Russ: This is The BusinessMakers Show, heard here and online at thebusinessmakers.com. And it's guest time on the show, and as I announced in the lineup, the topic should be of interest to all of our audience because there is change in the air from rules and regulations. And here to speak about it is Carl Kleimann, the President of Odyssey OneSource. Carl, welcome to The BusinessMakers Show.
Carl: Thank you, Russ. It's a pleasure.
Russ: Why don't we start by you telling our audience about Odyssey OneSource.
Carl: Well, Odyssey OneSource is a professional employer organization. For those not familiar with that term, we are basically the human resources department for small businesses. Small businesses typically don't have much in the way of HR infrastructure, so we help them level the competitive field with larger employers.
Russ: And from what I know, you have an extensive background in the professional employer organization industry.
Carl: I do. I have been in the employer services business since 1986. We serve clientele with anywhere from a half a dozen, maybe, to a few hundred employees, typically don't have professional resources internally to stay abreast of what's going on, so we make that our job to keep them compliant to leverage their human capital to the most strategic manner possible.
Russ: Cool. And I think probably most of our audience is aware that, man oh man, it is extraordinary times in the area of federal regulation these days.
Carl: It is. Since President Obama has come into office, I think it's safe to say that we are in the midst of a pro-labor era. And what I mean by that-and I'm just going to start with the landscape-one of the first appointments was representative Hilda Solis as the country's 25th Secretary of the Department of Labor. Representative Solis is actually part of a labor activist organization, so I think that gives you some idea of kind of what her priorities are. She's given credit for a lot of the work that's already been done on the Employee Free Choice Act. In her view, unions will hold a higher place, I think, throughout this 4-year term. I think employers are going to see much more regulation, and I think employers are also going to see much more stringent pursuit of violations, at least in the DOL's interpretation of what's a violation than we've seen in the past.
Russ: Okay. So in your opinion, knowing Representative Hilda Solis in her past was a huge step in the direction of labor when she was appointed to the position.
Carl: I don't think there's any question about that. She's definitely been instrumental in some of the Obama administration's goals about promoting unions in this country, making it easier for union organization, and that's not just a big company issue. That simplifying the union process I think is going to bring unionization down to much smaller companies in the future.
Russ: Okay. Well, let's get into some specifics. I don't know a lot of details, but I do know that there's this new thing, the acronym is ARRA. Tell us about that.
Carl: This is all part of the-what we call the stimulus bill, the American Recovery and Reinvestment Act. One provision I'd like to talk about are the Cobra provisions. Most of your audience is probably familiar with Cobra. That's the continuation of coverage for people who are separated from employment.
Russ: -right, and that there, quite frankly, should be a lot more of those these days because of the number of reduction in force acts that have been happening out there.
Carl: Absolutely true, and the Cobra provisions within the stimulus bill are really the government's attempt to keep as many people covered by medical insurance during these uncertain economic times as possible.
Carl: And the government is actually going to subsidize Cobra to the tune of 65 percent of the total cost, and that subsidy is available for 9 months to employees who qualify for it, and the qualification is very easy. If you are involuntarily separated from employment between September 1 of 2008 and December 31st of 2009, you qualify for that subsidy.
Russ: Okay. So we're doing a little bit of a retroactive-uh-action here, right?
Carl: Yes, which always makes for a lot of fun. This has tasked employers in a way that in my 23 years in the business, I don't think I've seen anything quite like this one. We're literally having to go back to September 1 of '08, figure out which employees were involuntarily separated from employment. Then we're having to re-notice those employees, particularly those who did not elect Cobra, and we're having to give them a second chance, and this time the pot has been sweetened. You would only owe the remaining 35 percent of the premium instead of 100 percent of the premium. And what's ironic is in many cases, it's cheaper for the former employee to elect Cobra than it was for when they had coverage when they were actively working. In other words, this applies to dependent coverage as well as the employee's coverage, so the government may be more generous than their employer was.
Russ: So for example, an employee might have been paying four hundred dollars a month for their family coverage with the company. And with this government subsidized Cobra, they could be playing two hundred and fifty dollars a month.
Carl: Quite possibly.
Russ: Wow! That is wild. Well, I guess on one hand if you were a laid-off employee, it's good to sort of have this benefit if you agree that using taxpayer monies to do that is the right thing to do. Is that part correct?
Carl: Well, I think that's accurate. I think it serves public policy to keep people insured. You know-I think one the logical concerns with this is does it really create a disincentive to work? As I said, I don't know that any program should go as far as actually making the cost of healthcare cheaper if you're not working than it was when you were working.
Russ: I agree. And there's a whole lot of administration involved for the small company that is having to go back and re-look at this, right?
Carl: A tremendous amount of administration. I mean, the collecting of the premium, the capturing of the government subsidy, which, by the way, is a function of the federal withholding social security and Medicare tax payment stream. I won't get into all the details as to how that works, but essentially, that's how the employer captures the government subsidy. There's reporting that goes along with that. There's exposure to the employer in the event that people who are not really qualified for the subsidy actually get the subsidy. The employer could be liable for that, so this brings a host of challenges with it.
Russ: I agree. I agree. Okay, we're talking with Carl Kleimann, the President of Odyssey OneSource, and we're going to be back with more with him after this. You're listening to The BusinessMakers Show, heard here and online at thebusinessmakers.com.
Russ: This is the BusinessMakers Show, heard here and online at thebusinessmakers.com. And continuing on with Carl Kleimann, the President of Odyssey OneSource. He's bringing all the new regulation news forward for us, and we just finished with the American Recovery and Reinvestment Act. What's another one that we really need to know about.
Carl: Well, I think another one that warrants mentioning is the Lilly Ledbetter Fair Pay Act. This is landmark in this sense. Lilly Ledbetter was an employee for Goodyear Tire and Rubber, and she brought an unfair pay practices claim to the courts. The courts sided with her that she was discriminated against between her and male employees performing the same or similar job functions. That case made it all the way to the Supreme Court. The Supreme Court actually sided with Goodyear Tire and Rubber on the premise that as a 18- or 19-year employee, the statute had long run on her ability to bring that claim. The Obama administration has essentially, with the Ledbetter Fair Pay, overturned that Supreme Court decision, and now each time an employee receives a paycheck, the statute resets, if you will. So it creates somewhat of a never-ending opportunity for employees to bring fair pay practices claims-uh-which creates a wealth of challenges for employers-
Russ: -okay. But the Supreme Court ruling was something like hey, she should have brought this forward 17, 18 years ago. It's just been too long?
Carl: Right. She essentially had 180 days to bring such a claim from the time she was hired. She brought that claim, I think, 18 years later.
Russ: Okay. So this legislation, the Lilly Ledbetter Fair Play Act, says that that 180-day period restarts every payday.
Carl: It does. So every time you get a paycheck, the clock starts running again.
Russ: Okay. So what does that mean. I mean, it sounds to me like you could just do business as usual and be fair and have no problem.
Carl: Unfortunately, it's not quite that simple. A lot of times we find that what's construed as an unfair pay practice might not be something that is done knowingly. It can be a function of having maybe 2 or 3 different managers within your organization who operate slightly differently, and it might be with respect to raises or merit increases. It might be based on promotions. So I think what's imperative, and what we're spending a lot of time with our clients on today, is helping them create good policy, make sure managers are trained on those policies and adhere to those policies. And equally as important, we're trying to help them review current pay practices internally to make sure that anyone's not unknowingly being discriminated against.
Russ: Is there a potential records retention requirement as well?
Carl: A huge one. In this case, Goodyear Tire and Rubber, ideally, to defend this claim would have needed to have probably Mrs. Ledbetter's application and all of the information see-she submitted at the time she was hired if they had any hope in defending why maybe her rate of pay was different than someone else who was hired before or after her.
Russ: Right. So this sort of preparing to show that you had good policy and defend yourself in the event of a suit calls for a much longer period of record retention than most companies exercise today.
Carl: Potentially forever-you know-and that's very challenging, obviously. I think you have to weigh the cost of records retention against the potential good. But the goal here and the message I would like to get out to your listeners is this is something that does have significant ramifications. It's probably something that should be consulted with an attorney or an HR advisor to make sure that current policies and practices are in sync with the new law.
Russ: Okay. And the Ledbetter Fair Play Act is a new law, right?
Carl: It is. It is-
Russ: -as was the American Recovery and Reinvestment Act.
Carl: That is correct. In fact, the Lilly Ledbetter Fair Pay Act was the first law signed by President Obama. To your point, I think one challenge for employers, particularly again small employers who may not have a human resources department of people who their job is to keep up with this, is that there's no single source for this. You pick it up in bits and pieces, but when you put all of that together, ultimately, what's the impact on the day-to-day operations of the business? And that's what's really missing. One other significant development-there was a significant decision back in February of 2008 that will forever change the way 401k plans are administered, particularly the liability that sponsoring a 401k plan brings to employers. It was called the LaRue case. And the LaRue case-that decision, for the first time, actually gave an individual participant the ability to bring a claim against a plan sponsor for that individual's investment loss.
Russ: The plan sponsor being the employer?
Carl: Being the employer. Heretofore, those claims were limited to damages, if you will, to the plan itself, not to an individual employee. In the LaRue case, the employer failed to act on specific instructions given by LaRue to his employer to move money, say, from one fund to another. And that cost him a hundred and fifty thousand dollars. Normally, that claim would have been barred. Now that claim was allowed to go forth. Again, that brings a significant level of additional exposure to plan sponsors.
Russ: So this case put this in play as well today.
Carl: It did, yes-
Russ: -okay. And what can an employer do?
Carl: Well, the best practices would certainly suggest that every employer should have an investment committee. This isn't for large employers. This is for all employers, and an investment committee would be charged with making sure that there are policies and procedures in place for these kinds of things. That committee's also charged with monitoring the specific investments in the plan, making sure that they're performing; if not, replacing them with investment options that are. And also monitoring the expenses incurred by the plan, the administrative and investment expenses associated with the plan.
Russ: Okay. We'll be back with more with Carl Kleimann after this. You're listening to The BusinessMakers Show, heard here and online at thebusinessmakers.com.
Russ: This is the BusinessMakers Show, heard here and online at thebusinessmakers.com. And continuing on with Carl Kleimann, the President of Odyssey OneSource. You certainly got my attention, Carl. Is there more?
Carl: Well, there's potentially more to come, I should say. Everything we've talked about heretofore is done and in play. I do want to mention the Employee Free Choice Act. I'm sure your listeners are reading a lot about this. In effect, that act is really aimed at making unionization very, very simple-eliminating the secret ballot process, just having employees sign a union card may be more importantly than what happens after the majority of employees acknowledge the union. You know-it goes to potentially a mediation process; then binding arbitration could potentially set the first 2-year union contract if the employer and the union can't come to agreement. That's a huge change from where we are today. Lots of employers should be very uneasy about that.
Russ: But the Employee Free Choice Act is not a done deal yet, right?
Carl: -it is not. It is not. I suspect though under this administration, it has tremendous chance of passage in some form.
Russ: So this is what very likely could bring organized labor and unions much more aggressively into small companies.
Carl: Absolutely. It's going to be so simple that I think that the threshold in terms of size of company for making it worthwhile is going to be reduced dramatically.
Russ: Tell me a little bit about how that worked-how it was confidential and how now it's not.
Carl: You know, the secret ballot's much like when you and I go to vote in a political election. You don't know my vote and I don't know yours. That would go away under the current Employee Free Choice Act.
Russ: Okay. And the people that are not pro-union think that as long as it's secret ballot, that that discourages people to vote for the union.
Carl: Well, it certainly doesn't give them the opportunity to sway their decision as much.
Russ: Okay. I'm a little concerned. It sort of seems like there's a convergence of challenges to the startup, to the small business group that already has quite a few challenges anyway. Starting a company and running a small business isn't easy anyway and this makes it seem harder.
Carl: Yeah, Russ, you're absolutely right. I believe, and this is my personal belief, I think you kind of have somewhat of a perfect storm brewing here. At a time when particularly small businesses are struggling with the economy, here we have all of these new rules and regulations placed upon employers, rules that also in some way might run against public policy. For example, under the LaRue Act, 401k and the liability that comes with sponsoring a plan may cause some employers to just bow out. That's not consistent with ... policy. Same for the Cobra provisions of the stimulus bill, a lot of new work. What I would say to employers is-you know-now is a great time to focus on the core business. I think with the economy being what it is, I think more than ever you have to really focus on the core business and then consider what your alternatives are for these other complex administrative and regulatory related tasks that take your time and energy away from your core business. Look for alternatives-outsource it, find other ways to keep that stuff out of your way of making your business successful.
Russ: I bet, yeah.
Carl: We're an employer too, so we're as concerned as everyone about some of these acts, but we're hearing from more and more companies a day than ever before that say, "I'm done with this. I need to focus on what I make money at. Please come handle the rest." And that's what we do.
Russ: Well, we really appreciate you coming and sharing this with us this morning.
Carl: Well, thank you for the opportunity. It's been a pleasure.
Russ: You bet. We've been speaking with Carl Kleimann, the president of Odyssey OneSource. You're listening to The BusinessMakers Show, heard here and online at thebusinessmakers.com.