Do busy days make for bad ethics?

by Michael Haberman on September 30, 2014 · 1 comment

Decision making in stressful conditions may lead to rules and ethics violations.

Decision making in stressful conditions may lead to rules and ethics violations.

In HR we deal with the fallout from rules being broken, procedures not being followed, and decisions being made that don’t meet the ethics of the organization. If you have ever wondered why people do those things the answer may be in their work schedule, so says a new study.

Busy people

A study published in Social Science Research Network and reported on in the Harvard Business Review provided evidence supporting something most of us have intuitively known for a long time. When people get very busy they take short cuts and “bend” the rules. The study looked at a hospital and the rate at which employees washed their hands, something that has been identified as critical to keeping illnesses from spreading. They discovered as a work shift proceeded the rate of hand washing declined and it got even worse if the work had become high pressured. Despite the evidence that hand washing is critical to preventing the spread of disease as healthcare workers became too busy they skipped the hand washing.

According to ethics expert Mary Bennett of NAVEX Global, other studies found similar results. One such study looked at students as a seminary, where the subjects of religion and ethics were being studied, people would walk by someone that needed help if they were late for an appointment or class. Daniel Kahneman, in his book Thinking, Fast and Slow, talks about two systems of thinking. One is intuitive and one is purposeful. The purposeful one, System 2, is where rules would be followed. But System 2 thinking gets depleted if used too often and that is what happens in busy situations. People fall back to System 1 and they don’t always make the right decision.

How to help people make the right decisions

Bennett has some excellent suggestions on how companies can help their employees not compromise compliance with rules and ethics. These include things the employer (read HR) can do, things managers should do and things employees should do.

HR’s role would include:

  • Being aware that in busy, high pressure times, rules may be broken and ethics compromised;
  • Monitor HR data, such as absenteeism, tardiness and terminations as a potential sign of too much pressure in the workplace;
  • Consider creating a policy on mitigating pressure;
  • Training managers on how to recognize signs of too much pressure;
  • Train employees on how to deal with stress and encourage managers to provide opportunities for breaks and stress release.

A manager’s role would include:

  • Be aware of the impact of demands they are putting on employees regarding schedule and overtime;
  • Remind employees of the importance of adhering to quality standards and encourage them to work at a pace that will allow them to do so;
  • Allow and encourage employees to take breaks and to ask for help if needed.
  • Teach employees how to make difficult decisions if needed;
  • Be vigilant for the little short cuts, the documentation that is not done, etc.;
  • Be self-aware, realize that you can get caught up in the same situation.

Employee’s role would include:

  • Raise a hand when things get to be too much;
  • Recognize stress and take a break;
  • Ask for help as needed;
  • Don’t rush through decisions;
  • Resist those temptations to break the rules “just this one time.”

Final Thoughts

I have been in many situations where poor decision making due to pressure has led to errors and even injuries. The poor hygiene demonstrated at the hospital in the study mentioned above could have disastrous results. I have had to deal with extracting people from machines because they were in too much of a hurry to follow safety protocols. Decisions made under pressure can lead to financial errors that would greatly harm a company. HR can make a major impact by being aware of the effects of pressure and having a protocol in place to help their organization deal with these detrimental effects. Ethics expert Mary Bennett offers a white paper, Creating a Culture of Ethics, Integrity & Compliance: Seven Steps to Success, I refer you to if you want further help. After all I would hate for you to make a mistake in a pressure situation.


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Giving an employee a piece of the action may violate the FLSA

by Michael Haberman on September 29, 2014 · 0 comments

Paying stock options  instead of salary may violate the FLSA

Paying stock options instead of salary may violate the FLSA

The start-up world is full of stories of companies using equity in the business as a way to compensate employees when there was not enough cash to pay their salary. The company would go on to be successful and those employees became millionaires. That is part of the allure of going to work for a start-up, the promise of riches. Unfortunately paying someone in stock may put you in violation of the Fair Labor Standards Act.

Cash Flow is often an issue

Cash is often in short supply when a company is starting up. To attract a badly needed employee sometimes they are offered equity in the business in return for their labor. The employee agrees to work for an equity stake until the business gets off the ground and cash starts flowing in the door. (I have written previously on cash flow as an issue here.) According to attorney Doug Haas this could be a violation of the Fair Labor Standards Act. In order for this arrangement to work the employee would have to be considered an owner and there are very specific requirements under the FLSA for someone to be considered an owner.

Definition of an owner

For someone to be considered an owner the rule is, according to Fact Sheet  #17B, “Under a special rule for business owners, an employee who owns at least a bona fide 20-percent equity interest in the enterprise in which employed, regardless of the type of business organization (e.g., corporation, partnership, or other), and who is actively engaged in its management, is considered a bona fide exempt executive.”

The first big hurdle in this statement is “20%”. The equity that you are paying the employee must be at least a 20% interest for that employee to be considered exempt from the minimum salary requirement in the FLSA. If that equity is not 20% then they have to be paid at least $455 per week. That is not however the only requirement.

In addition to the 20% equity stake the employee also has to be performing management duties. These include:

“… activities such as interviewing, selecting, and training of employees; setting and adjusting their rates of pay and hours of work; directing the work of employees; maintaining production or sales records for use in supervision or control; appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status; handling employee complaints and grievances; disciplining employees; planning the work; determining the techniques to be used; apportioning the work among the employees; determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked and sold; controlling the flow and distribution of materials or merchandise and supplies; providing for the safety and security of the employees or the property; planning and controlling the budget; and monitoring or implementing legal compliance measures.” (29 CFR 541.102)

Attorney Hass points out in his article that at least this management duty does not have to be the employee’s primary duty as is required of someone who is exempt under the Executive exemption as defined in Fact Sheet #17B.

Additional issues

Haas and also Carl Crosby Lehmann point out that not all states recognize this provision of the FLSA, California and New York in particular. In those states you cannot pay someone with equity.  There may also be some local jurisdiction issues that will be important to check on before starting to pay people in equity.

By the way, in case you are wondering, even if an employee says it is ok with them that they don’t get paid it doesn’t matter. You are violating the law. So make sure you have enough money in the bank to pay people minimum wage. That is currently $7.25 per hour, but going this route means you will also have to pay overtime, and in start-ups people often work long hours. If you want to claim they are exempt from overtime the minimum wage is currently $455 per week.


Time is running out on our training special discount. We are offering a 30% discount on leadership and managerial training until October 25th. Click on the MindEdge banner in the right column for further information. 


Future Friday: We shape our destiny

by Michael Haberman on September 26, 2014 · 0 comments

Thinking of the future is not hard to do. We do it all the time, we plan marriages, we imagine children growing up, some of us plan for our retirements. In fact good financial planners are futurists, you can be too. It is a matter of constructing the story of your life, your job, your company. It is understanding the various variables that may impact or alter that story and thinking about how to craft your story to try to get to the ending you would like to see. That is what futuring is about, it is helping create the desired outcome.  This very short video of MIT’s Erik Brynjolfsson has him saying “Technology doesn’t drive our destiny, we shape our destiny.” We chose how we react to things and our reactions determine our outcomes. The 51 second video says it better than I can. What choice will you make about your future?

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The HR Carnival Fall Edition- It is all about change

by Michael Haberman on September 25, 2014 · 0 comments

hr carnival smallHaving just passed the autumnal equinox the season in the northern hemisphere has changed to Fall. So change is what Michael VanDervort made the them of this edition of the HR Carnival. There may be fewer posts than usual but they are powerful. It includes pieces on counterculture in your organization, letting change happen versus making it happen, how social media is forcing change despite the fact that HR is resisting it, and more. There are some names in this carnival that I am familiar with and other that are new to me, so I am looking forward to some change by reading new writers.

Make your way over to Michael’s blogsite and take in some beautiful fall foliage while you read about change.


Are you on the new OSHA list that expands reporting requirements?

by Michael Haberman September 24, 2014

Tweet The Occupational Safety and Health Administration (OSHA) has issued a final report that significantly expands the list of businesses that are covered by new reporting requirements, is your business on that list? New rule On September 11, 2014 OSHA issued a press release announcing an expanded list of types of businesses that must comply […]

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Using Independent Contractors just got riskier!

by Michael Haberman September 23, 2014

Tweet One area of employment law that has always been fraught with danger for employers has been the use of independent contractors. I have written about it before, here and here as examples. The use of independent contractors is scrutinized by several government agencies, both federal and state. The use of ICs is looked at […]

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Why I have written 1500 blog posts

by Michael Haberman September 22, 2014

Tweet Today I am posting the 1500th post on my blog. I get asked why I continue to write as much as I do. I figured with this post I would briefly answer this question. A little history As I noted about a week and a half ago my blog just turned nine years old. […]

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Future Friday: Nine Critical Skills for the Future of HR

by Michael Haberman September 19, 2014

Tweet In 2011 Thomas Frey wrote an article about Eight Critical Skills for the Future. He applied these to the world in general. It was an interesting article and naturally I started thinking in terms of human resources. I have borrowed and expanded this list and specifically applied it to the HR department. Here are […]

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Awesomeness at the Employment Law Blog Carnival

by Michael Haberman September 18, 2014

Tweet I am not an attorney… but I have stayed at a Holiday Inn Express… so that has entitled me to be included in this month’s Employment Law Blog Carnival. There is some great stuff in this Carnival that is hosted by Phillip Miles at Lawffice Space. Some of the topics include: The difference between […]

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Naked HR Radio Podcast: How long term care improves employees’ lives

by Michael Haberman September 17, 2014

Tweet Long term heathcare  has become a major issue for our employees who are in the “sandwich generation.” These are our employees who still have kids at home and are also caring for parents who are declining in health as they age. Quite often it falls to the eldest daughter but increasingly it is affecting […]

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