_00: Why do I bring that up?
• 30:11
  SPEAKER_00: Because if one of your values as an organization is to take great care of our employees and be transparent then I would recommend based on what we learned here you put start putting pay ranges on your job description sooner than later.
• 30:22
  SPEAKER_00: So the additional takeaway to that would be it's not do what you can to just do a simple market pay scan to figure out what base pay pay range is appropriate for the job descriptions that you are have drafted or are going to draft those those would be the two takeaways I'd give.
• 30:41
  SPEAKER_02: Sonia I would say begin with the end in mind.
• 30:45
  SPEAKER_02: So identify where you want to be and and how you want to get there right and then use your compensation analysis to go to your PL, see where your compensation pieces fit into your PL, and then take the one take one step further and go and annual like analyze the outside situation what's going on in the market what's going on with regards to a particular industry if you're hiring tech workers that looks different than if you're hiring let's say cleaning workers for for a small business owner and then just put your budget parameters in place and and then monitor it throughout the year and make sure that you're on track as with any other business you know business metric or goal make sure that you are tracking it and that you'll you'll come in at the end of the year uh hopefully just below where you set from a budget perspective.
• 31:39
  SPEAKER_00: That's a great one.
• 31:40
  Scott: I like those um I you know the the I've used those myself before so so thank you for for all of those uh Scott can I give you the shameless plug as a last yes yes too that's what I was going to ask for.
• 31:53
  SPEAKER_00: Well the shameless plug is in all of this in my own journey as a business owner and things I wished I'd done sooner but I'm doing now and I couldn't be more pleased make sure a lot you're aligned with the right support partner for uh financial strategy, day-to-day bookkeeping and accounting um and if you don't yet know QuickBooks get to know QuickBooks at a level for which you can get good at understanding your numbers quarter after quarter.
• 32:18
  SPEAKER_00: I mean back to Sonia's point.
• 32:21
  SPEAKER_00: I was operating for years before I finally had my first aha moment around accounting professionals I trust in a CEO group I'm in to feel confident in how we measure gross margin and profit margin, the difference between the two and what that means for leading indicators, lagging indicators, forecasting and budgeting I couldn't have done any of that unless I surrounded myself with really good financial strategists and accounting professionals.
• 32:50
  Scott: Well Minnie I have to agree with that one I thought you wouldn't mind the shameless plug.
• 32:56
  Scott: No absolutely not I I I really like that one.
• 32:59
  Scott: Wrapping it up here I I enjoy a good podcast or a good book recommendation.
• 33:04
  Scott: So maybe each of you can throw one out to me.
• 33:06
  SPEAKER_00: I have so many podcasts I listen to and I think I hope this makes me less of an HR geek when I say one of my favorite podcasts is Pivot.
• 33:16
  SPEAKER_00: It's Scott Galloway and Kara Schwisher.
• 33:19
  SPEAKER_00: They do all things business and tech um I so many juicy tidbits out of them.
• 33:24
  SPEAKER_00: It's only two days a week and it makes me sad.
• 33:26
  SPEAKER_00: If it were five days a week I I would listen to it.
• 33:28
  SPEAKER_00: I mean there's other podcasts I listen to that I I learn from because it's a part of my morning exercise routine but Pivot Pivot gets the award from my favorite at the present moment.
• 33:38
  SPEAKER_02: All right great so you did maybe have a podcast or a book absolutely I would recommend so this is kind of an oldie but a goodie this is a book I'm much more of a reader than a listener.
• 33:49
  SPEAKER_02: And I if especially if you're in a in a consulting or other sort of business to business support industry I read The Trusted Advisor by David Meister I think is his last name years ago and it changed the way that I approached my client relationships.
• 34:08
  SPEAKER_02: So um so I would definitely recommend that one for anyone who's in the business of supporting other businesses.
• 34:14
  Scott: It's a good one.
• 34:15
  Scott: I've not come across that one so I'm gonna have to look that up this has been great.
• 34:19
  Scott: Where can people find out more about you online?
• 34:22
  SPEAKER_00: InspiringHr.com you can fill out our contact us form and if you do so it comes directly to me I'm happy to chat with you about what questions or concerns you have.
• 34:33
  SPEAKER_00: First 45 minutes is always free if you want to give us a test drive we're very active on LinkedIn.
• 34:39
  SPEAKER_00: I am in particular love to gain followers and message back and forth with people who might have questions so you can find Mindy Flanagan on LinkedIn or also follow the Inspiring HR company page and of course on our website we would love it if you signed up for our newsletter perfect and and thanks for joining me today.
• 35:00
  SPEAKER_00: Thank you for having us it's been a pleasure yes thank you Scott it was great.
• 35:04
  Scott: All right folks that's that's it for today I'm Scott Keller and I hope you join me next time for budget your business