The Real Cost of HR Mistakes

 “Think hiring a professional is expensive? Wait and see what happens when you hire an amateur!”

This statement is VERY true, especially in Human Resources.  A client of mine (whose name has been changed to protect their confidentiality), recently had a very expensive lesson on the real cost of HR.

“Dan” runs a small construction firm with less than 10 workers. He hires a friend’s wife to handle the “office stuff”.  They are both very good at running the construction business, and things are going well. 

One day, Dan gets a letter from the Ministry of Labour. A former employee is complaining they haven’t been paid properly and are owed overtime.  The Ministry requests that Dan send in all of the complainant employee’s timecards, which he promptly does.  A few months later Dan gets a letter back from the Ministry, saying he owes this former employee nearly $15,000 in unpaid overtime and holiday pay.

You see, Dan had a “verbal employment contract” with his workers, which said they were to work six shifts, totalling 72 working hours, each week.  They agreed to be paid $15 per hour and only get overtime after the 72 hours, and a $5 per hour shift premium was paid to the workers “in lieu” of overtime.  In addition, when paying the employees, Dan lumped all the money together under “earnings” on the paystub, with the total amount paid for that week.  Payroll deductions were then made on the lump sum.

Do you know what he did wrong?

1. Overtime is paid after 44 hours each week, regardless of any “agreement” with your employee.  If your “agreement” violates any section of the Employment Standards Act, the whole contract is void. Overtime is NOT calculated on shift premiums.

2. When the Ministry calculated what was owed to the complainant, they used the “lump sum” as the base rate of pay.  The Ministry calculated that the worker was earning $22.50 per hour (the base wage, shift premium, and vacation pay were all rolled together on the paystub, which was then divided by the hours worked, totalling $22.50 per hour).  Overtime on $22.50 equals $33.75 per hour

How did I fix this? While waiting to hear back from the Ministry on the complaint, Dan hired me to create a written employment contract, and go over the calculations for the other employees on his payroll. We fixed the overtime issues and paid out the amounts owing to the other employees (who had not complained, but were still entitled to the compensation) for outstanding overtime and vacation pay.

Dan was able to show the Ministry that an error in calculations had been made, that professional HR help had been obtained and the other employee’s wages had been corrected.

Based on the actual agreement with the employees Dan owed the complainant about $8,000.00. Because the complaining employee did not approach Dan first with his concerns, the Ministry allowed Dan to pay out the lesser amount based on the fact that the other employees were treated the same way.

The cost to Dan for HR services was less than $2,000.00 and he received two employment contracts, had a few policies updated and got lots and lots of advice.

Which option is REALLY less expensive?