A Primer on California Unemployment Insurance

Sarah Rios, Unemployment Insurance Manager for the Employers Group

The unemployment compensation program was enacted over 70 years ago by the federal government as one of several means to help stabilize our economy. The purpose was to provide workers, who were temporarily unemployed through no fault of their own, with a temporary wage replacement to ensure at least some of life’s necessities can be met while seeking new employment. This in turn would help prevent a general financial collapse of the community they work and live in by maintaining purchasing power.

Taxed rated vs. reimbursable employers
California’s Unemployment Insurance (UI) program is financed by employers. Two methods are used to finance state unemployment insurance.

Tax rated
The primary one is the experience rating method of determining employers’ annual contribution tax rate. The tax rate reflects employers experience with unemployment tax credits, benefit charges and payroll. New employers are assigned a 3.4% tax rate for three years; afterwards the tax rate is determined by the employer’s experience rating and the condition of the unemployment insurance (UI) fund.

For 2006 California tax rated employers will pay anywhere from 1.5% to 6.2% tax on taxable wages. The UI taxable wage is the first $7,000 paid to each employee, each calendar year. If an employer has a 6.2% tax rate for 2006 they will be paying $434 for the first $7,000 of earnings per employee. Theoretically, the fewer benefits charged to a tax rated account, the lower the tax rate will be. This feature was designed to encourage greater stability in employment by creating a financial disincentive for employers to lay off workers.

Annual contribution rates are assigned to taxed employers each year effective January 1st. The rate is determined by adding credits to your previous reserve balance and subtracting charges. The balance is divided by your average three year annual taxable payroll to arrive at a ratio that determines your contribution rate for the next calendar year. Using a tax rate schedule table, the state then assigns a new UI tax rate reflecting this ratio. For the third year in a row, California taxed employers are all assigned to tax schedule F plus a 15% emergency surcharge. The F “Plus” Schedule is required by current statute to be initiated when the UI Trust Fund balance dips below specified levels.

Reimbursable method
The second method of financing is the reimbursable method available for nonprofit organizations, public entities, or Indian tribes to choose in lieu of the experience rated method. Employers using the reimbursable method have no quarterly tax, have no reserve account, but pay direct cost each quarter for the unemployment benefits paid out mainly to former employees. In addition, they are not entitled to any relief of charges due to UI benefit payment errors. The reimbursing entity is only entitled to a credit against its liability for overpayments of UI benefits paid to claimants, but only if the EDD collects the overpayment from the claimant. It is crucial that reimbursable employers do all they can to receive a favorable decision when protesting a claim for UI benefits to avoid unnecessary overpayments and UI control.

Base period claims
Unemployment benefits are based on wage credits earned in a 12-month period of time called a “base period”. When an individual files a claim for UI benefits, the base period of the claim is established and the weekly benefit amount (WBA) the person receives is based on the amount of earnings during this 12 month period of time. The maximum WBA for 2006 remains at $450 a week and up to 26 weeks of benefits can be collected on a claim absent any state or federal extension programs. All employers who paid wages to the claimant in the base period are potentially chargeable for their share of the benefits paid to the claimant. If more than one employer paid wages in the base period, the wages are pro-rated to determine the percent of each employer’s liability. (See Base Period Chart below.)

A common error made by many tax rated employers is failing to protest base period claims (form DE1545) when they are not the last employer prior to the claimant filing for UI benefits. If an employer is using an unemployment insurance service to administer claims and the agent is not listed as the addressee of record, it is crucial for the employer to find out who is receiving the base period claims and forward them to their agent when they receive one. In many cases, these forms are given to the payroll department and the claim is not protested within the 15-day deadline resulting in thousands of dollars being charged to the employer’s account and making it harder to lower the employers contribution tax rate.

There is nothing a reimbursable employer can do to protest legitimate base period claims. However, if the last employer is a reimbursable financed employer who protests a claim and the claimant is disqualified, this employer gets relief of charges only as long as the person is disqualified to receive UI benefits. If this person goes back to work, becomes unemployed, opens their claim again and is eligible for benefits, the employer would then be charged their portion of the benefits based on wages paid in the base period.

It is especially cost effective for reimbursable employers to address other temporary disqualifying reasons why the employers should not pay for the UI benefits, such as the case when an individual cannot work due to health reasons, lack of transportation or child care issues.

Claimant eligibility for UI benefits is determined by the reason they left their last job prior to filing for UI benefits. If they are out of work through their own fault (quit or were discharged under disqualifying conditions) then they cannot receive benefits until they have returned to work and are again unemployed. If a tax rated employer protests a claim, and the claimant is disqualified, that employer will not be charged for the person’s UI benefits. Unlike the reimbursable financing method, the taxed employer charges are relieved permanently.
There are exceptions when an individual is eligible to collect UI benefits and the taxed employer may get relief of charges to their reserve account if the taxed employer protests the claim correctly and provides facts related to the separations, such as the following:

1. Student employed only during school break.
2. Quit to relocate with spouse or domestic partner to a location too far to commute with no transfer available.
3. Quit to protect children or self from domestic violence abuse.
4. Quit to take a substantially better job.
5. Discharged or quit as a result of an irresistible compulsion to use or consume intoxicants, including alcoholic beverages.

Discharge for misconduct and a voluntary quit without good cause is confusing with various exceptions to the rules. Workers are changing jobs more than ever during their work lives, both voluntarily and involuntarily. Workers are looking for flexibility in order to address the needs of both parents working and family obligations. At the same time, jobs are being lost by technology and outsourced to other countries.

State agencies, especially California, have made exceptions to the general rules of eligibility in order to meet the needs of the changing workforce as in the case of part-time workers. Part-time employees may be eligible to receive UI benefits and the taxed employers may protest part-time claims and get relief of charges if the individual has continuously, commencing in or prior to the beginning of the base period, rendered services, less than full time, for that employer.

Forecast
California UI Trust Fund continues to show improvement; however, due to the sluggish economy, increased claim duration, and statutory changes in benefits amounts that began in 2002, taxed employers are still having to pay the cost by remaining on schedule F “Plus”. The UI Fund was projected to have an ending balance of $1.06 billion in 2005, $1.30 billion at the end of 2006, and $1.37 billion at the end of 2007. These estimates will be updated in our June issue of this newsletter.

(Editor’s Notes: (1) The information in this article is intended to provide a practical guide on unemployment insurance and is not intended to replace sound advice from your UI agent or attorney. (2) For information about Employers Group’s UI services, contact the writer at srios@employersgroup.com.)

By Dagmar Muthamia, SPHR, Helpline Consultant

It is amazing how many organizations fail to do complete background checks even though it is well known that false information on resumes is common. One background checking company estimates that 44% of all resumes contain inaccuracies or downright lies. When finally exposed, down the line, it can have serious consequences. At the very least it is embarrassing and may result in damaging negative publicity.

Executives’ misrepresentations
The most shocking stories are the stories about executives who have misrepresented their qualifications. Organizations often do not screen well at the executive level. The following examples have been taken from reports in recent years in the New York Times, The Wall Street Journal and other newspapers.

James Braughman was director of recruitment at Lucent Technologies despite having a criminal record as a felon for stealing money while employed as a high school principal. He also lied about having a doctorate. Neither the criminal record nor the lie prevented him from becoming the director of recruitment. In fact, it wasn’t discovered until after his untimely death at the age of 47.

Albert J. Dunlap was hired as chairman and chief executive officer for Sunbeam Corporation even though he had been fired twice before - once by a company that later went bankrupt over allegations of fraud. Two major search firms checking his employment history never uncovered the dismissals because they did not go back far enough. He was fired by Sunbeam in 1998 and accused of fraud. A settlement was eventually reached, but Sunbeam’s stock plummet was blamed on Dunlap.

Football coach George O’Leary was hired at Notre Dame, but lasted only one week because it was soon learned that he lied on his resume about his master’s degree and about lettering in football for three years at the University of New Hampshire.

A large medical device company hired a doctor without discovering that he had been convicted and imprisoned for trying to murder his wife and his medical license had been suspended. He worked as a top scientist for three years before his lies and omissions were discovered.

One of the most recent examples to hit the front page was the case of a North Carolina man who served prison time for felony fraud in the 1990’s, but was hired as a controller and financial officer for the American Occupation Authority in Iraq. Robert J. Stein Jr. was in charge of some $82 million from the Development Fund for Iraq before he was arrested on the basis of criminal complaints citing fraud, money-laundering and conspiracy charges. Stein is accused of using phony bids to ensure that his associate (Philip Bloom’s companies) got at least $3.5 million for work on nine contracts. In return, it is alleged, Bloom made, or arranged for, $546,000 in transfers from overseas accounts to Stein and his wife, or to third parties on Stein's behalf. Federal agents say they have traced the payments to purchases of items such as real estate, cars and jewelry. Presumably his prison record wasn’t known when he was hired.

Hiring through an agency
Many of these horror stories are the result of hiring through a search firm or staffing service and not getting a clear understanding of who is doing the background check and what it includes. Moreover, even executive search companies can make the mistake of not checking references of their own employees. In 2002 a major national search firm hired a senior executive who had been fired from a previous position for using his corporate credit card to buy $28,000 in gifts and refusing to repay the funds.

Hiring a temporary employee for a regular position and relying only on his or her performance as a temporary employee or assuming that the temporary agency did a complete background investigation can be disastrous. Eldean Erickson was sent by a temporary agency to work as an accountant for a San Diego company. He did such a good job he was offered a position. After eight years he disappeared with $9.7 million taken from customer accounts. It was soon learned that his real name was Bernard Striar and that he had embezzled under at least three other names.

A large staffing service recruited T' Challa Ross in March 1998 as a temporary bookkeeper for a small Chicago advertising concern. They were so pleased with her performance that they hired her directly 30 days later. The staffing firm failed to uncover a troubled part of Ms. Ross’s past. Just two months earlier, she pleaded guilty to stealing $192,873 from another employer for which she was sentenced to four years’ probation and 100 hours of community service.

Ms. Ross stole again. She took blank checks from her new employer and forged signatures to embezzle $70,688 between the fall of 1998 and the fall of 1999. The employer tried to sue the staffing service for negligence, but the case was dismissed. The employment references turned up nothing and the client had neither asked nor paid for a criminal check. The employer lost the embezzled money and the fee it paid to the staffing service.

Why reference checks are not made?
In addition to the miscommunication between an employer and a third party, the errors made at higher levels are often due to the fact that the matter has been taken out of the hands of Human Resources. A hiring executive may feel that the executive level is above and beyond HR.

Also, a halo effect may be provided by the network of associates known by the executive doing the hiring. They will take the qualifications of friends, and friends of friends, as true without question or checking.

Sometimes the need for an executive is so great that corners are cut. The pressure of time may be felt in the HR department, in the executive offices or by the third party recruiter.
Often the need to do exhaustive employment history checks is not recognized. The higher the level of authority in an organization the more impact the individual may have for better or worse. Whereas checking employment further back than 10 years is not critical or realistic for lower level positions, it definitely is for higher level positions.

What should be done?

• Lobby upper management for recognition of the importance of background checks, especially at higher levels of management.
• Do not rely solely on one previous employer
• Dig more deeply into the backgrounds of executive level candidates. Go back further to check employment references.
• Treat all employees the same within the same job category
• Do not rely on search firms to do the background check. There is a built in conflict of interest.
• Use a reliable background checking company, but consider calling former employers directly. You may be able to learn more than the dates of employment. Careful questioning and discussion with the candidates own chosen references can be helpful.
• Do background checks appropriate to the position on temporary and part-time employees and independent contractors. This is especially important before offering them regular full time employment.
• Ask someone other than the primary interviewer to do the reference check. The interviewer is prone to influence by the personality of the applicant and their own intuition, which is very often wrong.
• Be willing to spend the money it takes for a thorough investigation of top executives.
• When using search firms to do the recruiting and the background check make sure the scope and details are clearly understood by both parties and put in writing.

Editors Note: For information about Employers Group’s provider for background checks, call
(800) 748.8484

Retirees Returning to Work

By Mark Nelson, J.D., Helpline Consultant

As advances in modern medicine permit individuals not only to live longer but remain active much later in life, many of those individuals are electing to continue working past the traditional triggers (e.g., eligibility for Social Security benefits) that have signaled retirement for previous generations. AARP is reporting that 70% of middle-aged and older workers anticipate working, in some capacity, well into retirement.

Employers are responding favorably to this development. Obviously, employees who work in highly specialized fields that require knowledge of the company’s operations are not easily replaced. Even those workers with less specialized skill sets but with knowledge of the company’s history and culture provide valuable insight, often lost when those employees retire. And as a general rule, employee loyalty is less of a concern for someone who has already made their mark in their respective career and would less likely be tempted by career-advancing opportunities with a competitor.

Nonetheless, below are some issues employers must take into consideration when returning retirees to work, especially when the employee wishes to transform the employment relationship to better suit his or her needs as an older worker.

Employee vs. independent contractor
Many older workers are happy to stay on if they can transition to an independent contractor but continue doing the same work they did as an employee. The obvious concern here is that the employer and employee do not have absolute discretion to define the relationship as they choose – be it employer-to-employee or business-to-business. Several factors drive whether state and federal law will understand the individual to be an employee or independent contractor.

Companies who permit individuals to transition from employee to independent contractor fight an uphill battle when trying to argue the relationship is properly classified as one of an independent contractor, especially when little else has changed in the individual’s relationship with the company. The most important consideration to take into account is the extent of control the employer has retained when overseeing the individual’s performance of the agreed-upon tasks. If the employer reserves the right to evaluate the individual as work is performed (as opposed to merely approving the finished product), the individual is less likely an independent contractor.

Another important consideration is the financial autonomy the individual has in relation to the company. If the individual requires reimbursement of any expenses he or she incurs and is dependent on the company’s equipment to do his or her job, the individual has very little financial control and is more likely an employee. Yet another consideration is the relationship between the company and individual. Is the individual given vacation pay or sick leave – benefits traditionally understood to signal employee status?

In many instances, the more favorable option is to keep the individual on as an employee but negotiate more flexibility into their schedule or simply move them from full-time to part-time. Of course, the individual’s transition to part-time may make him or her no longer eligible for health insurance, unless your policy permits such exceptions or you are able to negotiate such an exception.

Age discrimination
Obviously, it is not a defense to age discrimination that the employee should have retired long ago but the company was kind enough to “let” the older worker stay on as long as they did. In theory, such a statement would actually harm your case by permitting the inference that you, as the employer, believed age necessarily drove the individual’s under performance. Rather, treat the individual like any other employee and address performance issues as they arise. If the individual’s under performance continues to go unchecked to the point termination is inevitable but, of course, you have no documentation to support it, it will be no easier to terminate simply because they’re an older worker.

Impact on benefits
For those individuals over the age of 62 who have already elected to draw Social Security retirement benefits, retirees may work and continue to draw benefits. However, until the individual reaches the actual month of his or her “full retirement age” (anywhere from 65 to 67 years of age, depending on the retiree’s year of birth), any earnings above an annual limit (in 2006, $12,480 for the years prior to full retirement age and $33,240 for the exact year the retiree reaches full retirement age), the Social Security Administration withholds one dollar for every two dollars the retiree earns in the years prior to full retirement age and one dollar for every three the retiree earns in the exact year the retiree reaches full retirement age.

That said, however, never make representations about how the Social Security Administration will handle retirees’ benefits; refer them to their legal counsel and/or tax advisors. The SSA’s website is an excellent resource for answers to general questions the retiree might have (www.ssa.gov).

If your company has a defined benefit plan, familiarize yourself with the terms of the plan and any penalties that retirees might incur should they return to work. With regard to any 401(k) plans, retirees should consider the tax consequences of taking distributions between the ages of 59½, when they are first eligible to take distributions without penalty, and 71 ½, when they must begin to take distributions – should those distributions put them in a higher tax bracket.

(Editor’s Note: If you are interested in establishing a policy for returning retirees to work, please contact the Employers Group at (800) 748-8484 and ask for a Professional Services Manager.)

The A's, B's, C's and D's of Medicare

By Wendy Platt, CEBS, Helpline Consultant

Medicare tends to be something we want to ignore and hope we won’t have to address. As more employees decide to work longer rather than retire, employers are more likely to be asked questions about the company’s health care plan and how Medicare might affect their benefits and visa versa. Given that, employers should become more informed about Medicare. This article is a very brief overview of Medicare as it is currently.

Medicare Part A
Part A covers hospital insurance. Part A helps to pay for covered inpatient care including in-hospital and some skilled nursing facilities (not long-term care), home health care and hospice care. Most Medicare-eligible individuals are automatically enrolled in Part A and need not take any action. Most do not pay a premium for Part A; however, they, or their spouse, must have worked 40 or more quarters of Medicare-covered employment.

Part A is available for individuals who have worked less than the 40 Medicare-eligible quarters, but they must pay a premium for the coverage.

Medicare Part B
Part B covers Medicare-eligible physician services, outpatient hospital services and outpatient care. It covers some medical services that Part A does not cover. Part B helps to pay for covered services and supplies when they are medically necessary. Part B covers flu shots, for example.

Eligible individuals must enroll in Part B to be covered. Generally, those who do not enroll in Part B when first eligible, will see an increase of 10% added to their monthly premium for each full 12-month period that they could have enrolled but failed to do so.

Medicare Part C
Part C, formerly called Medicare+Choice, is currently called Medicare Advantage. Those enrolled in Part A and in Part B, are eligible to enroll in a Medicare Advantage plan, but individuals must reside in the Medicare Advantage plan’s service area. The Advantage plans offer Health Maintenance Organization (HMO) plans, Point of Service (POS) plans and Preferred Provider Organization (PPO) plans, for example.

Medicare Part D
Beginning January, 1, 2006, Medicare is offering a new prescription drug coverage plan – Part D. Those with Medicare coverage must make a decision to enroll in a Part D program, not later than May 15, 2006, without penalty. Failure to enroll by May 15, 2006, will mean the individual will have to wait until November 15, 2006 to enroll and a penalty of 1% of the premium will be imposed for every month that the individual waits to enroll.

Individuals enrolling in Part D, who have Medigap coverage, must notify their Medigap insurer and the drug coverage portion of the Medigap policy will be removed. Individuals then will be unable to get back their Medigap drug coverage. If individuals retain their Medigap drug coverage and fail to enroll in a Medicare drug plan, a penalty may be imposed if they decide to enroll later.

By November 15, 2005, employers were to have notified every Medicare-eligible participant in their group prescription drug plan whether or not the employer’s group prescription drug coverage is as good as the new Part D coverage. Retirees must have been given notice as well. Because employers may not know who in their group prescription drug plan is covered by Medicare, we recommended that the notices be mailed directly to the home address of all participants in the employer’s group prescription drug plan. Notices placed in payroll envelopes may not have reached Medicare covered dependents as required.

If the employer determined that its group prescription drug plan provided benefits that are at least equal to the benefits provided under Part D, participants must have received a “Notice of Creditable Coverage” by November 15, 2005. This means that the participants in the group prescription drug plan who have creditable coverage, may delay enrolling in Part D and avoid a late enrollment fee, provided they enroll in a timely fashion when their group plan coverage ends when their employment ends.

If employers determined that their drug benefit plan was not at least equal to Part D, individuals must have received a “Notice of Non-Creditable Coverage” by November 15, 2005. This means that participants must decide into which Part D plan to enroll by May 15, 2006, otherwise the penalty may apply.

Sample notices for “Creditable Coverage” and “Non-Creditable Coverage” still may be found on the Centers for Medicare & Medicaid Services website at http://www.cms.hhs.gov/medicarereform/CCguidances.asp, or on our website at http://www.employersgroup.com/hrtools/index.shtml, in English and in Spanish.

Employers must provide notice to the Centers for Medicare & Medicaid Services (CMS) whether or not their plan is creditable by March 31, 2006. Employers also are responsible provide follow-up submissions each year. Additional information and a link for a sample form may be found at www.cms.hhs.gov/CreditableCoverage/Downloads/Disclosure2CMSGdnc.pdf.

Medicare and TRICARE
Some participants may have health and/or prescription coverage through TRICARE, the Department of Veteran’s Affairs program for eligible military personnel and their families. Those on TRICARE will need to evaluate the benefits and costs of both Medicare and TRICARE to determine which program is better for them. TRICARE information may be found at www.tricare.osd.mil/ and www.tricareonline.com/. Medicare publications also address TRICARE.

Medicare and COBRA
Those on Medicare may have COBRA rights. Often, Medicare entitlement may affect eligibility for COBRA coverage. The U.S. Supreme Court has ruled that when a qualified beneficiary (person eligible to elect COBRA) is covered by other insurance, including Medicare, prior to enrolling in COBRA, the employee may continue the other insurance coverage and be covered by Medicare (Geissel v. Moore Medical Group, 1998).

Let’s address two Medicare definitions:

1. Eligibility: Reaching age 65
By reaching age 65 individuals become “eligible for” Medicare; that is, they are qualified to enroll in Medicare.
2. Entitlement: “Enrolled in and covered by” Medicare. These are individuals who have signed-up and are receiving Medicare benefits.

Employees who reach age 65 (become eligible for Medicare), who are covered by and remain enrolled in your company’s group health plan, may continue the company’s group health coverage whether or not they are actually “entitled to” (enrolled in and covered by) Medicare. For example, you have an employee who is age 64, is covered by your company’s health plan and subsequently turns age sixty-five. That employee may retain your company’s health coverage even though that employee has become eligible for Medicare.

Also, when that employee terminates employment, he or she may elect COBRA and be covered by Medicare, provided he or she is covered by Medicare prior to the COBRA election date. Conversely, COBRA coverage can be terminated if the employee becomes covered by Medicare after electing COBRA.

If individuals have Part A only when the group health plan coverage ends at the time their employment ends, individuals then may enroll in Part B during a special enrollment period without having to pay a premium penalty. Individuals should enroll in Part B either at the same time they enroll in Part A or during a special enrollment period after their group health plan coverage ends when their employment ends. However, if the individual has Part A only, signs-up for COBRA and then waits until the COBRA coverage ends to enroll in Part B, there will be a penalty. There is no special enrollment period for Part B when COBRA coverage ends.

Just as active employees may be covered by Medicare and still have COBRA rights at termination, they may also have other group coverage before a COBRA election and still retain COBRA rights. This is also a right for dependents who are qualified beneficiaries. Summary Plan Descriptions (SPD’s) should provide information concerning COBRA rights and eligibility.

Definitions
A Health Maintenance Organization (HMO) is a Medicare Advantage plan available in some parts of the country and must cover Part A and Part B. Generally, individuals can only go to doctors, specialists and hospitals listed, except in the case of an emergency.

Medicaid is a joint Federal and State program that helps individuals who have low incomes and limited resources pay for their medical costs. Medicaid programs vary from state to state as states and U.S. possessions have their own State Health Insurance Assistance Programs.

Medicare is a health insurance program for individuals who are age 65 or older; for some individuals with disabilities who are under age 65; and for individuals with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a kidney transplant). Medicare deductibles and premiums are subject to change every January.

Medicare Advantage is a plan offered by a private company. The company contracts with Medicare to provide Part A and Part B benefits. In many cases, the plan also offers prescription drug coverage. Types of plans offered include Health Maintenance Organizations (HMO’s), Point of Service (POS) and Preferred Provider Organizations (PPO’s).

Medigap is a Medicare supplemental policy. These policies are provided by private insurance carriers to fill in the “gaps” in the original Medicare coverage. There is a penalty added to monthly premiums if individuals fail to enroll when they first become eligible. The penalty will continue as long as the individual is covered by Medicare.

A Point-of-Service (POS) plan is an HMO option that permits the use of doctors and hospitals outside the plan for an additional cost.

A Preferred Provider Organization (PPO) plan is a type of Medicare Advantage Plan in which an individual pays less if they use doctors, hospitals and providers belonging to the network. An additional cost is incurred for using doctors, hospitals and providers outside the network.

A Qualified Medicare Beneficiary (QMB) is an individual who requires assistance with paying for Medicare services. Beneficiaries must have Part A and have limited income and resources. For those who qualify, Medicaid pays for Part A premiums, Part B premiums and Medicare deductibles and coinsurance amounts for Medicare services.

Qualifying Individuals (1) (QI-1S) are those needing assistance with paying for Part B premiums. Beneficiaries must have Part A and have limited income and resources and not eligible for Medicaid. For those who qualify, the Medicaid program pays full Part B premiums only.

Qualifying Individuals (2) (QI – 2S) are those who need assistance with paying for Part B premiums. Beneficiaries must have Part A and have limited income and resources and not eligible for Medicaid. Those qualifying are eligible to have Medicaid pay a percentage of Part B premiums only.

A special enrollment period is for those who didn’t enroll in Part B when they were first eligible because the individual, or the individual’s spouse, was working and had group health coverage. There is no penalty provided individuals enroll during the special enrollment period immediately when group health coverage ends when their employment ends.

Summary Plan Description (SPD)
The U.S. Department of Labor (DoL) requires group health plans covered by the Employment Retirement Security Act (ERISA) to provide a summary of the plan coverage to plan participants. Aside from cost-sharing information; use of network providers; limits of the plan; preauthorization or utilization review requirements; which plan pays first if an individual is covered by more than one plan including Medicare and TRICARE; and information concerning continuing rights under COBRA, there are several additional requirements to include in the SPD.

What should employers do?
Understanding Medicare can be challenging, but proactive Human Resources professionals can educate themselves for a better understanding of Medicare and how Medicare might affect employee benefits and visa versa. Just take some time to read, a little at a time, and before you know it, you’ll be able to explain it with more confidence, remembering, of course, that because of individual variables, not everyone will have the same type of Medicare coverage. Understand and explain, but let individuals decide their own coverage based on their individual situation.

For additional information, visit www.medicare.gov, or call 1(800) MEDICARE (1-800-633-4227). To get a copy of “Medicare and You 2006,” which was a resource for this article, go to www.medicare.gov/Publications/Pubs/pdf/10050.pdf. The Department of Labor has a Frequently Ask Question (FAQ) site -- www.dol.gov/ebsa/faqs/faq_consumer_cobra.htlm. In addition, the Centers for Medicare & Medicaid Services (CMS) has two booklets: “Medicare and Other Health Benefits: Your Guide to Who Pays First, www.medicare/gov/Publications/Pubs/pdf;02179.pdf and “Medicare Basics: A guide for Caregivers,” www.medicare.gov/publications/pubs/pdf/11034.pdf. Employers Group has links to many of these sites on our website in our “Knowledge Center” under “HR Links,” then to “all HR links in alphabetical order.”

By Wendy Taylor, Editor and Legislative Coordinator

Although the process can be complicated, and all rules can be waived by various methods, the California legislative process follows certain predictable steps.

Legislators get ideas for legislation from many different sources: their own constituents, media, their personal life experiences, and, in most cases, lobbyists. Lobbyists representing public and private agencies, companies, nonprofits, and virtually every special interest have no shortage of legislation they would like to see enacted to benefit their clients, or changes made to current laws to benefit their clients.

Author of a bill
Thus, the first step in the legislative process is selecting the author - the legislator who will carry the bill. This step requires consideration of the political power of the legislator, whether they are on the committees that will likely hear the bill, whether carrying such legislation will benefit the legislator with their constituents, and other political factors.

Sponsor of a bill
The sponsor of the bill is the individual or organization that has solicited the author and who will be responsible for shepherding, along with the author, the bill through the legislative process. If the Employers Group were to seek a legislator to carry a bill for us, EG would be the “sponsor” of the bill.

Legislative Counsel
All bills must be formally written by Legislative Counsel, which is a department of attorneys who work for the Legislature and write all bills and amendments in legally appropriate language, in the appropriate code section of law. Most sponsors submit, through the author’s office, a draft of the desired bill language, and the Legislative Counsel prepares the final language that is introduced.

If the author is an Assembly member, the bill is introduced in the Assembly, and conversely, if the author is a Senator, the bill is introduced in the Senate. It is given a bill number—AB for Assembly Bill, and SB for Senate Bill, assigned simply in the order bills are introduced.

The Rules Committee
The Assembly is considered one “house,” the Senate another “house.” The Rules Committee in each house decides which committee each bill will be referred to. This is why a seat on the Rules Committee is considered a powerful and prestigious: whether a bill passes or is killed in committee often depends on the composition of the committee.

Policy Committee
Every bill is assigned to a Policy Committee. Examples of policy committees include: Education, Transportation, Natural Resources, Business and Professions, Labor, etc. A newly introduced bill may not be heard in committee until 30 days after the date of introduction, to give time for the public to become aware of the bill. The policy committee may pass the bill as is, pass it as amended, hold it over for another hearing, or kill the bill.

Appropriations Committee
If a bill appropriates money or will cost the state money, it will be referred an Appropriations Committee. Remember that a bill is referred to “Approps” only if it has fiscal implications for the state, NOT if it will cost private entities to comply with the new law. The Appropriations Committee may pass a bill, amend it, kill it or put it on the “Suspense File”.

The Suspense File is a temporary collection of bills that would impose major costs on the state; these bills are kept “on hold” or “on suspense” until the Budget Bill is passed and the state has a better idea how much money remains available to spend. Then the Committee votes on them one by one.

Voting
Once a bill passes both the policy committee, and, if necessary, the appropriations committee in the “house” it was introduced in, it has to be voted on by the full house - the full Assembly or the full Senate. Bills awaiting a vote by the full house are referred to as being “on the Floor”.

Bills must pass by a majority vote on the Floor (41 in the Assembly, 21 for the Senate), except for constitutional amendments, some tax bills, bills with an urgency clause in them and the Budget Bill, which must pass by a 2/3 vote (27 in the Senate, 54 in the Assembly).

Once a bill passes the Floor in the house where it was introduced, it is only halfway through the legislative process! Now the bill must proceed through the same process in the other house. If the bill started as an Assembly Bill, after it works its way through the full Assembly, it moves to the Senate. Senate bills move over to the assembly, and in general, the process follows the same path: assigned by the Rules Committee to a policy committee, heard in a policy committee, referred to the Appropriations Committee if required, and voted on by the full house.

If a bill passes its house of origin and then is amended in the other house, it must go back to the original house for what is termed “concurrence in amendments”. This constitutes a vote by the full house that it agrees with the changes made to the bill in the other house.

Governor signs or vetoes
When both houses have passed a bill, it proceeds to the Governor for signature or veto. The Governor can sign a bill into law, let it become law without his signature or veto it. The Legislature can override a Governor’s veto with a 2/3 vote.

Key deadlines for action in the Legislature in 2006 are:

February 24: Deadline for bills to be introduced.

April 28: Deadline for policy committees to pass bills out that must go to fiscal committee.

May 12: Deadline for policy committees to pass bills that do not go to fiscal committee.

June 2: Deadline for all bills to be passed out of house of origin
.
July 7: Legislature in Summer recess until August 7

August 31: Legislature in recess until next session begins in December.

(Editor’s Note: We will be reporting on employer- related significant bills throughout the year in this column, as they are introduced.)

CA Warn Act Interpreted

By Jim Kuns, J.D., Senior EG Consultant

In a recent interpretation of California’s new layoff (WARN) law an Appeal Court found that no “mass layoff” occurred where employees were transferred from one employer to another and they did the same work and received the same pay and benefits – see MacIsaac v. Waste Management (2005) California Court of Appeal, First District.

The city of Santa Rosa, California, decided to contract with a new provider of trash collection, disposal, and recycling services. In 2002 they chose to change from Waste Management Collection and Recycling, Inc., doing business as Empire Waste Management, Inc. (Empire Waste) to North Bay Disposal Corporation (North Bay). The contract for the new company was to become effective starting in 2006.

California's Worker Adjustment and Retraining Notification Act (WARN) became effective January 1, 2003. With City approval, North Bay bought the remaining years on Empire Waste’s contract, and took over the service effective February 1, 2003. Later that month North Bay had an unrelated company reduction in force of 20 employees. North Bay also bought Empire Waste’s equipment and trucks, and agreed to hire all the garbage truck drivers to continue to drive the same routes they did before the company change. The drivers kept their same seniority dates, and received equivalent pay and benefits.

Forty one of the 42 drivers showed up for work for the new company, which was located just across the street from the old company. One of the drivers, Stanley MacIsaac, was offered employment but declined to accept it.

In June 2003, MacIsaac sued Empire Waste for failing to give its employees 60 days notice before a layoff, under the California WARN act, §1401(a) of the California Labor Code. Both MacIsaac and Empire Waste agreed that the question at hand was a pure issue of law, and asked the court, for the first time, to interpret the California WARN act.

The lower trial court sided with Empire Waste. The court held that the drivers “were not separated from their positions for lack of funds or lack of work within the meaning of Cal-WARN. Therefore, the Drivers were not laid off within the language of the statute, and there was no mass layoff triggering Cal-WARN's notice requirements.”

The Labor Code defines a “covered establishment” as “any industrial or commercial facility or part thereof that employs, or has employed within the preceding 12 months, 75 or more persons.” Empire Waste was covered by the act. In §1400(d) the code defines a mass layoff as “a layoff during any 30-day period of 50 or more employees at a covered establishment.” A “layoff” is defined §1400(c) as “a separation from a position for lack of funds or lack of work.”

The court concluded that the plain language of §1400 and §1401 indicates that the notice obligation is triggered for employers operating covered establishments when 50 or more employees are “separated from their positions” within a 30-day period. Empire Waste argued that since it did not layoff 50 employees, there was no mass layoff, and therefore no need for 60 days notice.

MacIsaac appealed the lower court decision. The California Appeal Court noted that there were no other legal cases interpreting California’s WARN act. So, in order to reach its decision in this case, the court analyzed the law’s language, and the intent of legislators utilizing established legal principles.

In its analysis the court reasoned, “…[T]he Legislature set out the definition of a number of key terms used in the California WARN Act. Of particular relevance here is section 1400, subdivision (d), which defines ‘mass layoff.’ …The word ‘layoff,’ in turn, is defined in the immediately preceding subdivision as ‘a separation from a position for lack of funds or lack of work’. …Thus, the plain language of the relevant provisions of sections 1400 and 1401 indicates that the notice obligation is triggered for employers operating covered establishments when 50 or more employees are ‘separated from their positions’ within a 30-day period.”

MacIsaac claims that the law is very clear. He contends that the 42 transferred drivers plus the 20 employees who were laid off, totals more than 50 employees. MacIsaac reasoned that the transferred employees no longer worked for Empire Waste after January 31, 2003. And, his argument continues, since laid off means no longer working at the employer’s place of work, it doesn’t matter that the employees went to work for another company – in this case North Bay. The fact that the transition of work was seamless, MacIsaac argues, is not relevant. “The only question is whether the conditions for notice existed at the time Empire Waste was required to give notice. What happened afterward has nothing to do with this case.”

The court disagreed with MacIsaac’s argument when it said “The statute defines ‘layoff’ as ‘a separation from a position for lack of funds or lack of work.’ …In contrast to the plain language of the statute, MacIsaac focuses on whether the employee was separated from a particular employer. But under the Legislature’s express definition that is clearly the wrong question. Under the Legislature’s chosen definition of ‘layoff,’ the determining factor is whether the employee has been separated from ‘a position,’ not whether the employee is separated from an ‘employer.’

In a footnote to the decision the court cautioned that their holding in the case is limited to the facts of this particular case. They supported some federal WARN act reasoning in that it was important all of the transferred employees kept their same jobs with no change in the terms of their employment. “A different situation might be presented if North Bay had offered ‘to rehire the workers at a wage so much lower than their previous wage, or on conditions so much inferior as to rebut an inference of continuity of employment.”

Violence in the Workplace

By Tanya Butler, M.S., Helpline Consultant

Facing violence has become routine for many workers, from bus drivers, teachers and nurses to air crews faced with mounting cases of air rage among passengers. Governments, trade unions and employers both nationally and internationally are responding. Remedies include security measures, surveillance, organizational solutions and the training of staff in how best to diffuse potentially violent situations. In most cases, these remedies are extremely cost-effective in terms of reduced medical and personnel costs and improved performance.

The cost of violence represents a serious, sometime lethal threat to the efficiency and success of organizations. Nothing is worse for an organization than to be labeled as violent.

So, what does workplace violence mean?

• Workplace violence is any physical assault, threatening behavior, or verbal abuse occurring in the work setting

• A workplace may be any location, either permanent or temporary, where an employee performs any work –related duty. This includes, but is not limited to, the buildings and surrounding perimeters, including the parking lots, field locations, clients/consumers’ home and traveling to and from work assignments

How great a problem is violence at work?
In the United States, homicide has become the second leading cause of occupational death overall, and the first cause for women. Each week, an average of 20 workers are murdered and 18,000 are assaulted.

What is the impact of violence at work?

• On the individual level - suffering and humiliation can lead to lack of motivation, loss of confidence, reduced self-esteem, depression, anger, anxiety and irritability. If the causes are not eliminated or contained, these symptoms can develop into physical illness, psychological disorders, tobacco, alcohol and drug abuse, and occupational accidents.

• On the workplace - disruption to interpersonal relationships and the overall working environment, lost work and the cost of improved security measures, as well as reduced efficiency and productivity, the deterioration of product quality, loss in company image and clients.

• On the community level - the costs of health care and long-term rehabilitation costs, unemployment and retraining costs, and disability and invalidity costs where the working capacities of the victims are impaired by violence at work.

In the United States, crime victimization at the workplace has been estimated to cost approximately 1.8 million lost working days each year.

What forms does violence take at work?
People are usually efficient and productive. People are often faced with personal and work-related problems, but dialogue usually prevails over confrontation. But sometimes things go wrong and the range of “wrong” behavior is very broad.
Violence may be of repeated actions which, by themselves may be relatively minor, but which can cumulatively come to constitute serious forms of violence such as sexual harassment, bullying or mobbing.

• Although a single incident can suffice, sexual harassment often consists of repeated unwelcome, unreciprocated and imposed action which may have a very severe effect on the victim. Sexual harassment may include touching, remarks, looks, attitudes, jokes or the use of sexually oriented language, allusions to a person’s private life, references to sexual orientation, innuendos with a sexual connotation, remarks about dress or figure, or the persistent leering at a person or a part of her/his body.

• Workplace bullying is one of the fastest-growing forms of workplace violence. Bullying constitutes offensive behavior through vindictive, cruel, malicious or humiliating attempts to undermine an individual or groups of employees. Such persistently negative attacks on their personal and professional performance are typically unpredictable, irrational and unfair.

• In recent years, another form of systematic collective violence has been reported. This involves ganging-up on or mobbing an employee and subjecting her or him to psychological harassment, for example, by means of continuous negative remarks or criticism, isolation, spreading gossip or ridiculing the person concerned. Although such practices might on the surface appear to be minor single actions, they can have a very serious effect.

Sectors and occupations most affected
While no occupation is immune, violence at work tends to be more of a risk in certain occupations and tasks than in others. These tasks include:
• Handling money or valuables (cashiers, transport workers, bank and post office staff, shop assistants);

• Providing care, advice, education and training (nurses, ambulance staff, social workers, teachers);

• Carrying out inspection or enforcement duties (police and traffic wardens, ticket inspectors);

• Working with mentally disturbed, drunk or potentially violent people (prison officers, bar staff, mental health workers);

• Working alone (home visitors, taxi drivers, domestic repair workers).

Several factors appear to increase a worker’s risk of suffering violent treatment at the workplace. Chief among these are sex, age and precarious employment.

• Younger workers may be more at risk of violent victimization at the workplace. Previous experience enables employees to react more wisely and behave with more self-confidence than inexperienced staff.

• Women are at particular risk of violence, both inside and outside the workplace. Over 50% of women interviewed in a 1993 Canadian survey stated that they had experienced physical or sexual attacks, 18 per cent of which had resulted in physical injury. Why? Women are concentrated in many of the high-risk occupations, particularly as teachers, social workers, nurses and other health-care workers, as well as in banks and shops. The continued segregation of women in low-paid and low status jobs, while men predominate in better-paid, higher status jobs and supervisory positions, also contributes to the problem. Men tend to be at greater risk of physical assault, while women are particularly vulnerable to incidents of a sexual nature. American surveys show anything between 40% and 90% of the women questioned have suffered some form of sexual harassment during the course of their working lives.

What are the causes of violence at work?
Images of disgruntled employees, angry spouses or unhappy, desperate, often psychiatrically impaired people are easy for the media to present and affect public and official perceptions of workplace violence. Much of the current employer response to violence consists of the development of pre-employment tests to screen out and exclude potentially violent employees, combined with profiles to identify current workers who might become violent and measures to deal with violence when it occurs.

Measures of this type, as well as broader measures to restrict access to firearms, may well help and deserve careful consideration. Unfortunately, they only address limited symptoms of an extremely complex and diverse problem. As a management professionally, an understanding of the variety and complexity of the factors that contribute to violence at work is a vital precursor to any effective prevention and control program.

Violence, or aggression, is deeply ingrained in humans. It was originally necessary for the survival of the species. It does not occur randomly across the human species, nor does it occur evenly throughout any given society. National homicide rates, as recorded by the United Nations in 1995, vary between 1 to 80 per 100,000 inhabitants, depending on the country concerned.

Factors such as the country’s and individual’s culture, individual personality factors, substance abuse, some biological factors, mental illness, media influence, and the influence of peers and schooling may all play a role in determining the violence climate. A full, professionally assisted examination of a company’s violence climate is a worthwhile investment. In the meantime, there are many ways in which positive micro-level change can be achieved.

What we’ve learned about violence prevention:

• Approaches that concentrate on pre-given, fixed solutions appear ineffective.

• It is practically impossible to predict where or when violence will occur.

• It is practically impossible to trace the profile of the perpetrator or of the victim.

• It is practically impossible to determine a rating scale of exposure to violence by occupation.

• Interactions among workers, work environment, external environment are key-generators.

• Some situations appear in general at higher risk.
Tackling violence at work now
Some early intervention measures that can produce more permanent results include:

• Finding. disseminating and discussing information about innovative programs, perhaps among your management staff

• Noticing and rewarding manager efforts to identify and prevent possible violence at work.

• Developing a clear policy and procedure, with employee participation.

• Developing training programs for managers and workers.

• Creating a climate and procedure for reporting of violent incidents.

• Intervening immediately after a violent incident

Prevention
Disgruntled employees need an outlet to vent frustrations and a pipeline to submit grievances to upper levels of management. If such an outlet exists, violence triggers can more than likely be defused. A problem that we now recognize is that supervisors are often ill equipped to handle such emotional needs of those they oversee.

In addition to having knowledge about fair employment practices, discrimination, and drug abuse, now business managers and supervisors need training on how to deal with these potential violence triggers. Problematic employees will still have to be terminated and disciplined, but now more than ever they need to be treated fairly and with dignity.

Workplace violence will not be a simple problem to solve because it often involves external pressures unrelated to the job. Metal detectors and armed guards at all building entrances are too extreme to be socially acceptable.

What can companies do? Adopt a zero tolerance against employee-to-employee violence in the workplace. Train key mangers to detect the early warning signs and teach them how to handle it. Have a system for complaints to be received and investigated. A clearly defined and articulated workplace violence policy is important, along with a fair and even-handed discipline procedure for those would don't follow the rules.

Awareness and education are the keys to understanding, better communication is the key to action.

Are you a Manager or a Leader?

Dr. Steve Albrecht, PHR, CPP, is a trainer and HR consultant in San Diego, CA. He specializes in high-risk HR issues, including workplace violence prevention training, employee threat assessment, and corrective coaching.

It’s not easy, right, nor fair to make too many sweeping generalizations when it comes to the way people work in organizations. However, with that caveat out of the way, here are some themes as to the differences between manager / supervisor behavior and leadership behavior.

For this discussion, we can define supervisors as the first level or the frontline bosses of the line-level employees. We can define managers as department heads, or supervisors of other supervisors. We can define directors as the organization’s executive-level representatives.

Let’s start by focusing on the differences between managership and leadership.

“Managership”
The focus is more on solving the daily problems, working on their own activities, getting others to do their work, and meeting deadlines.

Managers or supervisors: are task-oriented, present-day focused, and have more closeness with their employees. It’s more about getting the job done, any way and any how, over delegation, employee empowerment, or employee development.

• They can range from being hands-on bosses (micro-managers, at one extreme); hands-off bosses (missing managers, at the other extreme); or interactive bosses (best of both approaches).

• They tend to stay in a fire-fighting mode, trying to solve daily problems as they erupt.

• They focus most on getting their work tasks done and encouraging their subordinates to complete their own assigned or usual tasks.

• Their focus tends to be on the present, with little long-term planning (longer than one quarter away).

• They may lack the desire or confidence to delegate work, fearing their people may not complete these tasks correctly (or that they may exceed expectations and get the credit).

• Time management can become a problem, since they don’t always trust delegation or they allow themselves to get bogged down in issues, problems, or projects that are deemed “urgent” but not “important” (i.e., going against Stephen Covey’s time management principles).

“Leadership”
The focus at this level or orientation is more on thinking strategically, not operationally. This emphasis says:

• What problems are we trying to solve?

• Who are my strongest employees? What am I doing to help them grow and develop to the next level?

• What trends, problems, or opportunities appear on the horizon, not just next quarter, but next year?

• How will I have to plan to make the best use of our people, budget dollars, materials, resources, and time?

• What issues, projects, or responsibilities does my boss want me to manage?

• Who can I hire, promote, or transfer out of here, so that we have a diverse, enthusiastic, creative, and cohesive team?

Leaders or Directors are future-focused, strategic, big picture thinkers, who make good use of their existing resources. They tend to spend more time thinking about how to correctly set the direction of the organization and / or the group and less on day-to-day distractions.

• They realize the importance of their downstream decisions, as having an impact beyond today, i.e. they seek to create a legacy for themselves or the organization that’s not based on ego, but on results.

• They actively seek out employees (at every level) who demonstrate an aptitude for their work, so they can offer them more responsibilities, access to training, and promotion possibilities.

• They don’t fear delegation; they make careful use of it by giving employees a chance to grow and learn, even if they make mistakes along the way.

• They choose certain critical moments to “get their hands dirty” and dive into projects along with the line-level employees.

• They make time to communicate with employees and supervisors, so that there is a sense that people don’t learn important news by accident.

• They are not afraid to make hard decisions or take risks that others avoid as unsafe, career-threatening, or outside the status quo of the work culture.

• They demand accountability and responsibility from all, and they model these traits themselves, especially when it comes to ethics, keeping promises, and “walking their talk.”

• They know when to be visible and when to stay behind the scenes.

• Because of their people-oriented style, employees like working with and for them.

So, do you see yourself as a manager or a leader? What do you need to do differently, starting now, to change your role? (Editor’s Note: Employers Group will offer two entirely new training programs this year: Basic Leadership Skills, beginning in February, and Advanced Leadership Skills, beginning in March. These programs will replace the certificate in supervision and management program. This new leadership series is focused on taking any employee to the next level by giving them the skills they need to take on new responsibilities and enact positive results within their positions, departments or organizations. For information about these programs, call Employers Group and ask for the training department. For information about Dr. Albrecht’s services - or his newly published book Tough Training Topics: A Presenter’s Survival Guide - call Employers Group at (800) 748-8484 and ask for a Professional Services Manager.)

What's Important to High Growth Companies?

P. Anthony (Tony) Burnham is Employers Group’s Senior Vice President and Employment Counsel. Prior to joining EG, Tony was President and Employment Counsel for the Orange County HR consulting firm Human Capital Co-op. He has represented management for more than 37 years, both as an attorney and senior corporate HR executive for such firms as Carnation/Nestle and Abbott Resources Group. He is the author of Employed for Life! An Insider’s Secrets for Guaranteed Employment in our Permanently Changed Workplace.

H. Wilson Beach, Chairman of Abbott Resource Group, Inc. is a consultant to Employers Group and co-author of this article. He has been the CEO of a number of public and private companies in the specialty chemical, marketing, precision instruments, financial services, staffing, and human capital outsourcing industries. Wil’s 35-year record of leadership includes startups to sustained growth companies, plus numerous turnarounds and consolidations in mature industries.

While many firms continue struggling to remain competitive, a unique subset in every industry has discovered a way to sustain exceptional growth and earnings in spite of increasing cost and competition. According to studies by Cognetics, Inc., a leading market research firm, these top-performing companies called “Gazelle,” have been responsible for an astounding 95% of annual net job growth for more than a decade! 1

But the really surprising news is that the vast majority of Gazelle companies are not the public giants featured in Fortune, but smaller to mid-sized independents found in roughly equal percentages in all industries. While Gazelles aren't to be confused with small businesses (most small businesses don't grow at all), they do start small, and then often grow out of the category pretty quickly. According to Cognetics, Inc., these fast growers represent no more than 3% of U.S. businesses. But between 1990 and 1994, Gazelles created 5 million jobs, enough to produce net employment growth of over 4 million in spite of the well-publicized downsizings elsewhere in the economy.

As a result, if you are struggling to remain competitive in today’s global market, it is even more important to note that these amazing companies produce 20 times more sales per employee, five times the market share, 25% greater profitability, and three times more net worth as the average company. As a result, they are also twice as likely to survive in good times and bad!

Even more encouraging is the fact that research has found that Gazelles have a number of common management practices that can be adapted to strengthen any company’s performance and survivability.

First, they are extremely attentive to their customer’s changing needs, and have developed uniquely effective processes for assuring those needs are continuously met. Next, they are keenly aware that the quality of their workforce determines their ability to maintain customer satisfaction and long-term profitability. In recognition of this fact, they have flexible and easily understood systems, procedures, operating plans, and employment practices that guide and support their employees in meeting customer needs – and then make it a point to fairly compensate them for their meritorious performance.

In short, because they know where they want to go, have developed effective plans and processes for getting there, and consistently reward their workforce based on merit, Gazelles are able to attract and retain the quality employees so essential to their sustained success.

Finally, because of the importance of monitoring performance, Gazelles are intent on discovering the practices that determine the quality of their workforce, and then monitoring the effectiveness of these practices by measuring their impact in terms of improved productivity, cost, sales, profit, R.O.I., and customer satisfaction.

This last point is especially important when considering which metrics to use in the management of your workforce. Unfortunately, most of the metrics now in use by HR professionals focus on quantifying the relationship between their practices and cost (i.e. cost of hire, health care cost per EE, HR expense factor, etc). While these statistics have their place, most CEO’s consider them secondary to the relationship between employment practices and direct measures of profitability (i.e. profit per EE, ROI per EE), or the elements recognized as directly affecting profit (i.e. sales per EE, client retention, returns, etc.).

The superior performance of Gazelles make it clear that to be successful, HR must demonstrate the relationship between investment in the company’s management/employment practices and the drivers of financial performance - and ultimately customer satisfaction and profit itself.

1 Source: David Birch, [et al.], Who’s Creating Jobs? (1999)