2. 1 Myth 1
Money is the only effective
way to motivate employees
to improve performance.
3 Myth 2
I do not have to pay employees
who access work email on their
mobile device after they have
clocked out for the day.
4 Myth 3
Paper paychecks are for small
businesses; direct deposits are
for big companies.
6 Myth 4
As a small business owner,
I do not have to pay interns who
receive credit from their school.
7 Myth 5
All employers must provide final
pay to employees on their last
day on the job.
8 Myth 6
A business is not required
to pay prospective candidates
for working interviews.
9 Myth 7
Small businesses
don’t need workers’
compensation insurance.
10 Myth 8
My business is too small
to need an employee handbook.
Table of Contents
Small Business | Myth Busters
3. Challenge and Train Them
Bored workers are less effective workers. A business
owner or supervisor can motivate staffers by giving
them a variety of tasks that allow them to learn
new skills. Employees can also take on “stretch
assignments,” in which high goals are set. Coaching
and cross-training programs can be effective, too.
The more employees learn while they are in one job,
the better-prepared they will be to take on higher
positions within the company. This, of course, benefits
both the worker and the business.
Make Them Feel Appreciated
If an employee is doing a particularly good job,
verbal or written recognition can lead to continued
strong performance. Something as simple as a
“Thank You” email or note, or perhaps an announce-
ment in a company meeting, can make an employee
feel appreciated.
Give Them Some Autonomy
An employee who feels micromanaged may also
be less motivated. Everyone wants to think they are
trusted to do their jobs well. While it’s important they
understand their goals, workers should be allowed
to reach them in their own way (within reason).
Their methods may even turn out to be better than
long-established company ways of doing things.
Create Winning Teams
As much as employees can feel motivated by
self-sufficiency, they also may thrive by working on
strong teams. Assigning team projects or arranging
group activities can help foster a collaborative spirit
that energizes the workforce.
Align Their Goals with the Company’s
Workers want to feel they are a key part of their
company’s success. If they understand how their
individual goals are tied to the business’s overall
performance, they are more likely to feel like
important players.
Talk to Them
Employees don’t want to work in a vacuum. Holding
regular company meetings where issues affecting the
business (both good and bad) are discussed can help
them understand how the company is performing and
which goals are – and are not – being met.
An employee suggestion program lets them
know their input is valued. Employee satisfaction
surveys also allow workers to have a voice,
while giving business owners insight into
company morale.
Myth 1
Money is the only effective way to motivate
employees to improve performance.
Raises and bonuses certainly are ways businesses can motivate
employees to work harder and better. But, cash isn’t the only way to
encourage workers to improve their performance. Some studies have
shown it is not even the best way. Helping employees feel satisfied
can create a more fulfilled and productive workforce, while also
saving money.
Small Business | Myth Busters
1
4. Money is the only effective way to motivate employees to improve performance.
Small Business | Myth Busters
Be Flexible
Life circumstances and family responsibilities can
make it difficult for some employees to work a 9-5
schedule. Some workers may also require a remote
working situation. Whenever possible, a business
should allow for flexibility so employees can enjoy
a healthy work-life balance.
Give Them Time Off
Businesses should consider paid time off a necessity,
not a luxury. Burnt-out employees are not beneficial
to any company. Businesses should develop time-off
programs that allow workers to recharge, both
physically and mentally.
Be Fair
Employees should feel they are being treated fairly
compared to their coworkers. All supervisors should
be trained to apply company policies with consistency.
For other small business insights go to
www.adp.com/smallbusiness
Myth 1
2
5. Nonexempt Employees
The answer to this particular compensation question
is — it depends. Companies are obligated to pay
“nonexempt” employees for any time spent working.
This includes accessing or responding to work-related
materials outside of standard business hours, such as
simply checking an email or phone message, even if
they don’t respond. These rules fall under the
Fair Labor Standards Act, as well as various state laws.
The rules apply even if employees are using their
own mobile devices. Additionally, if an employee
incurs any kind of expense while using their personal
device for a work-related task, they may be entitled
to reimbursement.
Recordkeeping
Consider having your employees use an online
timekeeping system to record all time worked.
Your employees can then officially record the time
they are working by logging in and out. If this isn’t
possible, you can provide employees with hard
copies of timesheets on which they can record all
work done during these off hours. You should let
employees know that they are required to maintain
these records.
Playing by the Rules
Some businesses have policies that strictly forbid
a nonexempt employee from working outside of
business hours. A company is allowed to set these
rules (company policies included in an employee
handbook are a good way to help make sure
your employees understand them). That said, if a
nonexempt employee defies the policy, he or she is
still entitled to compensation for all work performed.
The business can, however, discipline an employee
for abusing the rules.
For other small business insights go to
www.adp.com/smallbusiness
I do not have to pay employees who access work
email on their mobile device after they have
clocked out for the day.
We live in a hyper-connected world where employees are reachable
essentially all the time. It isn’t unusual for staffers to write emails
over the weekend, check phone messages late at night or send
work-related texts while on vacation. But are business owners required
to pay employees who perform work duties using their mobile devices
while off the clock?
Myth 2
Small Business | Myth Busters
3
6. What Is Direct Deposit?
Direct deposit is a system by which employers
directly funnel funds into an employee’s bank account.
This is also known as an automated clearing house
(ACH) transaction. Companies can also process payroll
through payroll cards to employees who don’t have
bank accounts.
Direct Deposit Has
Several Advantages:
Convenience
Consider a four-employee business owned by a
husband and wife. It would be easy enough for them
to just hand out checks, right? But what happens if
the owners travel for business or enjoy an extended
vacation? Their employees must still be paid. It would
certainly be easier to pay them automatically from
afar than to worry about issuing physical checks.
The same goes if it’s your employee who is away for
an extended period of time. With a direct deposit
system, no one has to worry about missing a payday.
Reduced Security Risk
Paper checks can be lost, stolen or even counter-
feited. For businesses that use industry-recognized
security safeguards to help protect personal and other
sensitive data, direct deposit funds are more secure.
Using this method, business owners can avoid having
to take the time or expense to issue new checks when
they are lost or deal with cases of fraud involved
with theft.
Faster and Easier Bookkeeping
Along with a reduced security risk comes an easier
bookkeeping process. When funds are electronically
distributed, they are immediately paid to employee
accounts. Thus, your books won’t be affected by
employees who wait several weeks to cash checks.
This is not to mention the savings of time and money
and reduced paper use when you no longer have to
cut and sign a series of paper checks. Your employees
can also use an app on their mobile device to view
their pay stubs at any time, rather than collecting
physical stubs that can be misplaced.
Cost-Effectiveness
The costs for setting up a direct deposit account,
as well as related fees, vary by state and financial insti-
tution. A 2014 white paper from Bank of America says
it costs 92 cents more to issue a paper check vs. direct
deposit. ElectronicPayments.org, a site sponsored
by NACHA - The Electronic Payments Association,
estimates small businesses can save as much as
$19,000 annually by adopting a direct deposit system.
Paper paychecks are for small businesses;
direct deposits are for big companies.
Your business may be small, with just a few employees, but that doesn’t
mean you can’t mimic big companies when it comes to issuing paychecks.
If you’re still distributing paper checks to your employees, you may want to
consider the advantages of switching to the electronic payment model.
Myth 3
Small Business | Myth Busters
4
7. Paper paychecks are for small businesses; direct deposits are for big companies.
Small Business | Myth Busters
Joining the Big Leagues
In a 2013 survey by National Payroll Week, only
2.8 percent of respondents said they were receiving
paper paychecks. Smaller companies are joining larger
ones in offering this convenient and cost-effective way
of compensating employees. Businesses that do this
may still be small, but evolving with the times in this
area can make them feel a bit bigger, while offering a
convenience employees like.
For other small business insights go to
www.adp.com/smallbusiness
Myth 3
5
8. As a small business owner, I do not have to pay
interns who receive credit from their school.
Some business owners believe college students seeking summer intern-
ships can provide free labor in exchange for school credit. It’s become
something of a tradition. After all, these businesses are often helping stu-
dents gain valuable career experience. That should be enough, right?
Well, in most cases – no. And this misperception, other than in rare situa-
tions, can violate the Fair Labor Standards Act and various state laws. It
also puts your business at risk. There have been several lawsuits brought by
unpaid interns against high-profile corporations over the past few years.
Myth 4
Small Business | Myth Busters
Interns = Employees
If interns are performing work duties on location
for your business, they will likely be considered an
employee, just like the other staff members on your
payroll. In the majority of cases, a business must pay
an intern at least the minimum wage, as well as over-
time, if applicable.
Internship Criteria
The Department of Labor provides businesses with
guidelines to help them navigate the intern issue.
This is in the form of a six-part test; if all six criteria
are met, an intern can remain unpaid.
1. The internship — even though it includes actual op-
eration of the facilities of the employer — is similar
to training that would be given in an educational
environment.
2. The internship experience is for the benefit
of the intern.
3. The intern does not displace regular employees
but works under close supervision of existing staff.
4. The employer that provides the training derives
no immediate advantage from the activities of the
intern; and, on occasion, its operations may actually
be impeded.
5. The intern is not necessarily entitled to a job at
the conclusion of the internship.
6. The employer and the intern understand that the
intern is not entitled to wages for the time spent
in the internship.
It’s important to note that this list applies to
“for-profit” businesses. Unpaid internships in the
public sector and for not-for-profit charitable organiza-
tions, where the intern volunteers without expectation
of compensation, are generally permissible.
For other small business insights go to
www.adp.com/smallbusiness
6
9. All employers must provide final pay to employees
on their last day on the job.
Some business owners are required to provide a final paycheck on an
employee’s last day with the company. Whether that is true depends on the
state in which your employee is working.
Under federal law, a final paycheck must be furnished by the next regular
payday. However, laws differ at the state level. When the last paycheck is
due can depend on who initiated the termination.
Myth 5
Small Business | Myth Busters
States that require a final paycheck be given immedi-
ately to an involuntarily terminated employee include
California, Massachusetts and Hawaii. In addition,
some states that have an immediate paycheck rule
offer some wiggle room for employers. In Montana,
for example, in situations where an immediate
paycheck is required, an employer can have a written
policy that extends the time to the next scheduled
payday or within 15 days from separation, whichever
occurs first. Small business owners should be familiar
with the rules in their jurisdiction, so they can provide
the last paycheck according to the proper laws.
(See the full table of individual state laws at
FindLaw.com.)
Vacation Time
Whether or not an employee’s final paycheck will
include accrued, unused vacation time also varies by
state. Some states require all unused paid time off to
be added to the final paycheck amount. Other states,
however, allow businesses to adopt a “use it or lose
it” policy and may require an employer to notify an
employee of this policy in advance.
Once business owners are familiar with the laws in
their state, they should communicate the policy to all
employees, ideally in an employee handbook (read
Myth 8 for why it’s a good idea to have an employ-
ee hand-book). This will eliminate the chances of an
unpleasant surprise for an employee during a termi-
nation process that may already be difficult. On the
business end, small business owners are already deal-
ing with several difficult tasks before, during and after
the termination. Providing clarity ahead of time on the
items that will be of most importance to a terminat-
ed employee should help prevent additional pain on
both sides.
Deducting Costs
Some employers may wonder whether they can
deduct costs of equipment damaged or broken by
the terminated employee from the final paycheck.
This differs by state and also by the classification of
the employee. If the employee is exempt under the
federal Fair Labor Standards Act (FLSA), the employ-
er generally may not reduce the paycheck amount
for damage to the equipment. Nonexempt employ-
ees, however, generally may see their final paycheck
amount reduced, as long as the pay does not drop
below the minimum wage and applicable overtime
isn’t affected. While it may not be required, it’s best
for a business to obtain written confirmation from
employees that they understand they are responsible
for paying for damaged or unreturned equipment.
For other small business insights go to
www.adp.com/smallbusiness
7
10. A business is not required to pay prospective
candidates for working interviews.
Working interviews can be beneficial to both prospective employees and
employers. When interviewees spend a few hours or days embedded in
a workplace environment, they get a real-world glimpse of what it might
be like to report there every day, while interviewers can observe whether
potential employees would be a good fit for the role and their organization.
No matter how long the working interview lasts, the candidate must
be paid for time spent working.
Myth 6
Small Business | Myth Busters
Working Interview = Actual Work
Once a business has a candidate work for it,
federal, state and local enforcement agencies
generally consider the candidate to be an employee,
even if just for one day. Thus, employers should pay
at least the minimum wage for the hours worked,
overtime where applicable, withhold taxes and
comply with all other applicable employment laws
for the period, the individual performs work. The
candidate may be unaware of the laws concerning
working interviews, so the interviewer should
communicate to the interviewee compensation
and other employment requirements before the
interviewee begins to work.
Exception
A business is generally not required to pay if a
candidate simply observes operations for a set period
of time. As long as there is no work that includes any
kind of training, the interviewee is not considered an
employee. However, in limited circumstances, candi-
dates may be issued a 1099 for expenses reimbursed
by the employer.
Is It Worth It?
Small business owners should consider whether it’s
worth it for the business to hire employees for a
working interview. Having a working candidate on-site
can be disruptive, particularly if it turns out to be a
poor fit. A working interview is advisable only if it’s a
strong candidate who seems genuinely interested in
the position.
For other small business insights go to
www.adp.com/smallbusiness
8
11. Small businesses don’t need workers’
compensation insurance.
No matter how small your business, it’s not just in your best interest to
obtain workers’ compensation insurance – it’s also required in most states.
All small business owners should familiarize themselves with their state’s
laws, as they vary widely across the country. If mandated by your state,
you must have coverage in place when your first employee is hired.
The penalties for not having this insurance can be substantial. Business
owners must renew coverage annually and ensure they pay premiums in
a timely manner so coverage doesn’t lapse. Even if your business operates
in a state where workers’ compensation requirements are less stringent
(Texas, for one, allows it to be elective), the benefits of purchasing this
coverage should be fully understood.
Myth 7
Small Business | Myth Busters
What Is Workers’ Compensation?
Workers’ compensation insurance protects employers
and employees when workplace accidents or illness-
es occur. Coverage generally encompasses medical
treatment and rehabilitation, partial replacement
of lost wages, retraining costs and death/burial
benefits paid to the spouse and minor children for
fatal incidents.
No-Fault System
A company typically must honor a claim even if the
employee is at fault for an injury. There are excep-
tions, however. For example, a business can require
employees to submit to drug or alcohol testing.
Claims may be denied if it’s found an employee was
under the influence at the time of the injury.
Who Is Covered?
Different state rules apply regarding covered em-
ployees, but W-2 workers are always eligible. Sub-
contractors paid through a 1099 are often covered,
unless they provide written evidence of a Certificate
of Insurance. Business owners may believe they and
their officers are not eligible for coverage, but this
also varies by state.
Therefore, owners or officers should check their health
insurance policy before electing to forgo coverage.
How to Buy Coverage
In most jurisdictions, a business can buy a policy
from a private insurance company. Some locations,
however, require a company to purchase through a
state-operated fund. In certain states, coverage may
be elective if an employer has fewer than a specified
amount of employees. Some business owners may
choose a self-insured plan, which means they pay
claim costs out of pocket. This is generally reserved
for larger businesses that maintain a certain level of
funds to pay claims.
High-risk businesses such as construction, trucking
and manufacturing often have a tougher time
obtaining coverage. Their premiums can also be
much higher. The assigned-risk market, which is
state-operated, can help these businesses get
insured when traditional companies refuse to
provide coverage.
For other small business insights go to
www.adp.com/smallbusiness
9
12. My business is too small to need an
employee handbook.
Some small business owners may feel their business is too small to benefit
from an employee handbook. Even though companies are not required by
law to create and distribute an employee handbook, it can be extremely
helpful for both business owners and their staff to have one place where
employees can access the company’s policies and procedures. Having such
information in writing can also help demonstrate the company’s commit-
ment to complying with applicable employment laws. Here are some key
items business owners should have in its employees handbook.
Myth 8
Small Business | Myth Busters
At-Will Statement
An at-will statement states the employer or the
employee can end the professional relationship at any
time, for any reason, as long as the reason is a lawful
one. Other than Montana, all U.S. states recognize
the at-will employment relationship (employment laws
differ by state; if a business has staffers located in
multiple states, the handbook should reflect that).
A Description of Benefits
It’s a good idea to include a section on general bene-
fits for employees. The handbook doesn’t need to go
into great detail about benefits, and employers often
refer employees to summary plan documents for more
information. Federal- or state-mandated leave, as well
as holidays, vacation and other time-off benefits, in
particular, should be explained in a handbook. When
explaining benefits, make sure to state that the com-
pany has the discretion to make changes as needed.
A handbook should also plainly state what constitutes
full-time, part-time, exempt or nonexempt classifica-
tions, so employees are aware of their eligibility for
certain benefits, which may include overtime pay.
Employees always want to know when they are
getting paid, so payday policies should be included.
If a company has a specific method of timekeeping
to record employee work hours, this should
also be included, along with attendance and
punctuality policies.
A handbook should include policies on meal and
break periods (including lactation breaks for new
mothers). Check federal as well as applicable state
law to ensure compliance.
Employee Safety and Code of Conduct
Employees should feel safe in all respects at work,
and a handbook should feature a company’s safety
and security policies. This means statements on its
compliance with the Occupational Safety and Health
Administration’s (OSHA) laws, where applicable, on
issues including workplace injuries and health and
environmental hazards.
Anti-harassment and discrimination policies are
tremendously important to include; employees must
know a complaint they make will be taken seriously.
Consider including policies on standards of conduct,
drug and alcohol use, confidentiality and potential
related disciplinary action.
10
