ADP TOTALSOURCE®

A Publication Dedicated to Employers’ Current HR Issues & Solutions Brought to You by ADP TotalSource Volume 13

The Election is Over:

What Should You Expect –

and Plan for – Now?

What’s Cooking with

Business Incubators?

Tips for Managing

Difficult Employees

Keeping Unlawful

Provisions Out of Your

Employee Handbook

On the Road Again:

Understanding When to Pay

Employees for Travel Time

State Employment

Law Updates

What ADP TotalSource®

Clients Are Saying

The Bottom Line

Also in this issue

The Progression of Health Care Reform

21 Keeping Unlawful Provisions Outof Your Employee HandbookCommunicating company policies might seem like a straightforward exercise, but if they’re not drafted properly, they could violate employees’ rights. How to avoid the pitfalls.

23 On the Road Again: Understanding When to Pay Employees for Travel Time Everyday commuting, one-day assignments, overnight trips... Know when to reimburse employees for their travel expenses.

25 State Employment Law UpdatesHelping you stay on top of recent legislative changes at the state level.

26 What ADP TotalSource® Clients Are SayingHow ADP TotalSource helped one client focus on profitability while handling HR challenges.

The Bottom Line Volume 13

13 What’s Cooking with Business Incubators?Business incubators are in the business of getting start-ups off the ground. They’ve been around for decades, but they’ve never been this hot.

17 Tips for Managing Difficult EmployeesEven the best-run companies can be derailed by a problem staff member. Learn how to identify and handle difficult employees before they affect your business.

03 The Progression of Health Care Reform It’s the most complex and provocative benefits legislation since the Employee Retirement Income Security Act of 1974 (ERISA). And many of the major provisions take effect in 2013. Are you ready?

09 The Election Is Over: What Should You Expect—and Plan for—Now?Federal agencies are working to change labor and employment law. Here’s a breakdown of their efforts and what they mean.

With the reelection of President Obama, the Affordable Care Act (ACA, also called Health Care Reform and sometimes “Obamacare”) is moving ahead at full steam.

The ACA is arguably the most complex and far-reaching healthcare legislation ever enacted. It will affect nearly all companies across the country, from the smallest to the largest. How the ACA will impact your business will be unique — it’ll depend on the size of your workforce, the number of hours your employees work and how your medical benefits are administered. But it’s clear that all businesses will need to take action.

What’s happening noW

The Progression of Health Care

Reform.

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Where We Are TodAyFor many, the ACA was on hold in 2012, due to the uncertainty around the June 28 Supreme Court ruling and the November presidential election. Still, many of the ACA provisions slated for 2012 did take effect. And more are on the way in 2013 and 2014.

Full-Time and Full-Time-Equivalent (FTE) Employee: A full-time employee is one who averages at least 30 hours a week or 130 hours in a calendar month. A company’s number of FTEs is the total number of full-time employees and full-time-equivalent employees. To calculate the number of full-time-equivalent employees, add the number of hours worked by all part-time employees (up to 120 hours per employee) during the month, then divide that by 120. There are adjustments that may be made in certain cases for seasonal workers.

Minimum Essential Coverage (MEC): Any health coverage offered by an employer or government entity, a plan purchased on the individual market or some types of “other coverage.” This is different from “essential health benefits,” described later in this article.

Minimum Value Requirement: An employer-sponsored plan must pay at least 60 percent of the total allowed costs of benefits.

Affordability Requirement: Employer-sponsored coverage is considered unaffordable if the employee’s required contribution for coverage exceeds 9.5 percent of the employee’s household income.

understanding aca terms

August 2012 • 2011 Medical Loss Ratio rebates were distributed by insurers by August 1.

• Plans renewing on or after August 1 that cover preventive health services for women are expanded to include the following, with no cost-sharing:

• Well-woman visits

• Gestational-diabetes screening

• Domestic- and interpersonal-violence screening and counseling

• FDA-approved contraception methods, and contraception education and counseling

• Breastfeeding support, supplies and counseling

• HPV DNA testing for women age 30 and older

• Sexually transmitted infections counseling for sexually active women

• HIV screening and counseling for sexually active women

september 2012 • Summaries of Benefits and Coverage (SBC) are required for Plan Years beginning or renewing on or after September 23.

OCtOber 2012 • PCORI fee begins for all employers with Plan Years ending on or after September 30, 2012, to fund the Patient-Centered Outcomes Research Institute.

JAnuAry 2013 • The annual limit for employee contributions to a Health Care Flexible Spending Account will be $2,500 for Plan Years starting on or after January 1.

• Form W-2 reporting is required on the value of employer-provided coverage for the 2012 tax year.

• Beginning January 1, individuals earning more than $200,000 and families earning more than $250,000 will be subject to a 0.9 percent Medicare payroll tax on the excess amount. Employers don’t have to match this increased tax but are still responsible for withholding and reporting it. (There’s an additional 3.8 percent tax on unearned income for these high earners, but it doesn’t create an obligation for employers.)

mArCh 2013 • Employers are required to notify employees about the availability of Health Benefit Exchanges.

What’s ahead

5 the Bottom line Health Care Reform the Bottom line Health Care Reform 6

ELIgIBLE TO BUY COVERAgE THROUgH AN ExCHANgE W i T h N o s u b s i d yPeople who are purchasing coverage through the individual market

ELIgIBLE TO BUY COVERAgE THROUgH AN ExCHANgE W i T h A s u b s i d yPeople:• Who don’t have access to employer-sponsored coverage that meets the

government’s minimum value requirements and affordability requirementsAND• Whose household income (HHI) is between 100 percent (or 133 percent in

certain states) and 400 percent of the federal poverty level

Taxes and Fees aFFeCTing small Businesses Some of the most significant aspects of Health Care Reform for small employers may be the taxes and penalties plan sponsors and insurance companies will have to pay. Here they are, listed in order by when they begin:

• “Comparative Effectiveness” or Patient-Centered Outcomes Research Institute (PCORI) Fee – Designed to help fund research on clinical-outcomes effectiveness, this provision requires self-insured medical plans and commercial health insurers to pay a fee beginning with Plan Years ending on or after September 30, 2012. In year one, the fee is $1 per covered person; in year two, the fee is $2 per covered person. In subsequent years, the fee is indexed to medical inflation.

• Employer Mandate – Certain employers that don’t provide medical benefits that meet the government’s requirements for coverage and affordability may become subject to a non-deductible penalty beginning in 2014. This provision and the penalty — generally referred to as “Shared Responsibility” and further explained below — are being considered by businesses of all sizes.

• High-Value Plan Tax (or “Cadillac Plan Tax”) – Although regulations are yet to be issued on this tax, the information that is available indicates that plans that cost more than $10,200 for individual coverage and $27,500 for family coverage per year (including both employer and employee contributions) will be subject to a 40 percent excise tax on amounts above these costs. The amounts will be adjusted for cost of living, age and gender and will increase in 2019.

moRe aBouT sHaRed ResponsiBiliTy To understand shared responsibility, which incorporates the employer and individual mandates, you have to start with the health care exchanges; understand how workers become eligible to participate in exchanges and receive subsidies for coverage; and know the penalties for employers and when they’re triggered.

Health Benefit Exchange

In 2014, federal and state exchanges (where applicable) will take effect. A health benefit exchange is a virtual marketplace for health plans. Consumers will have a choice of plans offered by different insurance carriers at various price points. It’s a new way for people to compare and purchase individual health insurance — think Expedia® for medical benefits.

Individuals and families will be able to enroll in a medical plan through an exchange. People in certain income levels will receive subsidies from the government to offset the cost of coverage they purchase through an exchange.

Who’s Eligible for What? Although individuals and families will be eligible to purchase coverage through the individual market via the exchange, not everyone will be eligible for subsidies to help them buy coverage. Initially, only small employers will be eligible to offer group coverage through the exchange.

While most Americans have already been touched by the ACA provisions implemented so far, the most significant and complex parts of the law will take effect over the next couple of years. The federal government still needs to provide guidance regarding how these elaborate provisions should be enacted, but savvy employers are already planning for how they’ll comply.

The NexT TWo yeArs2014 • “Shared Responsibility” takes effect:

• Employers with 50 or more full-time or full-time-equivalent employees must offer them affordable minimum essential coverage (MEC) (called the “employer mandate”) or potentially be subject to penalties.

• Employers subject to Shared Responsibility will be required to report coverage information to enrollees and the Internal Revenue Service (IRS).

• Individuals must have medical coverage (called the “individual mandate”) or be subject to penalty.

• Federal and state exchanges begin for individuals and small businesses.

• Pre-existing-conditions prohibition expands.

• Annual dollar limits on essential health benefits are eliminated.

• The 90-day waiting period maximum begins.

• Small group coverage reform includes changes to the existing rating methodology, provides certain plan-design limits on deductibles and out-of-pocket maximums, and features a comprehensive package of items and services known as “essential health benefits.”

• Insurance-carrier industry fee for fully insured plans (through 2018) to fund insurance exchange subsidies begins.

• Reinsurance fees begin (through 2016) for all employers providing coverage to fund state programs to stabilize premiums in the individual insurance market.

• Wellness incentives provided by employer may increase to 30 percent.

2015 - 2018 • Large employers begin auto-enrolling employees in health coverage.

• Nondiscrimination testing requirements for fully insured health plans begins.

• Quality of Care reporting by employer health plans begins.

timing unknOwn (Pending guidance)

• Beginning in 2015, penalties associated with the individual mandate will increase annually.

• States may choose to open exchanges to all employers by 2017.

• Excise tax on high-cost coverage (“Cadillac plans”) begins in 2018.

*�This�article�was�created�prior�to�the�issuance�of�proposed�regulations�and�Q&A�guidance�on�the�Shared�Responsibility�provisions�by�the�Department�of��the�Treasury�and�the�Internal�Revenue�Service�on�January�2,�2013.��As�more�details�become�available�regarding�the�new�rules�and�clarifications�contained��in�the�proposed�regulations,�ADP�will�provide�updates�on�how�it�impacts�employers�through�our�Eye�On�Washington�publication.�To�register�to�receive��Eye�on�Washington,�visit�www.adp.com/healthcare.

small gRoup plan essenTial HealTH BeneFiTs (eHB)Beginning in 2014, fully insured medical plans issued in the small group market (those with fewer than 50 FTEs or 100 FTEs, depending upon state law) will be required to provide the following general categories of benefits (at a minimum):

Plans offering EHBs may not impose annual or lifetime limits on these benefits. Large group plans are not required to offer EHBs, but those that do cannot have annual and lifetime dollar limits on them. More guidelines on EHBs are expected from the federal government in the near future.

• Ambulatory-patient services

• Emergency services

• Hospitalization

• Laboratory services

• Maternity and newborn care

• Mental health and substance-abuse services, including behavioral-health treatment

• Prescription drugs

• Rehabilitative and habilitative services and devices

• Preventive and wellness services and chronic-disease management

• Pediatric services, including oral and vision care

oTHeR impoRTanT pRoVisions These ACA provisions will also take effect in 2014:

• Limits on pre-existing conditions will be prohibited for all ages (currently they are prohibited for persons under age 19).

• The maximum waiting period for medical coverage will be 90 days.

• Deductibles in small group plans will be capped at $2,000 for individuals and $4,000 for families.

• Annual out-of-pocket limits must not be more than the out-of-pocket limits for health savings account (HSA)–qualified plans. In 2013, the HSA out-of-pocket limit is $6,250 for an individual and $12,500 for family coverage.

Additionally, reporting requirements have already begun increasing, placing additional administrative burdens on employers. The ACA will require many employers to provide information to several departments (including the Department of Health and Human Services, the Internal Revenue Service and the Department of Labor) on what coverage the employer is providing, which employees are covered under employer plans, the cost of coverage, quality of care and more.

7 the Bottom line Health Care Reform the Bottom line Health Care Reform 8

Feeling Overwhelmed by Health Care Reform?

You’re not alone. A survey of 439 small businesses found that 35 percent of respondents didn’t know if they were required to provide their employees with medical coverage. About a third (31 percent) knew that they were not required to pay the penalty tax because they employed less than 50 full-time equivalent (FTE) employees. But more than 75 percent are not making long-term plans for how health care reform could affect their business.

Source: Health Data Management More GuidANce expecTedNow that the presidential election is over, a great deal of regulatory guidance on the upcoming ACA provisions is expected over the next few months. So what’s in front of us is not yet entirely clear. What is clear is that Health Care Reform will have a far-reaching impact on how health care is provided and paid for in the foreseeable future. Companies of all sizes are affected by Health Care Reform.

Trying to make sense of the law, corresponding regulations and guidance can be overwhelming. A PEO such as ADP TotalSource® is uniquely positioned to assist clients in complying with Health Care Reform as we manage payroll data, benefit-carrier information, employer contribution information and tax withholding. For more information on how ADP TotalSource can help you meet your ACA compliance requirements, please contact (800) 447-3237.

What This Means for Employers*

The ability of individuals to participate in an exchange and become eligible for subsidized coverage is at the core of the Shared Responsibility employer penalty. While anyone may purchase individual coverage through an exchange, the employer penalty is triggered when a full-time employee of a large business receives a tax subsidy to pay for coverage purchased through an exchange, either because the employer does not offer coverage to the full-time employee, or the coverage that is offered does not meet the minimum value requirements or is deemed unaffordable.

Small businesses are exempt from the Shared Responsibility penalty. The monthly, non-deductible penalty applies only if an employer had more than 50 combined full-time employees and FTes in the previous calendar year.

Employer Penalties

While the employer penalty is often discussed as one amount, there are actually two penalties. An employer may have to pay one or the other but not both. They are charged monthly.

1. If an employer subject to the Shared Responsibility provisions doesn’t offer coverage to any full-time employees, and at least one full-time�employee obtains subsidized coverage through an exchange, the employer must pay an annual amount of $2,000 for each of the company’s full-time employees (minus the first 30 employees). That’s $166.67 per month per employee.

2. If an employer subject to the Shared Responsibility provisions does generally provide coverage to its full-time employees, but the coverage provided either (i) doesn’t meet the minimum value requirement, (ii) doesn’t meet the affordability test, or (iii) excludes certain full-time employees from receiving coverage, and one or more of these individuals obtains subsidized coverage through an exchange, the employer must pay an annual amount of $3,000, or $250 per month, per full-time�employee who receives that subsidized coverage. There’s a cap on this penalty: It can’t be more than $2,000 times the number of full-time employees minus 30 employees.

There is a safe harbor for the affordability requirement: If an employer subject to the Shared Responsibility provisions offers all its full-time employees the opportunity to enroll in coverage that meets the minimum value requirement and the cost to an employee for employee-only coverage is 9.5 percent or less than the employee’s wages reportable on the Form W-2, the employer will not be subject to the penalty.

DEPARTMENT OF LABOR The Wage and Hour Division (WHD) of the DOL enforces the Fair Labor Standards Act (FLSA), the federal law that governs pay practices. From an employer’s perspective, one of the most difficult challenges associated with the FLSA is properly classifying workers as independent contractors or employees and whether those classified as employees are exempt from overtime requirements.

The WHD is expected to ramp up enforcement efforts via its We Can Help campaign, which is designed to educate workers about their rights. The campaign has a website with links that explain these rights and also public service announcements in English and Spanish by Hollywood stars Jimmy Smits and Esai Morales. We Can Help appears to target construction workers, day laborers and farm workers, and reaches out to non-citizens and/or undocumented workers.

The DOL’s referrals to the American Bar Association (ABA), a national association of lawyers, are expected to increase. Under this partnership, FLSA and Family and Medical Leave Act (FMLA) complainants who are informed that the DOL is declining to pursue their claims are provided a toll-free number to contact a newly created ABA-sanctioned attorney referral system. The DOL has also pledged to provide prompt, relevant information and documents on the referred case to complainants and the referral attorney electing to take the case including, but not limited to, a list of any violations found and the amount of back wages allegedly owed.

The WHD had also proposed a new rule called the Right to Know under the FLSA that would require employers to produce a written “classification analysis” to justify employee exemptions (and/or independent-contractor status). The proposed rule had raised eyebrows among employers because of the additional burden and cost it would place on them. And since the analysis would be expensive whether performed by human resources personnel or in-house or outside counsel, the WHD has placed it on the back burner, with no roll-out date in place.

Neither the presence nor absence of any individual factor is determinative. Nor is it dispositive that workers sign an agreement acknowledging that they are independent contractors. While an employer may save money classifying an employee as an independent contractor, misclassification can be devastating, leading to audits, penalties, lawsuits and substantial unforeseen costs.

Second, employers should review whether employees who are exempt from the FLSA’s overtime requirement are properly classified. The FLSA provides exemptions from minimum wage and overtime pay for bona fide executive, administrative, professional and outside sales employees, as well as certain computer specialists. To qualify for exemption, the DOL has said that employees must meet certain job requirements and be paid on a salary basis of at least $455 per week. The exempt/nonexempt distinction matters because there have been, and continue to be, many investigations and legal claims related to employers’ exemption decisions. Employers must be prepared to defend each exemption decision and may be ordered to pay fines, overtime, liquidated damages and attorneys’ fees if a position has been misclassified.

the election is over: WHaT sHould you expeCT — and plan FoR — noW?The outcome of the November elections has continued the legislative stalemate on labor and employment law, but it’s not likely to slow down the work of the federal agencies. The Department of Labor (DOL), the Equal Employment Opportunity Commission, the Occupational Safety and Health Administration, the Office of Federal Contract Compliance and others are expected to keep changing, updating and enforcing regulations. What follows will discuss new and proposed regulations being considered by federal agencies and will provide guidance to help you prepare for these changes.

Planning for the Future: There are several things employers should do now to prepare for increased enforcement activity by the WHD. First, those who use independent contractors should review whether those workers are properly classified, by considering the following factors:

The degree of control exercisedby the alleged employer

The extent of the relative investments of the alleged employer and employees

The degree to which the alleged employee’s opportunity for profit and loss is determined by the employer

The skill and initiative necessary for performing the work

The permanency of the relationship

The extent to which the work performed is an integral part of the employer’s business

1

2

3

4

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OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION The Occupational Safety and Health Administration (OSHA) is responsible for workplace safety. OSHA’s Injury and Illness Prevention Program (IIPP) has been the agency’s most significant regulatory priority. Although the IIPP has been under development for almost three years, OSHA has been hinting that it’s ready to begin the Small Business Regulatory Enforcement Fairness Act, in which the agency would solicit input on the rule from affected small businesses. This is a significant step in developing regulations.

OSHA has also proposed stricter injury- and illness-reporting obligations by requiring employers to report workplace amputations within 24 hours and all in-patient hospitalizations within eight hours. Existing recordkeeping rules require employers to report in-patient hospitalizations of three or more employees to OSHA within eight hours. Any workplace fatality would continue to be reportable as well.

OFFICE OF FEDERAL CONTRACT COMPLIANCE PROgRAMS The Office of Federal Contract Compliance Programs (OFCCP) administers the federal affirmative-action requirements for government contractors pursuant to Executive Order 11246. These apply to contractors or subcontractors with annual federal contracts totaling $50,000 or more and at least 50 employees. These contractors and subcontractors must create and implement affirmative-action plans annually.

OFCCP has proposed regulations for federal contractors and subcontractors that may go into effect in 2013. These proposals include increasing veterans-related obligations, including setting goals in areas where veterans are underutilized; entering into formal linkage agreements with diversity organizations to refer veterans to employers; and according an undefined hiring preference to veterans. OFCCP also proposed imposing added disability-related restrictions on federal contractors and subcontractors, requiring them to request the disability status of applicants and new hires, set goals in areas where the disabled are underutilized, make online application systems technologically accessible to individuals with disabilities, and allow disabled employees to provide their own accommodations.

EqUAL EMPLOYMENT OPPORTUNITY COMMISSION The Equal Employment Opportunity Commission (EEOC) enforces the federal laws that prohibit discrimination based on race, sex, religion, color, national origin, disability and age. It may soon implement components of its Draft Strategic Enforcement Plan, released on September 4, 2012, which lists eliminating systemic barriers in recruiting and hiring discrimination as the EEOC’s first priority, followed by protecting immigrant and migrant workers from discrimination. The EEOC is also committed to investigating “emerging” issues, like encouraging employers to accommodate pregnant women and disabled employees pursuant to the federal Americans with Disabilities Act. Examples of accommodations include time away from work, modified schedules and modified job duties.

Planning for the Future: Employers who are federal contractors can prepare for OFCCP enforcement of the proposed regulations by reviewing staffing and systems resources to determine capacity to implement and comply with the changes; identifying diversity-referral sources for individuals with disabilities to establish or enhance relationships; and reviewing applicant/new-hire data collection processes to ensure all relevant information is being captured.

Planning for the Future: The EEOC considers unlawful background checks to be one of the key barriers in recruiting and hiring, so employers would be wise to review their procedures and practices. The agency takes the position that, before an applicant with a criminal record is disqualified from employment, employers should individually assess and speak with that person. For example, it is common for employers to develop an internal policy regarding the types of convictions that will disqualify someone from employment. The EEOC contemplates that an employer may satisfy its legal obligations by using an internal policy if it is narrowly tailored to the position in question. employment-law compliance will always be a challenge. With

many developments in policy and regulations by federal agencies, it is difficult to keep up with all the new rules and determine how they affect you. adp Totalsource® is well versed in regulatory developments and stays on top of new rules that affect your business. adp Totalsource updates clients about significant new developments in a timely manner and offers clear action plans that allow them to focus on their business objectives.

Planning for the Future:Employers cannot afford to let up on their safety and health programs. They should review their worksites for uncontrolled hazards; examine recordkeeping logs and other incident reports for areas of concern; engage employees and frontline supervisors in hazard identification; and annually review the effectiveness of safety and health efforts.

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You have an idea for starting a business. You’ve done your research, created a solid business plan and scoped out the marketplace. Now you’re ready to take it to the next level. So how do you move your start-up from vision to viable commercial enterprise? You do so with the assistance of a business incubator.

The National Business Incubation Association (NBIA) describes incubators as “a guiding hand” to help entrepreneurs turn their ideas into viable businesses. They provide support services and resources tailored to young firms to help increase their chances of success.

Since the 1960s, business incubators have helped brand-new companies acquire the very basics: office space, furniture, clerical staff, phones, fax machines, even some manufacturing facilities. In other words, they provided the infrastructure needed for a small business to get off the ground. Over time, incubators have evolved into providers of more strategic business assistance, such as entrepreneurial mentorship, access to funding, and partnerships with other similar businesses. In exchange for their help, incubators typically take a small amount of equity from the start-up.

WHAT’S COOKING WITH BUSINESS INCUBATORS?

13 the Bottom line | Business incubators the Bottom line | Business incubators 14

DO THEY WORK? The scientific research on the success of incubators and accelerators is inconclusive for many reasons. There are problems with data collection and a lack of clarity regarding how to measure success, to name a couple. Yet studies point to incubators and accelerators as being instrumental in boosting the success of small businesses. One EDA study shows that incubators provide communities with significantly greater results, at less cost, than any other type of public works project. The EDA says incubators provide up to 20 times more jobs than community infrastructure endeavors, such as water and sewer projects, at a cost of $144 to $216 per job to the federal government, compared with $2,920 to $6,872 for public works ventures. Another EDA-funded study found that 87 percent of the firms with leaders who graduated from NBIA-member incubation programs remained in business versus 44 percent of all start-ups.

One argument for the success of incubation companies is their rigorous vetting process. Incubators are extremely thorough in reviewing a start-up’s business model before agreeing to take it on. Many require intense training or an immersion program at the beginning to weed out companies that don’t have what it takes. After all, to stay in business, an incubator or accelerator needs to have confidence that its investment in time and resources will pan out. Says Lyn Blanchard, a business consultant with Your Capital Edge™: “These organizations may not be so much good at creating winners as picking the cream of the crop and turning them into even bigger winners.”

SMALL IS THE NExT BIG BUSINESSSmall businesses generate 13 times more patents per employee than larger corporations, so it’s clear that they offer a lot in the way of creativity. What start-ups lack is the capital to grow. That’s where the bigger companies have an edge—they often have the cash to invest in a new technology or innovation.

If big business has the money and small business has the ideas, how do the two come together? Large corporations are forming incubators to buy an ownership stake in entrepreneurial companies that have an interest in a market or project that could help the larger company’s business. Corporate incubators sometimes offer ongoing, hands-on mentoring; others take the boot-camp approach of a business accelerator. Both types of organizations benefit from the arrangement. Start-ups offer energy and insight, while the corporate incubator provides the start-up with access to technology, data, personnel and, of course, cash. Plus, there’s an exchange of ideas. Rahul Sood, general manager of Microsoft’s corporate incubator, Bing Fund, says this about the relationship between Microsoft and the start-ups they mentor: “Having a direct hand in cultivating the next big idea, I think, is the best way for Microsoft to stay competitive and fresh. It’s a two-way street…. We’re excited by what can come out of this.”

WATCHING INCUBATORS GROWIncubators and accelerators have become big business. In fact, the Forbes-designated top incubator, Y Combinator, is worth $8.7 billion. Not bad for a company that’s seven years old. TechStars, another highly ranked incubator, is based in Boulder, Colo., and has offices in New York, Seattle, Boston and San Antonio. Founded in 2007, TechStars has assisted with 114 start-ups, with 98 still active.

With small businesses contributing $6 trillion annually to the U.S. economy, incubators and accelerators are likely to play an even bigger role in sustaining economic growth. So if you’re an entrepreneur with a great idea, a business incubator or accelerator may just give you the boost you need to launch your concept from fantastic idea to Fortune 500 status.

HATCHING THE NExT GREAT IDEAThe concept of business incubators grew slowly. In 1980, there were about a dozen incubator companies. Today incubators are a global industry, with more than a thousand in the United States alone. They partner with start-ups of all kinds, but they’re most prominently involved in high-tech and Internet-based industries. In 2005, the U.S. Department of Commerce Economic Development Administration (EDA) estimated that incubators in North America helped more than 27,000 start-up companies, which created full-time jobs for over 100,000 workers.

Early incubators were often sponsored by universities, public economic-development organizations and similar community-based groups. In the past decade, however, private-sector incubators have expanded their game: Now they’re hiring baby boomers not yet ready for full-time retirement who see the incubation business as a way to pass along their experience and expertise. Other incubators include former entrepreneurs eager to help launch “the next big thing.”

The ongoing evolution of incubators has led to a derivative known as business accelerators. Incubators and accelerators work in much the same way and are often referred to interchangeably, but they have several key differences. Incubators stay involved with the start-up for about three years, on average. Accelerators are more upfront with training and mentoring, often requiring the start-up entrepreneurs to participate in “business boot camp” for a few months. After that, the new company is usually on its own. With their longer involvement and more deeply integrated approach, incubators usually take a larger financial stake in the start-up than accelerator companies do.

Running a successful business is a constant balancing act. As you focus on growing your business, ADP TotalSource® can help you manage key peripheral activities that can distract you from your goals. A partnership with ADP TotalSource allows you to be nimble so you can navigate the daily challenges of maintaining smooth operations while you keep your eye on the great ideas that made you a successful entrepreneur. Let us show you how our business is helping your business.

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The technical definition of a difficult employee is a worker who does not conduct

himself in a responsible and/or professional manner in the workplace. What

this means in your office or facility depends on your business and management

style, but problem workers generally fall into three categories:

What Makes an Employee Difficult?

Examine the characteristics of a successful small

business and you’ll usually find good teamwork at the heart

of the organization. Sometimes you get lucky and find there’s

good chemistry within your workforce already. But nearly all

managers are faced with having to coach a difficult employee

(or even more than one) from time to time.

DecliningPerformance

Trouble-makers

Poor hires

These are employees who have historically been good workers but whose performance has been suffering. This may be due to any number of factors, such as personal issues, work overload, or not understanding a new role or position. These workers can usually be coached back to better performance once the underlying problem(s) have been addressed.

These employees have the potential to perform at a high level — and may even do so periodically — but also often fail to meet expectations. Such workers are often insubordinate and bring negative energy to their work. The causes of their inconsistent performance may be hard to pinpoint, but their behavior can be contagious without early, consistent and firm intervention.

These employees typically do not meet expectations from early in their tenure. Workers like this struggle to achieve and often don’t respond to performance coaching, counseling or discipline. They are simply in the wrong place at the wrong time. Establishing a short-term probation period (e.g., 90 days or six months) for new hires can help you identify and address a poor hire before too much time has passed.

Tips for Managing Difficult

Employees

Tips for Managing Difficult

Employees

17 the Bottom line | managing difficult employees the Bottom line | managing difficult employees 18

How to Work It Out

The ways to address a problem employee have been the subject of much research, but when you boil it all down, several key tactics stand out:

DON’T IgNORE THE S ITUATIONUnfortunately, difficult employees are not likely to change on their own. And in some cases, they may not be aware of the issues with their performance or behavior. Your best bet is to handle the problem quickly, before it becomes unmanageable. Early intervention prevents a difficult employee from affecting other team members, and it sets a good example for the entire company.

gET READYBefore meeting with a difficult employee, make sure you have all the facts. Don’t rely on the perceptions of others — do your own research. Deal in facts, not feelings, and focus on observable behavior, not attitudes. You will need to separate the person’s role from his personality. Think of concrete examples of unmet job-related expectations or any inappropriate behavior. Being prepared and organized will help your discussion(s) with the employee be more productive and effective.

LOOK BEYOND THE OFFICEOften an employee work problem stems from a personal one. Companies that have an Employee Assistance Program (EAP) can provide staff with free, confidential counseling and resources to deal with a wide range of issues.

TALK TO THE EMPLOYEEMeet with the employee in a quiet and private place, such as an office or conference room. Calmly express your concerns. Include examples to back up your points, and be as specific as you can. As much as possible, keep the focus on the professional and not the personal. Your role is problem solver, not social worker.

During the discussion, give the employee the chance to respond. Remember, this is about helping the person improve their performance, so ask the employee for ideas about how to make the situation better. You’ll need to be clear about your expectations, including the time frame and specific actions. Let the employee know that you’ll be monitoring her performance and what the consequences will be if you don’t see progress. Set times and dates for follow-up discussions.

DOCUMENT YOUR CONCERNS AND DISCUSSIONSCreating a record of the problem and the plan for resolution may be time-consuming, but not doing it could become even more of a burden later on — especially if you end up terminating the employee. Summarize your conversation(s), including the actions to improve performance, and give the employee a copy. To demonstrate fairness, be sure to document good behavior and results as well.

CONSIDER THE HARD DECISIONMost employees will recognize their negative performance or behavior and attempt to change. If the employee corrects their behavior, congratulations! You’ve successfully coached a difficult employee into becoming a more productive staff member. But sometimes hard work doesn’t yield the results you want. If a problem employee doesn’t change, you’ll need to follow your company’s disciplinary policies , including documentation requirements. This may lead to termination.

guidance and resources from adp totalsource® no matter what your business, experience or workforce makeup, you’re going to have a problem employee at some point in time. identifying the issue quickly and moving toward a solution are critical to getting him back on track. so are having tools and resources to guide you. Through its ilearn@adp® online learning resource, adp Totalsource® offers training and classes that support effective management for you or your worksite employees who manage others. adp Totalsource also partners with life’s solutions® employee assistance program to help your worksite employees manage the challenges of work and life that may prevent them from performing at the highest levels.

Managing a high-performing workforce can be a source of great satisfaction. But one bad apple can really hurt your business. ADP TotalSource is committed to helping clients maximize the potential of their workforce. More than just a payroll processor, ADP TotalSource is in the business of helping small businesses prosper from the inside out.

19 the Bottom line | managing difficult employees the Bottom line | managing difficult employees 20

A properly drafted employee handbook is an effective means for employers to convey their rules, objectives and corporate culture to employees. It can also reduce the risk of adverse employment litigation against the employer. But overly broad or ambiguous policies can create major pitfalls, and they occur more often than you might think.

keeping unlAwful provisions OUT Of YOUREMPLOYEE HANDBOOK

The NLRA’s acting general counsel has suggested that a conventional at-will statement might violate the NLRA, but the Board and its enforcement arm have offered little in the way of specific guidance. But after analyzing at-will clauses in two employee handbooks, the general counsel’s Office Division of Advice issued two memoranda opinions (“Advice Opinions”) on October 31, 2012, concluding that the clauses were lawful.

The first clause the Division examined states:

aT-Will employmenT: The relationship between you and the Company is referred to as “employment at will.” This means that your employment can be terminated at any time for any reason, with or without cause, with or without notice, by you or the Company. no representative of the Company has authority to enter into any agreement contrary to the foregoing “employment at will” relationship. nothing contained in this handbook creates an express or implied contract of employment.

The Division said this language is lawfully broad because the clause doesn’t state that employees can’t change their at-will status or that they must agree that the employment relationship cannot be changed in any way. Instead, it merely emphasizes that the employer’s midlevel and subordinate representatives have no authority to alter employees’ at-will status.

The second clause the Division considered states:

employment with the Company is employment at-will. employment at-will may be terminated with or without cause and with or without notice at any time by the employee or the Company. nothing in this Handbook or in any document or statement shall limit the right to terminate employment at-will. no manager, supervisor or employee of the Company has any authority to enter into an agreement for employment for any specified period of time or to make an agreement for employment other than at-will. only the president of the Company has the authority to make any such agreement and then only in writing.

The Division concluded that the language is lawful because it explicitly states that the at-will relationship can be changed, so it doesn’t leave room for employees to reasonably assume that their rights are being violated. It also noted that the provision prohibits the employer’s representatives from entering into agreements that provide for other than at-will employment.

The Division of Advice distinguished each case from the following clause, which was decided to be unlawfully broad earlier in 2012: “I agree that the at-will employment relationship cannot be amended, modified or altered in any way.” The Board found that this was “essentially a waiver in which an employee agrees that his/her at-will status cannot change, thereby relinquishing his/her right to advocate concertedly, whether represented by a union or not, to change his/her at-will status.” The clauses discussed above, in contrast, are not so broad, since their language allows for the possibility of a change in employees’ at-will status where agreements to that effect might be signed by a company representative, even a highly placed one. Thus, employees’ efforts to unionize would not necessarily be thwarted or inhibited by the policies’ at-will language.

At-Will Language

an employee handbook helps establish and communicate the policies you need to maximize productivity and help protect your organization from unforeseen risk. Through adp Totalsource® you’ll have guidance to help you create a handbook that clearly communicates your company’s policies, from social media use to unauthorized overtime policies and much more.

21 the Bottom line | employee Handbook the Bottom line | employee Handbook 22

Computer Usage and Social Media PoliciesSection 7 of the National Labor Relations Act (NLRA), which applies to both nonunion and unionized workforces, protects the rights of employees to discuss the terms and conditions of their employment with coworkers and outsiders; this is referred to as “protected concerted activity.” Employers cannot have policies that will have a coercive or chilling effect on such activities. In recent decisions, the National Labor Relations Board (the Board) has found Section 7 violations with respect to a number of policies often found in handbooks, including work rules policies, social media policies and confidentiality policies.

In one case, the employer terminated an employee for violating the company’s Internet policies: She had posted negative remarks about her supervisor on Facebook from her personal computer, outside of working hours. The comments drew similarly negative responses from her coworkers, some of which included profane language. The policies prohibited employees from making disparaging remarks about the company and its supervisors and from depicting the company in any media without its permission. The Board found that the employee had engaged in a protected activity by exercising her right to discuss supervisory actions with coworkers.

In another case, the employer’s policies required people who had identified themselves as employees of the company on social media sites to state, each time they posted, that their comments contained only their personal opinions and did not necessarily reflect those of the employer. The Board found that provision unlawful because it significantly burdens the exercise of employees’ rights to discuss working conditions and criticize an employer’s labor policies.

And in a third case, a company’s policy prohibited the use of the employer’s name or service marks outside the course of business without prior approval from its legal department. The Board found that this provision violated protected concerted activity because employees have the right to use their employer’s name or logo when communicating with coworkers or the public about a labor dispute.

For these reasons, employers should use caution when writing handbook policies. Provisions are subject to intense scrutiny by the Board, and those that may appear harmless, such as those noted above, may actually be unlawful.

Vacation PoliciesVacation policies may also run afoul of applicable law. In some states, for example, vacation time and paid time off (PTO) are considered wages that must be paid when an employee is terminated, even if he has not worked long enough to be entitled to take the time off. Thus, employers that do not pay out remaining vacation and PTO upon termination might violate state laws. “Use it or lose it” vacation policies, on the other hand, where employees are not allowed to carry over vacation time or PTO into the next year, are lawful in many states if the company can prove that the employee was notified about the policy and had a reasonable chance to use the time off before the year’s end.

Leave PoliciesAnother potential minefield for employers is an incorrectly drafted leave policy. Many employers have policies that address leaves of absence pursuant to the Family Medical Leave Act, a personal leave of absence policy and/or a disability leave of absence policy. Some provide for automatic termination if the employee does not return to work when the leave period expires, regardless of any needed accommodations, such as additional time off or an alternate work schedule. Any policy that imposes a capped time limit on leave may violate the Americans with Disabilities Act. Leave policies should be flexible, and employers should evaluate each leave request on an individual basis.

Unauthorized-Overtime PoliciesEmployee handbooks commonly contain extensive policies regarding payroll practices, which are typically rife with inaccuracies that may result in significant liability to the employer. For example, a policy stating that employees will not be paid for working unauthorized overtime is illegal. Employees must be paid for all the hours they work. To avoid this problem, employers should clearly identify the workweek, then state that overtime must be approved in advance and that an employee will be subject to discipline for not receiving prior approval. An employer may discipline an employee who performs unauthorized overtime, but the punishment cannot be failure to pay overtime.

The BasicsThe Fair Labor Standards Act (FLSA) is a federal law that governs pay in the United States. Workers who are covered by the FLSA are entitled to a minimum wage of $7.25 per hour (effective July 24, 2009), although in some states it’s higher. Overtime pay of at least one and a half times the regular pay rate is required after 40 hours of work in a week.

The FLSA provides exemptions from minimum wage and overtime pay for bona fide executive, administrative, professional and outside sales employees, to name a few. To qualify for exemption, the Department of Labor (DOL) has said that employees generally must meet certain job qualifications and be paid on a salary basis of $455 or more per week.

Since an exempt employee’s salary covers all hours worked, a salaried exempt employee is not entitled to additional pay for travel time. Therefore, the following FSLA rules apply to nonexempt employees only.

Ordinary CommutingOrdinary home-to-work and work-to-home travel time for an employee is not compensable even if it takes place outside normal working hours. This is true whether an employee works at a fixed location or at different job sites, so long as the commuting distance does not exceed what’s considered normal in the area. This rule applies even when driving a company car. Traveling to and from an employee’s home airport is not compensable either, because it’s considered ordinary commuting.

Overnight TripsTravel time for an employee taking an overnight trip is compensable for the portion during normal working hours, including on days she does not ordinarily work. So if the employee’s hours are 9 to 5 on weekdays, and she is away on a work trip through Saturday and Sunday, she will have to get paid for the 9 to 5 hours for both weekend days.

Meanwhile, time spent as a passenger on an airplane, train, boat or bus outside normal working hours that results in an overnight stay is usually not compensable unless the employee performs work while in transit.

This information is specific to federal law, so if your state law contains additional requirements, be sure to follow them too.

One-Day AssignmentsIf an employee has a one-day assignment at a “remote work site” in another city and is traveling outside normal working hours, his time is compensable.

Consider the following scenario:

The driver must be compensated for those three hours of travel time. It may not be regarded as ordinary home-to-work travel because it was performed for the employer’s benefit, at the employer’s request.

In contrast, the passenger’s travel time beyond his normal working hours need not be treated as compensable work time unless he is required to discuss or conduct business in the car or while traveling (e.g., loading or unloading the vehicle). The same goes for such a passenger on overnight trips.

An hourly employee has normal work hours from 8:30 a.m. to 5 p.m. At the employer’s request, he travels from Chattanooga, Tenn., to Atlanta for a special one-day assignment. The employee, driving his own car, leaves Chattanooga at 7 a.m. and returns at 6:30 p.m. Is the employee entitled to three hours of compensation for the periods of 7 a.m. to 8:30 a.m. and 5 p.m. to 6:30 p.m.? If he has another employee with him as a passenger, what, if any, travel time is the passenger entitled to receive?

more than just a payroll processor, adp Totalsource® provides its clients with the latest advice on a wide variety of human-resources issues, including compliant travel-time policies and best practices. adp’s Time and labor management (Tlm) solution helps clients strategically manage their workforce and track employee time and attendance. it’s a strategy proven to help streamline payroll preparation, improve wage and hour compliance, and optimize a business’s labor investment.

on the road again: undeRsTanding WHen To pay employees FoR

TRaVel TimeCompanies are sending their employees on the road again. According to The

New York Times, the total corporate-travel market in the United States — defined as related revenue from airlines, car rentals and hotels — grew to $90.7 billion in 2011, up from $72.4 billion in 2009. Revenue is expected to grow by 6 percent in

2012, to about $96 billion, and another 4 percent in 2013. As a result, many businesses are re-examining when they are required to pay

employees for travel time. Here’s what you need to know.

23 the Bottom line | paying for Travel Time the Bottom line | paying for Travel Time 24

hotel Management firm Maximizes Business potential and profitability—with help from ADp totalsourcepinnacle Hotel management focuses on the business growth and earnings potential of its portfolio of hotels. “each of the hotels is run as a stand-alone business with its own general manager,” explains Felicia matula, pinnacle Hotel management’s director of finance. “We don’t apply rigid micro rules, like maintaining a specific margin for each room night. The general managers incorporate these kinds of metrics into their specific operations. at our level, we look at profitability and potential.”

a key to pinnacle’s growth is the organization’s ability to position its properties for success. one way it helps local general managers focus on maximizing profits and increasing the value of their business is by assisting with employer-related administrative requirements that do not generate revenue — but can adversely impact the bottom line.

That’s why Pinnacle entered into a Professional Employer Organization (PEO) relationship with ADP TotalSource®. Having originally partnered with adp Totalsource and then moved to another peo, pinnacle realized that the other peo was not a good fit for its business. it did not take long for pinnacle to reconnect with adp Totalsource. “even when we were with their competition, they always kept in contact with us,” matula acknowledges. “When we called, they came with a knowledgeable team, went to each of our hotels to meet with the local general managers, got their employees into the payroll system and handled benefits enrollment rapidly and accurately.”

matula has on-demand access to a dedicated adp Totalsource Human Resource Business partner (HRBp), who can call upon the Totalsource HR team for help with a broad range of issues — risk and compliance, benefits open enrollment and transaction processing, to name a few.

Another reason Pinnacle chose ADP TotalSource is significant hard-dollar savings. “i estimate that we are saving around $90,000 each year in administrative fees from what we were paying the previous peo,” says matula. “Certainly, if we did everything in-house that Totalsource currently does for us, we would be facing high start-up and ongoing costs in people, systems and infrastructure.”

The scalability of TotalSource systems and infrastructure is another feature that clearly provides value to Pinnacle. “We recently acquired a Homewood suites in lake mary, Florida,” matula recalls. “From an HR perspective, it was all pretty painless. Totalsource sent in a representative, met with the general manager and employees, and completed everything from payroll to benefits. it all got done in a couple of days.”

matula adds that the flexibility Totalsource brings to a relationship fits well with pinnacle’s business model, because it enables local general managers to utilize Totalsource features that matter most to them. “our general managers all have access to a broad array of HR resources from Totalsource and can tap into what they need to help them and their hotels minimize risk, increase productivity, execute on their growth plans and be successful.

“ADP TotalSource consistently shows that they understand our industry. That puts them in a good place to deliver on our expectations,” Matula concludes. “We don’t have an HR person on our payroll, but we do have an HR capability on our staff and at each of our portfolio hotels. adp’s peo is the HR arm of our business.”

state emploYment LAW UPDATESADP TotalSource® offers clients relief from legal and regulatory burdens, including the legislation shown here. Timely communication, clear action plans and helpful resources allow ADP TotalSource clients to focus on their business objectives. The following updates reflect sample developments from October to December 2012.

adp totalsource action(s)

The state passed a host of new employment-related laws that are scheduled to take effect on January 1, 2013. They cover a wide variety of issues, including expansion of employee rights under existing discrimination laws, social-media and personnel-file access, new wage and hour requirements, and requirements covering commission plans.

A new Connecticut law now in effect makes it legal for certain individuals to possess marijuana for palliative use — defined as alleviating symptoms of certain specified debilitating medical conditions. qualifying individuals and their primary caregivers will not be subject to any civil or criminal penalty and are protected from discrimination given that they’re employed. The law does not require health insurance coverage for palliative use of marijuana and allows employers to prohibit such use during work hours.

The newly passed Illinois HB 3782 amends the state’s Right to Privacy in the Workplace Act to make it unlawful for an employer to ask potential and current employees for their social-media passwords or otherwise demand access to their accounts, even during legitimate workplace investigations. The law still allows employers to maintain lawful workplace policies related to the use of their electronic equipment, including usage of the Internet, social-networking sites, and email.

Effective October 1, 2012, state law requires all ADP TotalSource clients with employees in North Carolina to register with and participate in the U.S. Department of Homeland Security’s Employment Eligibility Verification Program (E-Verify).

Alerted clients to the updates; provided guidance toward understanding the impact of the new laws on their businesses and ways to help ensure compliance.

Alerted clients to the update; amended Drug Free Workplace Policies as appropriate to comply with Connecticut law.

Alerted clients to the current rules; provides HR guidance and best practices to help clients stay in compliance with the law.

Alerted clients to the new requirements; provided guidance about registering with E-Verify; administers E-Verify on clients’ behalf.

CALIFORNIA

The Connecticut Supreme Court recently ruled that businesses in the state are not subject to provisions of the Connecticut Family and Medical Leave Act (CFMLA) unless they employ at least 75 employees within the state. This ruling provides clarity to employers who had begun following the CFMLA because they had at least 75 employees nationwide but fewer than that in Connecticut.

Alerted clients to the update; provided clarification and guidance about complying with the law.

CONNECTICUT

ILLINOIS

NORTH CAROLINA

The state recently enacted a supplemental law to its Equal Pay Act that requires employers with 50 or more employees to “conspicuously post” a notification stating employees’ rights to be free from gender inequity or bias in pay, compensation, benefits or other terms or conditions, under the New Jersey Law Against Discrimination, Title VII of the Civil Rights Act of 1964 and the Equal Pay Act of 1963. The new law also requires employers to notify employees of these points in writing annually and collect acknowledgments from them.

Alerted clients to the update; stands ready to develop materials to help clients comply with the new law.

NEW JERSEY

What ADP TotalSource® Clients Are Sayingregulatory development(s)Jurisdiction

Pinnacle Hotel Managementindustry: Hospitality

type of Business: Manages 24 Marriott- and Hilton-branded hotels

location: Headquarters in Royal Palm Beach, Florida

number of employees: Approximately 900,in seven states

adp totalsource client: Since January 2011, returning after five years with another PEO

Why adp totalsource? “When we returned to TotalSource, we could sense that serving our needs was at the top of their list.” — Felicia Matula, director of finance,

Pinnacle Hotel Management

25 the Bottom line | state law employment updates the Bottom line | Testimonial 26

u increase employee productivity, which leads to increased profitability

u Focus on core competencies

u Reduce administrative burdens

u Help mitigate risk/liability and protect assets

u Become an employer of choice

adp Totalsource publishes The Bottom Line free of charge to its clients and prospects. This content provides practical information concerning the subject matter covered and is provided with the understanding that adp® is not rendering legal advice or other professional services. adp does not give legal advice as part of its adp Totalsource services. While every effort is made to provide current information, the law changes regularly and laws may vary depending on the state or municipality. The material is made available for informational purposes only and is not a substitute for legal advice or your professional judgment. you should review applicable law in your jurisdiction and consult experienced counsel for legal advice.

The adp logo, adp, adp Totalsource, ilearn@adp, and in the Business of your success are registered trademarks of adp, inc. all other trademarks and service marks are the property of their respective owners.mKT25-V13Fy13 printed in the usa ©2013 adp, inc.

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