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Creating a Job, Not Easy

It was a joke.

"How many employees do you all have? No more than ten, right?"

All the business owners in the room laughed; the insiders knew what was funny. Many regulations on employers kick-in only if they have more than ten employees. For employers in Montana incentives are such that one might think they are designed to discourage employment.

Posted by: The Big Sky Business Journal

Economy and Business By Evelyn Pyburn

The joke may be on all of us. While across the state leaders are strategizing to spur job growth, perhaps the people most capable of creating jobs are trying to put a cap on it.

That’s probably not the case, at least not for most employers, said Diane Ruff, President of Associated Employers of Montana (AEM). Probably only five to ten percent of business owners actually make a conscious decision to only grow to a certain level because of the costs and burdens of escalating regulations, said Ruff, but that doesn’t mean that the regulations don’t have an impact on the rest of them.

The impact on the state’s overall economy is just as negative for those businesses that shoulder the burden and take on the responsibilities, because of the resources that are diverted from production. The resources and costs that each company diverts into compliance are resources that might otherwise go into purchasing additional equipment, new technology, or hiring additional employees, said Ruff. She ought to know; AEM is a non-profit organization the purpose of which is to help employers. They train, advise and counsel their members about how to comply, how to minimize risk and, also, that some of the requirements can actually be beneficial to the employer’s bottom line.

Ruff said that she recently read that because of all the regulations that favor employees, Montana was viewed as an "employee-friendly" state. "But there is a price to that," said Ruff, "and it’s reflected in the fact that we are listed at 49th in the nation for per capita income." Employee-friendly the state may be, "but we don’t have good jobs," said Ruff.

Many of the regulations, are of course, federal regulations, and they effect all states in the same way. But Montana adds another layer of compliance which most often exceeds federal mandates and adds to costs, barriers and risks. It’s not at all uncommon for staff at AEM to have conference calls with out-of-state member corporations doing business in Montana who are struggling to understand Montana laws, explained Peggy Larsen, AEM’s Director of Employment Relations. "They don’t have the same laws elsewhere," she said, "They don’t expect them here."
Montana has often been at the "cutting edge" of advancing employment law that enhances employee protections — quite often through court decisions. Such was the case in regard to "wrongful discharge," which turned on its ear the long held practice of employers being able to discharge an employee at will. While the legislature addressed the court’s new decision, mitigating some of its impact on employers with the 1987 Wrongful Discharge Act– such leading edge activism makes employers across the country look at Montana apprehensively.

When a business owner comes to the point of hiring his first employee, the level of compliance doesn’t usually daunt them, said Ruff. "They don’t know what they are getting into. It’s later on down the line that they realize the burden and risks they face."

In fact, suggested Ruff, "maybe you shouldn’t write about this, because it will discourage them." But if new employers don’t know about the barriers they face in creating new jobs, nor probably do others, including those who are trying to understand what is needed to pull Montana’s economy up from the bottom rungs.

A new employer usually first consults with their CPA about the rules and regulations. And, the initial requirements are substantial. Tracy Roadifer, AEM’s Director of Research and Compliance Services, lists them: Apply with the IRS for a federal ID number; register with the state Department of Revenue for ID number. Apply with and pay first premium for the Montana Workers Compensation (or private insurance carrier.) Report all new hires to the Department of Revenue. Fill out Social Security and State of Montana withholding forms. And, then there’s the I-9 Immigration form — making sure the employee is a legal citizen. The INS is strict about making sure that people who work are legal — fines against employers are high for failing to have on file a I-9 form for each employee.

At ten employees the paperwork and required reporting "on the human resource side" escalates, explained Ruff. Some of the requirements are practical requirements simply brought on by the size of the operation. With less than ten employees a business can function informally, but as the numbers increase memories fail, miscommunications increase and more stuff has to be written down — it’s just the nature of things.

But there’s also laws that kick in at different levels — some kick in sooner than at ten employees and others later, but they all demand close attention and increasingly strict reporting. Some of the federal laws kick-in sooner in Montana than is required by the federal government — such as ADA (American’s with Disabilities Act). In fact, that’s one law with which many Montana employers may not be compliant, because they are only familiar with the federal standard of having to be compliant at 15 employees, not realizing that the Montana legislature made the law more stringent by applying it to the very first employee hired.

The significance of compliance to a law like ADA can be huge to a small business. ADA for example, could result in the business having to build additional ramps, elevators, wider doors, larger bathrooms, installing buzzers on doors, etc. — racking up costs that readily eat up the margin of profit that the business intended to utilize in creating a new job. Ruff noted that she found that particularly sad, because it was not what ADA was originally intended to do.

There’s an alphabet soup of agencies FMLA, EEOC COBRA, OSHA, FUTA, ADA, EEO, and EEC; each with their own compliance requirements, and many with a parallel or conflicting Montana law. Montana employers are required to comply with whichever version is the most stringent in favor of the employee.

Even if the laws aren’t applicable to their specific situation, an employer must know and understand them to know when they may trigger compliance.

US employers have become so burdened primarily because government, at all levels, uses employers as a means to implement and enforce laws and collect taxes. Employers serve this purpose — face the risks of non-compliance in a myriad of complex, complicated and often contradictory laws, and bear the costs — with little reimbursement, information or training regarding their arbitrarily –imposed obligation. Given their level of responsibility, it’s astounding how little provision is ever made for providing them with education and training, said Ruff. To a large extent AEM fills that gap for their members.

While some employers may choose to opt out of this quagmire of responsibilities, most aren’t able to make such a choice. Most businesses either have to grow or die, said Ruff, "The toll is more likely seen in stress and heart attacks," she said, "The regulations make growth difficult, makes it harder and lowers productivity.

Without some kind of professional assistance most employers are probably not 100 percent compliant. Some may think they are and others may know they aren’t, but have surrender in face of the onslaught. They function from a premise of "I’ll just do as I want and deal with it as it comes," said Ruff.

Larsen can rapidly rattle off the different laws and acts under which employers must function because making sure their members are compliant is her job. When they come to AEM for assistance, usually the first course of action is to take inventory of their employees. Are they statutory employees or non-statutory? Are they leased or common law?" For most employers it’s a surprise to find out what category their workers fit into, because they didn’t even know there are categories," said Larsen.

Larsen can then tell employers that they must comply with COBRA at twenty employees, with FMLA at 50. She explains that the Montana Maternity Law requires that an employer grant an employee "reasonable leave" which is left to the discretion of the employee’s physician, or that EEOC becomes effective depending on whether you have a federal contract or not. The Wrongful Discharge Act allows an employer to dismiss an employee without citing a cause only during their probationary period, and that there are drug and alcohol laws that are specific to Montana that add to federal regulations, as do wage and hour laws. And, Larsen will tell an employer that Montana’s Human Rights Act is the one that most impacts employers in many different ways.

Larsen explained that while compliance requires a great deal of information and interaction with government agencies, employers are often reluctant to approach authorities to get the information. They are reluctant to divulge information about themselves because they don’t know whether they are in compliance, she said. Acting as an intermediary, AEM serves a very worthwhile function for those employers.

There’s a learning process involved for some employers too, said Larsen, when it comes to realizing that dealing with health and safety issues properly, is usually a huge benefit to a business’ bottom line. "It’s an asset," said Larsen, "It saves them money and pays back huge dividends."

Employers have cause for being cautious, however, because most of the laws threaten huge penalties, and compliance is not always clear cut –especially when interpretation is "cutting edge." Just one infraction can be devastating enough to force a small business to shut their doors.

Are there changes that could be made to make the situation less onerous for Montana employers? Lots of them, but making even the smallest change in just one law seems to require a gargantuan effort, and can still wind up being something of "a one-step forward, two-steps-back exercise," explained Ruff. As a case in point she referred to one change that was successfully shepherded through the state legislature. A change in law that would eliminate much of the risk faced by an employer when providing references for past employees. Past court decisions have made employers reluctant to give any performance reports on past employees beyond acknowledging that they worked for them — a situation that fails employers and good workers. About the only individuals served by the current legal status are poor employees. After the state legislature addressed the situation with new regulations, it was discovered that the new law was in conflict with another Montana law that prohibits "blacklisting." Their solution was to strike down the new law in its entirety — leaving Montana employers in the same position they were previously.

The changes have to come, however, before Montana will cease standing out.In some things it’s just not advantageous to be "leading edge." Such is the case when Montana laws attempt to balance all employee risks and many social issues on the back of employers. Even a small number of potential employers deciding the risk isn’t worth it, hurts a state which lags behind the nation in number and quality of jobs. The reality is, being "employee- friendly" is probably an attribute that does little for Montana — not even for employees. There’s little benefit to anyone in a job that never happens.

Employment Laws by Employee Count

One or More Employees:

Federal Immigration Reform & Control Act (1-9 Form)

Social Security Act*

Fair Labor standards Act (FLSA)

Equal Pay Act (Amendment to FLSA)

Employee Retirement Income Security Act (ERISA)

Rehabilitation Act of 1973

Reconstruction Era Statures

National Labor Relations Act

ERA Modification Å Taft Hartly Act

Portal to Portal Act

ERA Modifications Å Landrum – Griffin Act

Davis Bacon Act

Walsh-Healy Act

Montana Workers Compensation Act*

Montana Unemployment Compensation Act*

Drug Free Workplace Act of 1988

Indoor Air Act

Occupational Safety & Health Act*

OSHA’s Hazard Communication Standard

Employee Polygraph Protection Act

Montana Child Labor Law

Federal Unemployment Tax Act (FUTA)

15 Employees:

Title VII of Civil Rights Act of 1964

Pregnancy Discrimination Act

American with Disabilities Act Civil Right Act of 1991

20 Employees:

Age Discrimination in Employment Act

Older Workers Benefit Protection Act

Consolidated Omnibus Reconciliation Act (COBRA)*

Omnibus Reconciliation Act 1986 (Bankruptcy Proceeding)

Omnibus Reconciliation Act 1989 (Disabled & Medicare)

Omnibus Reconciliation Act 1993 ($150,000 limit retirement plans)

50 Employees:

Vietnam Era Veteran’s Readjustment Assistance Act*

Federal Family & Medical Leave Act

Executive Order 11246 (Affirmative Action)

EEO-1 Report (Federal Contractors)*

Vocational Rehabilitation Act (Federal Contractors)

75 Employees:

Omnibus Reconciliation Act 1990

100 Employees:

EEC-1 Report

* Requires methodical regular reports to be filed. (Compiled by Associated Employers of Montana)

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