The $1,000,000 Handbook Mistake
Have you heard the one about how an updated handbook could have saved the client $1M? Recently, one of our clients was hit with almost $1M in back pay, penalties, and fines by a city regulator. The “crime”? Failing to provide sick leave to their part time employees.
The kicker? The client actually had been providing sick leave to many of its part-time employees. But:
Their sick time policy was outdated and didn’t facially include part-time employees;
Their handbook never provided employees a required sick time notice as required by law;
Managers failed to keep accessible, readable records showing when sick time had actually been provided;
Their pay stubs didn’t show sick time accrued, taken, or available, as required by law;
One part time employee had an email between him and my client’s (long gone) HR administrator where she (quoting the outdated handbook) said part-time employees were not eligible for sick time.
Luckily, our client had kept other records that demonstrated some legal compliance, and we were able to use these to reduce the client’s liability significantly. But not to $0. The absence of key policies and notices was enough to establish “pattern and practice” violations, over “individual/idiosyncratic” violation of the law, and thus larger penalties were imposed.
The key lessons?
Handbooks and on-boarding packets are not just a collection of policies and new hire forms – they can be your future legal defenses to claims made by employees and the agencies that act on their behalf.
Manager (and HR) training on record-keeping and compliance – and supervisory oversight that ensures records are accessible when managers leave – is critical. It’s not enough that your policies are “right.” Your day-to-day practices must also be “right.”
Do not leave payroll notification compliance to your payroll providers. Ultimately, employers are responsible for the information on the pay stubs they provide to employees, and payroll providers do not always get it right.
It is worth a small investment to keep these critical HR communications, documents, and procedures current and compliant with relevant law. This client would have spent less in legal fees by updating its handbook and auditing its new hire packet a year ago, than it spent to hire me to negotiate the civil fines and penalties imposed by the regulator. And it would have avoided the fines/penalties that we couldn’t negotiate away. Kicking the can down the road can only be a strategy for a limited time before the risks outpace the rewards.
As they say, “a stitch in time saves nine.” Unfortunately, this client had to learn that lesson the hard way.
