Even without an HR department, you still have HR expenses. From payroll and recruiting to employee benefits, training, and compliance, these costs can add up quickly. Without a plan, they can catch you off guard.

You can create a small business HR budget by following a few guidelines. The goal is to understand what you’re spending, anticipate what’s coming, and make informed workforce decisions.

No full-time HR manager—or fancy spreadsheet—to get started!

Why Does Your Small Business Need an HR Budget?

If you’re a small business owner, you may handle HR yourself or share the responsibilities part-time with someone else. Either way, HR work requires time and money.

In its 2026 Business Leader Priorities survey, Paychex found that 24% of business leaders surveyed spend six to ten hours each week on HR administration. A little HR planning can help you:

• Prepare for expenses. Anticipate hiring, benefits, training, and other workforce costs instead of scrambling when they arise.
• Make better business decisions. Understand what you can afford before adding employees, changing benefits, or investing in new tools.
• Stay organized and compliant. Set aside resources for required policies, recordkeeping, training, and professional guidance.
• Plan for growth. Make sure your HR processes and resources can keep pace as your business changes.

An HR budget also gives you a clearer picture of what it takes to manage your team—and where outside support might make sense.

7 HR Expenses to Include in Your Budget

Your budget will depend on your business size, industry, location, and plans for the coming year. You may not need every item below, but these are good places to start.

1. Wages and Payroll Costs

Employee wages are usually the biggest workforce expense. Remember to account for employer payroll taxes, unemployment insurance, workers’ compensation, overtime, bonuses, and planned pay increases.

If you’re thinking about hiring, look beyond the advertised salary. A 2026 SurePayroll survey found that nearly two-thirds of respondents were surprised by the cost of hiring their first employee. Payroll processing fees, benefits, workers’ compensation, and employer payroll taxes were among the expenses that caught owners off guard.

2. Employee Benefits and Insurance

Health insurance, retirement contributions, paid time off, disability coverage, and other benefits make up a significant share of your employee costs. But you don’t have to offer every benefit available. Start by reviewing what you currently provide, what your employees value, and what your business can reasonably afford.

The U.S. Chamber’s Q3 2026 Small Business Index found that 46% of small businesses offer health insurance, while 40% offer paid vacation. Rising costs and limited budgets remain common barriers to offering benefits.

If you’re weighing your employee benefit options, visit “Building Employee Benefits on a Budget: 6 Areas to Start.” Here, BlueLion offers ideas for making thoughtful choices without overextending your resources.

3. Recruiting and Onboarding

Hiring someone involves more than placing a job ad. Think about background checks, recruiting fees, and the time spent interviewing and getting a new employee up to speed. You may also need to provide a computer, software, uniforms, or other supplies.

4. Training and Professional Development

Employees need opportunities to learn, improve, and keep up with changes in their roles. Your budget might include job-specific training, leadership development, safety programs, professional memberships, or industry conferences. Consider what your current team needs to do their jobs well—and what skills your business may need as it grows.

5. HR Software and Technology

The right tools can make everyday HR tasks easier and more efficient. Depending on your needs, you may use software for payroll, time tracking, scheduling, benefits administration, recruiting, or employee records.

Ask yourself if you’re using the tools you already pay for and whether they solve real problems. Are you paying for features you don’t need? Choose tools that fit your current needs while leaving room for future growth.

6. Compliance, Policies, and Professional Support

Keeping your workplace policies and records current takes time. You may need to pay for handbook updates, required notices, safety training, or legal advice. It’s worth setting aside some money for these needs, even if you don’t expect to use it every year.

7. HR Consulting or Outsourced HR Services

You don’t need to hire a full-time HR professional to get experienced HR support. Many small businesses work with an outside HR consultant or outsourced HR provider for help with specific projects, employee issues, policies, compliance, or ongoing HR administration.

Include this possibility in your budget. Outside support may help you fill knowledge gaps, improve processes, and free up time to focus on running your business.

How to Build Your HR Budget for 2027

Now that you know what to consider, how do you put the pieces together? The process of HR planning can be straightforward. Start with what you know, then make reasonable estimates for what’s ahead.

1. Review your current expenses. Look at what you spent on payroll, benefits, recruiting, training, software, and outside services over the past year. Include costs that may be buried in other budget categories.
2. Consider your staffing needs. Are you planning to hire? Will anyone receive a raise or take on a new role? Do you expect seasonal staffing changes or increased overtime?
3. Review benefits and insurance. Check renewal dates, current premiums, employee participation, and any planned changes. Leave room for potential increases.
4. Identify upcoming HR needs. Do you need to update your handbook, improve onboarding, provide training, or review workplace policies? List the projects that should receive attention in the coming year.
5. Estimate costs and set priorities. Review current invoices, vendor quotes, renewal notices, and/or past spending to estimate costs. Separate essential expenses from items you can postpone if needed.
6. Leave a cushion for the unexpected. Things happen—a new hire, an employee departure, an unexpected workplace issue, a change in business needs—that can affect your plans. A little flexibility makes a big difference.

Your HR budget doesn’t have to be perfect. It should give you a useful starting point and help you make decisions with more confidence.

Don’t Overlook the Cost of Doing HR Yourself

Many small business owners manage HR because they don’t have the resources—or the need—for an in-house HR department. That’s understandable. But doing it yourself isn’t necessarily free.

Think about the time you spend researching employment requirements, answering employee questions, maintaining records, preparing payroll, handling workplace concerns, and updating policies. Those hours take you away from other parts of the business.

Some tasks may be easy to manage internally. A payroll provider, an HR consultant, or an outsourced HR partner may handle others better.

If you’re running a small business without HR staff, you don’t have to figure everything out on your own. The right support can help you build sound processes and access HR expertise when you need it.

Make Your HR Budget Work for Your Business

You don’t need a complicated HR planning process to handle HR like a boss. You need a clear picture of your needs, a realistic plan, and the right support when you need it.

Need help with your HR planning? BlueLion helps small businesses manage their HR responsibilities with practical, experienced support—without the cost of building a full-time HR department. Call us at 603-818-4131 or email info@bluelionllc.com to discuss how we can help.

The information on this website, including its newsletters, is not, nor is it intended to be legal advice. You should contact an attorney or HR specialist for advice on your individual situation.

As a small business owner, you might be looking for ways to manage your team’s paid time off (PTO) effectively, especially when it comes to unused days. One option that may come to mind is a PTO cash out policy. 

Sounds easy, right? Just pay out employees for their unused PTO, and voila! Everyone’s happy. 

Except it’s not that easy at all. In fact, you can’t simply make up your own cash out policy—you must follow specific guidelines and regulations to ensure compliance and avoid potential financial pitfalls.

Let’s break down what a PTO cash out policy is, the IRS requirements you need to be aware of, and the potential cash flow implications for your business if you don’t handle these policies correctly.

What Is a PTO Cash Out Policy?

A PTO cash out policy allows employees to exchange their unused paid time off for cash instead of taking the days off. Similar to PTO rollovers, cash outs may seem like an easy way to keep employees happy, especially when they can’t or don’t want to use their accrued PTO. However, it’s not as simple as offering cash in place of time off—you need to establish clear guidelines that comply with both state and federal laws.

You Can’t Just Make Up a Cash Out Policy

One common misconception among employers is thinking they can create a cash out policy on the fly. In reality, PTO cash out policies must comply with existing labor laws and IRS requirements. Failing to do so could lead to unintended tax consequences and legal issues for your business and employees.

Here are a few things you need to consider as you consider offering cash outs to your paid leave policies:

• Consistency with State Laws: Some states require employers to pay out unused vacation time upon termination, while others don’t. Even if your business isn’t based in a state with strict requirements, it’s still a best practice to have a well-defined policy that clearly outlines when and how PTO can be cashed out.
• Non-Discrimination: If you decide to offer PTO cash outs, your policy must be applied consistently and fairly across all employees. You can’t selectively allow some employees to cash out while denying others the same opportunity, as this could lead to discrimination claims.
• Clear Communication: Your communication about PTO cash out policy should be clear, readily available, and acknowledged as having been received by your employees, ideally in your employee handbook. Include details on eligibility, the timing of cash outs, and any applicable limitations.

IRS Requirements & Tax Implications

Generally, employees pay taxes when they receive PTO payments. However, constructive-receipt rules may apply when employers make income available to employees without substantial restrictions, even if employees don’t actually collect the money. Employers should have their tax professional review the structure of a PTO cash-out program before implementing it.

• Withholding Requirements: PTO cash outs are subject to federal income tax, Social Security, and Medicare taxes. The IRS requires you to withhold taxes at the appropriate rate, which is typically a flat 22% for supplemental wages. You could face penalties and interest if you fail to withhold the correct amount.

  For supplemental wages of $1 million or less, the employer can generally use the 22% flat federal income-tax withholding rate when the supplemental payment is separately identified, and the employee’s regular wages were subject to federal income-tax withholding. For supplemental wages above $1 million, the excess is subject to withholding at 37%.

  It’s important to note that the 22% is a withholding method. The employee determines their actual tax liability when they file their tax return and account for all income, deductions, credits, etc.

• Reporting on W-2s: Report any cash outs on the employee’s W-2 form at the end of the year to ensure you and your employees are meeting tax obligations.
• State and Local Taxes: Don’t forget that state and local tax rates may also apply to PTO cash outs. Check your state’s tax laws.

And yes, this means that if you establish a PTO payout policy allowing employees to cash out a certain amount each year, it counts as income—even for employees who don’t cash out any PTO! 

If your current policy permits this, chances are you’ve been underreporting workers’ income and withholding insufficient income and payroll taxes. In this case, it’s time for an immediate review with your HR and legal teams.

The Cash Flow Implications for Your Business

Consider your company’s cash flow when designing a PTO policy. Anticipate potential challenges such as:

• Unplanned Expenses: If multiple employees decide to cash out their PTO simultaneously, you could face a large, unplanned payout—which could strain your business’s cash flow.
• Payroll Budgeting: Since PTO cash outs are considered a payroll expense, they can quickly inflate your payroll costs if not planned for in advance. This might also impact your ability to invest in other business areas.
• Impact on Morale and Productivity: While offering a cash out option might seem like a perk, it could inadvertently encourage employees to forgo taking time off. Regular time away from work is crucial for employee well-being, and a lack of breaks could lead to burnout and decreased productivity.

To avoid these potential pitfalls, start by limiting the amount of PTO that employees can cash out in a given year to protect your cash flow. For example, you might allow cash outs only once per year or limit them to a specific number of days.

Best Practices for Implementing a PTO Cash Out Policy

The end of a fiscal year or during slower business periods may be the best time to allow for a cash out ‘window.’ Before rolling out your PTO cash out policy, consult a legal or HR professional to ensure you’re compliant with all relevant regulations. Your accountant may also help you understand the impact on your budget.

If you do want to offer PTO payouts to employees, use an option that complies with tax laws, such as:

• Offer Conditional Cash Outs: You can require employees to maintain a minimum balance of PTO before they are eligible for a cash out. For instance, employees could only cash out PTO once they have accrued at least 80 hours, with the option to cash out anything above that amount. This ensures they still have enough time available for rest and prevents complete depletion of their PTO balance.
• Structured Cash Out Percentage: Employers may offer a policy where only a percentage of the accrued PTO can be cashed out (e.g., 50% of the total hours). This reduces the immediate cash liability for the business while still giving employees the benefit of some extra income.
• Cash Out Cap: You could also put a maximum limit on the number of hours that can be cashed out annually. For example, the policy might limit employees to cashing out 40 hours of PTO per year, regardless of the total amount accrued.
• Incentivize Time Off Usage: Encourage employees to use their PTO by offering a higher payout rate for time off taken rather than cashed out. For example, you could offer 100% of the PTO value when used for time off, but only 80% of its value if cashed out.

Consult the U.S. Department of Labor’s Wage and Hour Division for more information about PTO cash out and other workplace benefits.

Rethink That PTO Cash Out Policy

While a PTO cash out policy can be a valuable benefit for your employees, it’s crucial that you design and implement it carefully. Following IRS and DOL requirements and being mindful of your cash flow will help you avoid unexpected financial issues. Remember, you shouldn’t just invent a cash out policy—take the time to ensure that it’s legally compliant and financially sound.

If you’re unsure about the best approach for your business, contact BlueLion to guide you through the process and help you create a policy that works for both your team and your bottom line.

Maybe an employee reported misconduct. A manager noticed a policy violation. Someone raised a concern about discrimination, retaliation, theft, or inappropriate behavior.

Now what?

Not every workplace problem requires a formal investigation. But when an allegation could affect an employee, the workplace, or the company’s legal or business interests, employers need to take the concern seriously and determine what happened.

A well-handled workplace investigation can help an employer understand the facts, respond appropriately, and reduce the risk of making the situation worse.

What Is a Workplace Investigation?

A workplace investigation is a fact-finding process used to determine what happened when an employer receives a serious complaint, allegation, or concern.

The goal is not to prove that someone is guilty or innocent before the facts are known. The goal is to collect relevant information, speak with the people involved, review available evidence, and reach a reasonable conclusion based on the facts.

This article provides a broad look at workplace investigations, from deciding when one is needed to determining who should handle it and what happens afterward. For a deeper look at specific issues, such as harassment complaints and harassment investigations, see our related articles mentioned throughout.

When Should an Employer Conduct an Investigation?

An investigation may be appropriate when an allegation is serious enough that the employer needs more information before deciding what action to take.

For example:

• An employee reports harassment or discrimination.
• A manager suspects serious misconduct.
• An employee alleges retaliation after making a complaint.
• Company property or money is missing.
• An employee is accused of violating an important workplace policy.
• There are conflicting accounts of a serious workplace incident.
• The employer becomes aware of conduct that could create legal or significant business risk.

The key question is: Does the employer need to establish the facts before deciding what to do?

If the answer is yes, an investigation may be appropriate.

What Types of Workplace Investigations Are There?

Workplace investigations are not limited to harassment complaints.

Depending on the situation, an employer may investigate:

• Harassment or discrimination
• Retaliation
• Employee misconduct
• Policy violations
• Theft or fraud
• Workplace violence or threats
• Safety concerns
• Timekeeping or attendance issues
• Conflicts involving employees or managers
• Other complaints involving potentially serious workplace conduct

The type of investigation will influence who conducts it, what information to gather, and how to handle it.

Does Every Workplace Complaint Require an Investigation?

No.

Some workplace concerns can be addressed through normal management practices, coaching, clarification, or conflict resolution.

For example, a disagreement between two employees may not require a formal investigation if the facts are clear and the issue can be resolved appropriately.

But employers should be careful not to dismiss complaints too quickly. A concern that initially appears minor may reveal a larger pattern or a more serious issue.

When in doubt, employers should consider the seriousness of the allegation, any potential impact on employees and the business, applicable company policies, and whether additional facts are needed before taking action.

Who Should Conduct the Investigation?

The person conducting an investigation should be impartial, qualified, and able to approach the situation objectively.

Depending on the organization and the circumstances, that person could be:

• An HR professional
• A trained manager
• An internal investigator
• An employment attorney
• An outside HR or workplace-investigation professional

The investigator should not have a personal interest in the outcome or a conflict of interest involving the people or issues being investigated.

For smaller businesses, this can be challenging. There may not be someone internally who has the training, experience, or necessary distance from the situation.

How to Conduct an Effective Workplace Investigation

While every situation is different, the basic workplace investigation steps generally include the following:

1. Define the concern and scope.
   Identify what is being alleged and determine what questions the investigation needs to answer.
2. Address immediate concerns.
   If there is an immediate safety, retaliation, or other serious concern, take appropriate steps while the investigation is underway.
3. Gather relevant information.
   Collect documents, emails, messages, policies, records, photographs, or other evidence that may help establish what happened.
4. Conduct interviews.
   Speak with the person who raised the concern, the person accused of wrongdoing, and relevant witnesses. Ask open-ended questions and give people an opportunity to explain what they know.
5. Evaluate the information.
   Compare statements and evidence rather than automatically accepting one person’s version of events.
6. Document the findings.
   Keep clear records of the information gathered, interviews conducted, and conclusions reached.
7. Determine appropriate next steps.
   Based on the findings, the employer can determine whether corrective action, discipline, policy changes, training, or another response is appropriate.

For a closer look at investigating a harassment complaint, see our article, “5 Steps to Conducting a Thorough Workplace Harassment Investigation.”

Common Mistakes Employers Make During Investigations

Even employers who are trying to do the right thing can make mistakes.

Common problems include:

• Waiting too long to investigate
• Deciding what happened before gathering the facts
• Assigning the investigation to someone with a conflict of interest
• Asking leading or accusatory questions
• Failing to preserve relevant evidence
• Sharing information unnecessarily
• Promising complete confidentiality when that cannot be guaranteed
• Failing to document the process
• Taking disciplinary action before the investigation is complete
• Failing to watch for possible retaliation afterward

A thoughtful, consistent process can help employers avoid these problems.

What Happens After a Workplace Investigation?

The investigation does not necessarily end when the interviews are finished.

The employer should review the findings and determine what action, if any, is appropriate. That could include discipline, coaching, additional training, policy changes, or other corrective measures.

Employers should also document the outcome and follow up as appropriate. If the investigation involved an employee complaint, remain alert for signs of retaliation or other problems after the matter has been addressed.

Remember, the purpose is to address the underlying issues and help prevent similar problems in the future.

When Should an Employer Use an Outside Investigator?

An outside investigator may be appropriate when:

• The allegation involves an owner, senior leader, or HR professional.
• The organization does not have a qualified internal investigator.
• There is a concern about impartiality or a conflict of interest.
• Employees may be uncomfortable reporting to someone internally.
• The allegations are particularly serious or sensitive.
• The company needs someone with specialized investigation experience.

For a small business, bringing in an outside professional can also provide separation between the investigation and the people directly involved in the situation.

A Workplace Investigation Should Start with the Facts

The workplace investigation process does not have to be complicated, but it should be taken seriously.

The most important principles are simple: respond quickly, remain impartial, gather the facts, document the process, and make decisions based on the information available.

And when a situation involves serious allegations, significant risk, or questions about how to proceed, getting experienced help early can be far better than trying to fix mistakes later.

As you’ve seen, there’s a lot to consider when conducting workplace investigations. For additional reading specific to harassment complaints, you’ll appreciate “How Should Employers Handle Harassment Complaints” and “What Does Workplace Harassment Look Like & How Can Employers Identify It?”

And for more guidance or clarification about your unique situation, BlueLion’s HR consultants are here to help. Call us at 603-818-4131 or email info@bluelionllc.com to discuss the implications for your business.

The information on this website, including its newsletters, is not, nor is it intended to be legal advice. You should contact an attorney or HR specialist for advice on your individual situation.

Performance appraisal.

Employee evaluation.

No matter what you call it, the thought of managing employee performance reviews is often daunting to both managers and employees. Often considered the yearly “report cards,” performance reviews are viewed by many as a time-consuming and unpleasant experience.

Despite its negative implications, the employee performance review is in no way going out of style. It remains a vital element in any successful organization’s human resources priorities. With a solid review structure in place, this process doesn’t have to be such a nuisance. That’s why we’ve compiled this guide for employers to understand:

• Why performance reviews are important
• How to do performance reviews
• Tips for successful performance reviews

So stick with us to learn how to create a more positive and effective employee evaluation process, now updated for 2023! We’re covering:

• Why performance reviews are important
• How to do performance reviews
• 9 common performance review methods
• What NOT to do during reviews
• 9 bonus tips to make them successful

Click any of the above to jump to a certain section, or keep scrolling for the comprehensive guide!

Why are Performance Reviews Important?

Employees and managers can learn and grow from performance appraisals. They play an important role in:

Clarifying Individual Roles and Organizational Goals

Employee evaluations are an opportunity to check in with employees and ensure they understand the company’s big vision and goals and the impact they have on the organization. Reviews are also the perfect time to clarify an employee’s role and duties and answer any questions.

Confusion leads to frustration and decreased productivity. Regular evaluations are an important step in boosting productivity and performance and ensuring each employee owns their responsibilities.

Providing Regular Feedback

Your company strives to hire, develop, and keep the best employees. Those employees care about their reviews—which means you should too. 

In fact, Officevibe reports that 43% of highly engaged employees receive feedback at least once a week, compared to only 18% of employees with low engagement. These numbers show that regular, constructive feedback from supervisors makes a difference.

Use employee performance reviews to help employees clearly understand their strengths and areas of improvement and encourage them to take initiative and find satisfaction in their work.

Managers should also be documenting performance reviews, which can support not only employee development but also potential employment discrimination or wrongful termination lawsuits.

Career Development

A large part of performance reviews is assessing how the employee has performed against their goals and setting new objectives. Managers can then determine new opportunities for training and mentoring or areas in which the employee could use additional guidance. 

Additionally, the evaluation can provide insight into developing future succession plans for team members in specific roles. Or, if an employee is struggling, the appraisal will provide data and feedback necessary to develop a performance improvement plan (PIP) if appropriate.

Employee Rewards and Appreciation

A solid performance management system helps employers stay on top of employee rewards, such as time off, bonuses, and other forms of recognition. Team members who receive rewards will, of course, remain motivated to keep up the excellent work. And seeing their peers’ achievements will incentivize others to step up their game and reap the rewards!

How to Do Performance Reviews

Now that you understand why they’re so important, you may be wondering exactly how to do performance reviews.

Define Company Goals

Start by defining your company’s goals. These may include any or all of the following:

• Profit goals: Aim to increase profits by a specific percentage for a set time period.
• Service goals: Aim to improve customer satisfaction and retention.
• Social goals: Include philanthropic initiatives to constantly give back to the community through donations or volunteering.
• Growth goals: Focus on expanding the company by hiring new employees, opening new locations, etc.

Understanding your corporate goals will help you hire the right people for the right roles, and then effectively develop those employees to reach those goals. 

Determine Performance Review Frequency

You will also need to set the performance review frequency. A few questions to ask to determine what schedule will work best for your organization are:

• How often will compensation be discussed?
• How long does it take managers to fill out evaluations?
• What tools would make it easier/quicker for managers to complete reviews?
• How long does it take employees to demonstrate growth/change?

That said, your company could choose to conduct employee performance reviews:

Weekly or Biweekly

You might opt for brief evaluations every week or every other week, especially for employees who:

• Have weekly KPIs or goals to hit
• Perform best with specific, short-term goals
• Are working on projects with tight deadlines or lots of moving parts

These frequent check-ins don’t have to dive deep into every aspect of the employee’s performance. They’re more of an effective way to document progress and provide regular opportunities for managers and team members to check in with one another.

Monthly

Monthly performance reviews are ideal for:

• Contract workers or freelancers
• New hires undergoing the onboarding process
• Significant long-term projects with specific milestones

Plus, many employees prefer monthly appraisals over annual reviews so they can gain more specific insights and guidance on their performance, what they are doing well, and areas they need to improve.

Quarterly

Like many companies, you probably set quarterly goals and budgets. As such, you might align employee evaluations and goals with the overall quarterly business goals. Three months is often an ideal time for employees to achieve their goals and make notable progress in certain skills or other areas.

Annually

Annual performance reviews are becoming a thing of the past as employers focus on company culture and employee development. If you do opt for annual reviews, don’t rely on them alone—no employee should go an entire year without specific feedback. Plus, a single yearly appraisal can lead to information overload, vague direction, and an unfair view of an employee’s work that only looks at past performance.

For employers who hold quarterly or annual appraisals, we recommend that managers have regular check-ins (think weekly or monthly) with their team members. Supervisors can then use those weekly, biweekly, or monthly evaluations in the quarterly or annual reviews for a comprehensive look at the employee’s progress and performance. 

In a TriNet survey of Millennial workforce members, 85% said they’d feel more confident if they could have frequent conversations with their managers. So keep the lines of communication open and provide employees with consistent feedback and guidance.

Train and Prepare Managers

One of the most common pitfalls when it comes to employee appraisals is ill-equipped managers. Ensure managers in your organization are trained on how to deliver effective reviews. This means educating them on best practices, such as what to document, what to say, and how to communicate it. It’s important to revisit training in this area and reinforce these practices on a regular basis.

Another area where managers often fall short is preparing and planning for employee performance reviews. In companies with a weak or nonexistent performance review system and training, managers often perceive reviews as a necessary inconvenience. Many simply spring reviews on employees with little to no advanced notice, then rush through the form to comply with HR requirements. 

This means they don’t take the time to provide meaningful feedback to their employees and evaluate their progress. These managers also may not track performance, acknowledge accomplishments, or address poor performance throughout the year. Without this vital information, they cannot be prepared to give accurate and effective employee performance reviews.

Put a Performance Review Process in Place

Many of the problems noted above can be resolved with a strong performance management process. When you have an accurate way to measure employee performance, a clear process, and methods that make it easy for both parties, everyone will be more willing and motivated to do things properly.

A solid employee performance review process includes:

• Continuous and timely feedback throughout the review period to ensure employees understand how they are doing and their expectations.
• Consistent communication that includes performance feedback measured against clear and specific goals and expectations established at the start of the performance management period.
• A process for acknowledging the results of the performance review process that is documented between the manager and the employee.
• A one-on-one conversation between the manager and the employee (ideally face-to-face) at least once a year.

9 Common Employee Performance Review Methods

There are several types of review systems that can be used either individually or in combination with one another. Whatever method(s) your business decides to use, both managers and employees should be given a clear definition of each level of performance. 

Below are the five most common review styles.

Self-evaluation

This method requires an employee to judge their own performance against predetermined criteria. 

Pros: The self-evaluation is typically considered by the manager during the official review to encourage a more thorough discussion. Differences in the employee and manager’s evaluations can be insightful.

Cons: This style may be too subjective to accurately reflect work performance since many employees often rank themselves too high or too low.

Behavioral Checklist

This one is pretty straightforward: It’s a checklist of behaviors an employer expects of an employee to succeed. In this case, an employer responds to a list of yes or no questions. The checklist may be weighted, meaning each question may carry a predetermined value.

Pros: Behaviors differ based on job type, so this technique is easy to adjust for each position. When done correctly, it produces clear results and allows easy comparison between all employees

Cons: This one can get a little tricky since the questions must be worded and weighted carefully to avoid confusing results. Plus, the checklist doesn’t include explanations or detailed answers—so you’ll want to include comments with more specific feedback.

360-degree Feedback

The 360-degree feedback review involves pulling feedback from the employee’s subordinates/direct reports, manager, non-direct supervisors, peers, and potentially even customers. The manager then completes an assessment of the employee’s work performance and technical skillset, while taking the outside sources into consideration.

Pros: As the name implies, this style provides a well-rounded look at an employee’s performance. It can even include an evaluation of the employee’s character and leadership skills. The broad feedback also helps cancel the influence of bias or outlying data points.

Cons: This method can be a bit more time-consuming since it requires obtaining the employee’s complete profile and feedback from multiple sources; however, the benefits of this comprehensive assessment are well worth the effort.

Management by Objectives (MBO)

The management by objectives (MBO) appraisal method, simply put, involves both the manager and employee setting and meeting goals. The employee either hits those goals by the set deadline(s), or they don’t.

Pros: Since the employee is included in the goal-setting process, there is an agreement that the goals are obtainable. It is also easy to define success and failure with this method.

Cons: The MBO style disregards non-goal-related success metrics, so some other important factors may not be taken into consideration come review time.

Project-based Appraisal

This type of employee performance review is used to evaluate an employee’s performance after completing every project. Questions and discussion points will focus on the individual’s most recent work.

Pros: Project-based appraisals are efficient and results-oriented. They provide team members with specific feedback and action items that they can improve upon/prepare for ahead of the next project. Many employees might like this short feedback cycle.

Cons: Since managers would need to conduct a project-based evaluation after every project, this could be somewhat time-consuming. But with a solid system in place, they can run very smoothly. 

Competency Assessment

Competency assessments compare an employee’s current skills to their target level. This helps managers identify strengths and areas where the employee needs improvement. This type of evaluation can be conducted via observation, interviews, or forms. 

Pros: Competency assessments help organizations:

• Get a high-level view of the skill gaps in their workforce and use that data to set bigger business goals and strategies. 
• Develop specific training and mentoring programs to help employees learn and grow. 
• Identify gaps and recruit new talent with the skills to fill them.

Cons: You must choose the right competencies for each role in your business to conduct a fair competency assessment. You’ll also need a system to ensure accurate scaling, privacy, and capability analytics. And to see actual results, you’ll need to put action plans in place for each employee.

Rating Scale

Also known as a grading system, this performance review method is probably the most commonly used. It’s based on a set of employer-developed criteria that can include behavior, traits, competencies, or completed projects. Employees are usually judged on a scale of 1 to 5 or 1 to 10.

Pros: This method is simple and provides easy functionality—as long as both managers and employees are on the same page about how the scale works (i.e., what each point on the scale means, or if the ratings categories focus on traits vs. behaviors).

Cons: If managers and employees have a different understanding of the scale, there could be unrealistic expectations and discrepancies. For example, some employees may consider a 3 out of 5 to be average, but you may consider it to be above satisfactory.

Depending on your organization and the types of employees you have, you may use one of these methods above or a combination of them.

For those who use any numerical method, one way to make things easier for everyone is to create a rubric for scoring. This helps by: 

• Holding everyone to the same standards.
• Enabling managers to score more accurately.
• Showing employees what they need to do to improve their score.
• Allowing the employee to feel good with a “meets expectations” score.

Behaviorally Anchored Rating Scales (BARS)

Similar to the traditional rating scale, a behaviorally anchored rating scale (BARS) also typically uses a scale of 1 to 5. The difference is that this method uses behavior statements to measure a staff member’s performance based on how they handle specific situations.

Pros: BARS is an effective way to clarify for both managers and employees the job expectations and what the employee needs to do to improve with a balance of qualitative and quantitative data. It is ideal for companies that:

• Have many employees in the same or similar roles
• Need to eliminate rating errors or bias in their current performance management process

Cons: This type of employee evaluation can be time-consuming, particularly for large companies. It requires time and effort from leaders to develop the scale for each role and conduct an appraisal for each team member.

Human Resource Accounting

Human resource accounting, also known as cost accounting, essentially evaluates the return on investment (ROI) of an employee. It measures the financial impact they offer against the cost of retaining them.

Pros: Human resource accounting is ideal for roles in which employee contributions and costs are measurable. For example, sales reps can be assessed by the revenue they generate, and upper management can be reviewed based on their profit and loss.

Cons: There will always be some gray area when it comes to the costs and benefits an employee brings to your business, for some positions more than others. This method can also lead to negativity, discouragement, and even jealousy among employees after learning their values.

What NOT to Do: Common Rating Errors

Because employee performance reviews are conducted by humans for humans, there is plenty of room for error. This is why it’s so important to have a clear, solid system in place along with a rubric. 

Below are five of the most common performance rating errors and how you can avoid them.

• Lack of Differentiation: Supervisors often lack the confidence to defend their ratings or be reluctant to pass judgment, so they rate everyone about the same. This can lead to leniency (everyone gets high ratings), severity (everyone gets low ratings), or a universal feeling that everyone is doing just fine (so everyone is rated in the middle). Poor training or the failure of an organization to clarify that performance reviews are a critical part of the managerial role are often to blame here.
• Recency Effect: With no review process and system in place, many managers do not continuously measure performance, provide feedback, or document results. When it comes time to review, they are unable to remember the earlier part of the performance period and weigh the most recent events too heavily.
• Halo/Horns Effect: These occur when an employee either performs very highly or very poorly in an area, respectively, and the manager rates the employee correspondingly high or low in all areas.
• Personal Bias/Favoritism: It’s no secret that some managers are influenced by their impressions of or personal feelings about employees, thus affecting their employee evaluations.
• Inaccurate Information/Preparation: Managers sometimes fail to take the time to discuss an employee’s performance with those who work closely with the employee, leading to an inaccurate assessment.

Remember that the employee assessment should be a thoughtful process. Don’t rush through it—instead, sit down and discuss the employee’s performance and how they have helped the company. Consider how you can reengage them in the company for the next year (or your chosen review period). 

It’s About What You Say…

Documenting the performance with context, details, and examples will help the employee understand where they stand and the reasoning behind your review.

Positive Review Example

You give your employee, Joe, a score of 4 out of 5 for Customer Service, meaning he is exceeding company expectations. 

Instead of writing: Joe has been exceeding expectations. He is a great customer service representative.

Try: Joe has exceeded company expectations this year for customer satisfaction. He has the highest ratings from customer surveys, scoring a satisfaction rate of 96%. Several customers have written to the company to provide accolades for his support and service. Additionally, as his manager, I have received calls from customers telling me what a pleasure it has been working with Joe, and how he takes his time to make sure the customer has what they need.

Negative Review Example

Positive reviews are easy to give…but unfortunately, it’s not always great news. You should still provide detail and examples to help the employee understand where they stand and how they can improve.

You might score Kate a 2 out of 5 for Customer Service, meaning she’s not meeting company expectations.

Instead of writing: Kate needs to work on her customer service skills. She has had some issues which have caused the company concern and has had several customer issues arise.

Try: Kate has had several customer service complaints this past year (which are documented in her file). The concern is she is working too quickly to get the customer off the phone, so she is not listening to their needs, or assisting them with their questions in a respectful manner. She has also given several customers wrong information, and there was an incident 6 months ago where she hung up on an angry employee. We would like to see Kate work on her patience and provide great customer service. Her current satisfaction rating is 60%. We need to see this rise to a minimum of 80% in the next 3 months.

Even if you have significant critical feedback, be sure to provide some positive feedback in the review!

…And How You Say It

When managers give reviews, nothing should surprise the employees. This is why regular check-ins with employees are so important!

Don’t simply read what you wrote on the employee’s review. Discuss each topic at a high level unless a certain score was below or above average. Take this time as an opportunity to have a discussion and expand on your feedback in areas of note.

Ensure it’s a two-way conversation by asking questions and getting feedback from the employee on their position, the team, YOUR management, and the company. Some questions you may ask are:

• What do you expect to be the most challenging about your goals for this quarter?
• What support can the department provide for you that will help you reach these goals?
• What are your hopes for your achievements at our company this year?
• How can I be a better manager for you?
• How often would you like to receive feedback?
• What kind of schedule can we set up so that you don’t feel micromanaged, but I receive the feedback that I need as to your progress on your goals?
• What would be a helpful agenda for our weekly one-on-one meetings?

And perhaps most importantly, remember to listen, wait, and THEN respond!

Setting Employee Goals

With each review, managers and employees should collaborate to create new short- and long-term goals. These may include job description goals, project goals, behavioral goals, and stretch goals (especially challenging goals typically used to expand knowledge, skills, and abilities). 

Always make sure the goals set are both flexible and SMART:

• Specific, clear, and understandable
• Measurable, verifiable, and results-oriented
• Attainable, yet sufficiently challenging
• Relevant to the mission of the department or organization
• Time-bound with a schedule and specific milestones

Document the goals, make them available for review, and manage them on a continuous basis. 

Finally, schedule a follow-up after each performance appraisal (before the next official review) depending on the frequency.

Managing Raises and Reviews

Tying in raises with employee performance reviews has been a common practice for a long time. But the compensation aspect can quickly consume the review process, distracting from the real importance and intent of the review. Employees instead want to know simply whether or not they’re getting a raise.

Performance reviews are meant to help employees improve over time which, in turn, helps the company grow and fosters a healthy workplace culture. Traditionally, managers tell employees what they have been doing well and what they could do to level up their performance.

When you separate pay raises from employee evaluations, it puts the focus back on the review process. You can then ensure your employees are developing new skills and becoming better, more fulfilled workers. This is the key to building a stronger, more effective organization.

9 Bonus Tips for Conducting Successful Performance Reviews

Here are our pro tips to prepare both managers and employees for smooth and effective reviews every time: 

• Keep a “notepad” for each employee who reports to you. Use these to write down wins and areas of improvement.
• Send emails to celebrate successes and promote further behavior.
• Address any issues in person, then follow up with an email.
• Provide a blank review and the rubric upon hire or within the new employee’s orientation period. 
• Provide the review AHEAD of time (no more than a day, no less than an hour).
• Do not sugarcoat poor performance.
• Do not downplay high performance.
• Control the discussion if there are negatives the employee does not want to accept. 
• After completing the review, look at last year’s (if applicable).

By keeping things as clear, simple, and consistent as possible, you can create a better review experience for everyone in your company.

Employee Performance Review Consulting

If you take away one lesson from this guide, we hope it’s that employee evaluations are NOT busy work! They are an essential part of fostering employee growth and running a successful business.

We understand, however, that establishing or improving an appraisal process is not an easy or fast undertaking, which is why BlueLion is here to help. Whether you need to create a new employee performance review process for your budding business, or you need assistance reviewing your existing system, learn more about our outsourced HR services or contact us today at 603-818-4131 or info@bluelionllc.com.

Despite this, fertility-related loss—including miscarriage, stillbirth, and failed fertility treatments—is often excluded from traditional bereavement policies. But it’s time to acknowledge the emotional, physical, and psychological toll of reproductive loss and support employees during these times. 

After all, it’s more common than many realize. The March of Dimes reports that between 10 to 20% of known pregnancies end in miscarriage, while the CDC notes that about 21,000 babies are stillborn yearly. Then, there are those suffering from failed adoptions, surrogacies, and fertility treatments, all of which are a bit more complex when it comes to the numbers—yet these families face trauma as well.

Reproductive loss leave is finally on the rise as employers prioritize employee well-being and strive to boost retention. Whether you incorporate it into your current bereavement leave policy or create a separate policy, it’s a powerful way to show employees you genuinely care about their mental and physical health.

A Glance at the Current State of Fertility-Related Loss Leave

Traditional bereavement leave often focuses on the death of immediate family members, failing to address reproductive loss. This leaves employees in this situation:

• Confused about what kind of leave they should take
• Concerned about the impact on their workload and/or job status
• Stressed about reduced pay—or unpaid leave altogether

Bottom line: Lacking a reproductive leave policy can cause even more stress during a time of grief. In turn, it can lead to decreased morale, productivity, and retention. 

Unsurprisingly, many employers now offer this employee benefit, which is in increasing demand—especially among the younger workforce. Research by MetLife found that employees’ satisfaction with their benefits dropped to 61% in 2023 from 64% in 2022, hitting its lowest point in the past decade.

Offering fertility-related loss leave is both the right thing to do and helps employers stand out in a competitive job market where top talent no longer tolerates subpar benefits that don’t support their needs.

Big names like Goldman Sachs and Pinterest are leading the way. Goldman Sachs added 20 days of paid leave for an employee, spouse, or surrogate who has a miscarriage or stillbirth. Pinterest provides four weeks of paid leave to parents who undergo a miscarriage.

Legal Protections & Limitations

As with so many areas, U.S. leave protections vary widely between state and local jurisdictions. A few states, like Illinois and California, offer only unpaid leave for reproductive loss, which many employees can’t afford. 

The same issue applies to the Family and Medical Leave Act (FMLA). Although it doesn’t apply to bereavement, FMLA provides eligible employees with up to 12 weeks of unpaid leave for serious health conditions, which may include complications from reproductive loss. However, FMLA only applies to employers with 50 or more employees and may not fully address the need for paid or specific reproductive loss leave.

Overall, many do not understand the laws or their rights, from paid sick leave that could cover pregnancy loss to FMLA allowances. A survey by InHerSight and Evermore found that 77% of respondents were unaware of their right to take time off under FMLA following a miscarriage or stillbirth.

There is also the Pregnant Workers Fairness Act, under which employees can request and receive “reasonable accommodations” for pregnancy and related conditions, including pregnancy loss and recovery. This federal law applies to employers with 15 or more employees and requires employers to provide the requested accommodations as long as they don’t entail undue difficulty or expense. It also protects employees from being fired, harassed, or punished for requesting or taking time off for pregnancy loss. 

Employers can make a difference by proactively addressing these gaps with policies and resources that put their team first. 

What Employers Can Do to Address Reproductive Loss

To create a culture of compassion and empathy, employers should consider offering expanded benefits and flexibility to employees who have undergone a fertility-related loss. As you develop these policies and resources, be sure to consider both women and non-birthing parents to provide more inclusion and support for families struggling with fertility.

Expand Your Bereavement Leave Policy

Start by expanding your bereavement leave policy to include reproductive loss as a recognized reason. Define clear guidelines to ensure equitable access for all parents, regardless of gender or role. 

Attorneys Natalie Groot and Danielle Dillon of Mintz say employers should consider:

• How much paid time off will you offer, keeping in mind both physical and emotional recovery? 47% of employers who offer this benefit provide 4-5 days off, but this varies widely.
• How your fertility-related loss leave policy will interact with state and local laws and other leave and PTO benefits.
• Building in flexibility—grief is not linear. Allowing employees to use their leave when and as needed (i.e., continuously and intermittently) caters to the challenges of emotional healing. 
• Using broad language when defining fertility-related loss to ensure an inclusive policy. Reproductive loss encompasses miscarriage and stillbirth, as well as failed surrogacy, adoption, and fertility treatments. 
• The process for employees who want to take this leave. Allow employees to notify their direct manager or any HR team member. This ensures they can speak with someone they’re comfortable with.
• What, if any, type of documentation will be required—although most employers don’t require this, and people don’t seem to abuse the benefit.

In fact, Groot spurred a change in Mintz’s bereavement leave policy after undergoing two miscarriages in just six months. The general practice law firm now provides 15 days of consecutive paid leave following a miscarriage and five days of paid leave in a 12-month period after a failed surrogacy, adoption, or fertility treatment. Companies nationwide have been following suit.

Offer Short-term Disability

Some employees may find they need more time to recover from the physical, mental, and emotional side effects after a pregnancy or reproductive loss and/or related medical treatment. By offering short-term disability (STD), you can give workers more time to heal from this trauma. 

Many employers offer STD insurance to provide supplemental income when employees need pregnancy-related leave. Not to mention, some states provide paid leave benefits like STD for medical leave related to pregnancy or disability. Review your state’s programs and laws to maximize coverage for team members who need it most. 

Allow Workplace Flexibility

Employees may need a gradual transition back to their work routine following a fertility-related loss. Encourage flexible scheduling or remote work options to continue supporting them during this challenging time. This may include: 

• Allowing employees to work reduced hours or take partial days off as needed
• Providing the option to work remotely during recovery periods
• Offering a “return-to-work” plan that gradually increases workload based on the employee’s readiness
• Implementing flexible deadlines or temporary reassignment of responsibilities to alleviate pressure

Provide Mental Health Support & Resources

If you already offer an employee assistance program (EAP) or another type of support group, remind employees of these resources and encourage them to use them. If you haven’t incorporated these wellness benefits yet, consider offering counseling and resources to help employees cope with grief and loss. 

An EAP alone typically comes with many other resources and benefits, including support for areas like marital/relationship problems, financial struggles, and substance or alcohol misuse. The beauty of these programs is they often extend to employees’ immediate family members or those living in employees’ homes. An EAP can be a significant way to show you prioritize employees’ mental health.

Making the Case for a Reproductive Loss Leave Policy

Offering paid leave for reproductive loss, along with additional support and resources, can put your whole team at ease—from those in the early stages of family planning to those already going through pregnancy, fertility treatments, surrogacy, or adoption. Expanding your bereavement policy to include these groups will only improve employee morale, loyalty, and productivity.

Remember to review and update all bereavement leave policies regularly to ensure they stay relevant and supportive as expectations and legal requirements evolve. By doing so, you’ll naturally foster a supportive, inclusive work environment. 

And of course, if you need guidance developing a reproductive loss leave or any other people policies, contact BlueLion today at 603-818-4131 or info@bluelionllc.com. Our HR specialists will gladly help you create a positive company culture.

The information on this website, including its newsletters, is not, nor is it intended to be legal advice. You should contact an attorney or HR specialist for advice on your individual situation.

Is the 9/80 schedule the right fit for your company? Before implementing, let’s explore its benefits, drawbacks, and things you should consider.

What Is a 9/80 Work Schedule?

Like the four-day workweek, the 9/80 work schedule is a type of compressed workweek. With this schedule, however, employees work nine hours a day for eight days and one eight-hour day over a two-week period. This totals 80 hours, allowing employees to take every other Friday off. 

9/80 Schedule Example:  

• Week 1: Work Monday through Thursday for 9 hours each day and Friday for 8 hours.  
• Week 2: Work Monday through Thursday for 9 hours each day, with Friday off.  

This schedule offers employees a three-day weekend every other week, enhancing flexibility and improving work-life balance.

While the basic structure remains consistent, businesses can adjust it based on operational needs as long as the 80-hour requirement within the two-week period is met.

How Does a 9/80 Schedule Impact Payroll & PTO?

Implementing a 9/80 schedule requires careful attention to payroll and PTO policies to comply with labor laws. 

Payroll Considerations  

One key factor is the pay period. If your company operates on a weekly pay schedule, you’ll need to switch to a two-week pay period. Otherwise, the split between 40 hours in one week and 44 in the next could inadvertently trigger overtime pay. For example:

• Week 1: 36 hours (4 days x 9 hours each).  
• Week 2: 44 hours (4 days x 9 hours, plus 8 hours on the first Friday).  

Accurate tracking is essential, as overtime laws differ by state, with stricter regulations in places like California. 

PTO Adjustments

Implementing a 9/80 work schedule affects how PTO is tracked and used, and employers need to adapt their paid leave policies to account for the longer workdays. Here are a few strategies to manage this transition effectively:

Under a 9/80 schedule, most workdays are nine hours instead of the standard eight, so employees will need to use nine hours of PTO to take a full day off. Employers can adjust their PTO policies to reflect this by:

• Increasing accrual rates: Ensure employees earn PTO at a slightly higher rate to account for longer workdays. For example, instead of earning 80 hours of PTO annually, they could earn 90 hours to align with the 9/80 schedule.
• Allowing partial-day PTO usage: Employees might only need to take a few hours off for appointments or personal matters. Policies should clearly state whether and how partial PTO hours can be used to cover absences.

Worried about the complexity and compliance of payroll and PTO management? Simplify the process by using an automated time-tracking system.

Pros and Cons of a 9/80 Work Schedule  

Like any flexible job schedule, the 9/80 schedule comes with benefits and challenges. While it can be a great option for small businesses looking to offer benefits on a budget, it also creates complexities in areas like payroll and scheduling. Understanding these can help you decide if it’s the right fit for your team.

Pros

• Boosts employee productivity: Longer workdays mean employees have more uninterrupted time to tackle big projects or deep-focus tasks. An extra hour in the day can make a huge difference in getting things done.
• Improves flexibility and work-life balance: Imagine having every other Friday off to recharge, take care of personal errands, or enjoy a long weekend getaway. Your team will appreciate the chance to prioritize their personal lives without compromising their work.
• Supports recruitment and retention: Flexible work schedules are a major draw for job seekers, especially in today’s market. Offering a 9/80 schedule shows you value their time and well-being.
• Eases commutes: Employees working a 9/80 schedule often commute outside of peak hours. Fewer traffic jams mean less stress and more time for what matters most.

In fact, numerous surveys show that people prioritize work flexibility when looking for a new role—with the “when” often trumping the “where.” The Economic Policy Institute explains:

“A 2021 survey by Workable found that 58% of workers surveyed valued the ability to work flexible schedules (Mackenzie 2023). A survey by Future Forum found that 80% of knowledge workers surveyed want flexibility regarding where they work, whereas 94% want schedule flexibility (2022). According to a Morning Consult survey conducted for Zoom, 81% of U.S. respondents said that flexible hours and schedules were top priorities (2023). A Gallup survey of service facing workers found that 31% of respondents valued flextime and the ability to choose when they worked. Further, the survey found that 33% of respondents valued flexible start and end times (Pendell 2023).”

And those are just a handful of statistics about flexible work schedules in recent years!

Cons  

• Longer workdays can be draining: Not everyone thrives on a nine-hour workday. Start with a test run by implementing the 9/80 work schedule with certain employees or departments. This will allow you to see how it works and smooth out any kinks in the schedule or payroll process.
• Scheduling challenges: Coverage on off-Fridays can be tricky, especially if your team provides customer support or needs to maintain business operations five days a week. It might require creative scheduling to ensure nothing slips through the cracks.
• Complicated payroll: Switching to a 9/80 schedule means you’ll need to adjust payroll systems, implement a two-week pay period, and track PTO more carefully. These changes can feel like a headache initially, but they’re manageable with proper tools and planning.
• Potential for uneven workload distribution: For some teams, the 9/80 schedule could result in uneven workloads. For example, employees who depend on collaboration might find their work delayed if key teammates are unavailable on their off-Friday.

While the 9/80 work schedule can have incredible results, it’s not a one-size-fits-all solution. Weigh these pros and cons carefully to determine if it suits your team—and then discuss the following with your leadership team.

Is a 9/80 Work Schedule the Right Fit?

Before implementing a 9/80 work schedule, assess your company’s needs and capabilities.  

Operational Considerations

Ask yourself and your leadership team:

• Does your staff size and workflow allow for this level of flexibility?  
• Can you maintain customer satisfaction with off-days in place?  

Industry Suitability

A 9/80 schedule is often ideal for industries where employees work at their own pace, such as tech, professional services, or creative roles. However, it may not suit fields requiring constant coverage, such as healthcare, retail, hospitality, manufacturing, construction, or other customer-facing roles/industries.

Employee Feedback & Test It Out

Involve employees in the decision. Start with a test run by implementing the 9/80 work schedule with certain employees or departments. This will allow you to see how it works and smooth out any kinks in the schedule or payroll process.

Consider Other Flexible Work Schedules  

If a 9/80 schedule doesn’t align with your business, other flex schedules may still meet your goals. For instance:

• Four-day workweek: Employees work four 10-hour days each week, another type of compressed workweek.
• Flexible hours: Allow employees to set their schedules, provided they meet deadlines and required hours.

These options can also boost employee retention and satisfaction while meeting operational needs.

Let’s Talk About Your HR Needs  

A 9/80 work schedule can be a game-changer for businesses and employees alike, but it requires thoughtful implementation. From adjusting payroll to revising PTO policies, there’s a lot to consider. If you’re unsure whether it’s the right fit—or want help exploring other alternative work schedules—BlueLion’s HR consultants are here to help.

Call us at 603-818-4131 or email info@bluelionllc.com to discuss the best solution for your business.

In his book, Wickman shares a story from a friend who delayed firing a long-time employee for months, which caused more stress. But once he finally decided to let the employee go, Wickman’s friend realized there were only 36 hours of pain carrying out the termination and managing the transition. Then it was over, and the business owner, his team, and the entire company were happier—and so was the person he fired. 

We’ve seen similar cases with many of our clients. These business leaders often see the writing on the wall for months and even years. They’ve done the documentation, performance improvement plans, coaching, and so on—yet still won’t pull the trigger to fire a problematic employee.

Why? Out of fear of turnover, how it will affect company culture, and repercussions like legal action.

In fact, this happened with one of our clients who had a long-standing employee that he’d been unhappy with for years. The employee had been unhappy for years, too. While the employer was practically sick to his stomach leading up to the decision and conversation, the termination meeting was over in less than an hour. Afterward, the client felt like a weight was lifted, and the rest of the team was happier!

Let’s dive into why small business owners simply can’t afford to procrastinate on firing employees—and when it’s time to have the tough but necessary discussion.

Why Do Employers Wait to Fire Employees?

So, why don’t bad employees get fired? The common culprits that we see preventing employers from terminating underperformers include: 

• Being uncertain of the outcome and if they’re making the right decision
• Afraid of blowback like lawsuits and reputational damage
• Effects on the rest of their team and company culture, resistance
• The cost of replacing them (which can cost between 30% and 200% of the departing employee’s salary)

And while we understand these concerns and taking the time to properly evaluate employee termination decisions, it’s simply not worth it! Recent research by Gallup shows that the global cost of disengaged employees has soared to $8.8 trillion annually. 

A former Gallup State of the American Workplace report found that disengaged employees have a 37% higher absenteeism, 18% lower productivity, and 15% lower profitability—which equates to the cost of 34% of a disengaged employee’s annual salary (that’s $3,400 for every $10,000 they make). 

You can see how quickly it adds up!

Embrace 36 Hours of Pain

Hopefully, you’re starting to see why “ripping off the bandage” is often a better approach when it comes to employee terminations. It will be uncomfortable for a short amount of time but positive for the long run.

You have a responsibility to the success of your company as well as your employees, customers/clients, and other stakeholders. Yes, you should ensure your planning, documentation, and communication around terminations are thorough and appropriate—but that doesn’t mean you should prolong the inevitable when you know what the right decision is.

Keep in mind that once you get through that 36 hours of pain, you’ll see a boost in employee productivity and satisfaction, making for a significantly improved work environment. 

Know When to Fire an Employee

So, how DO you know when it’s time to fire someone? You can typically find the answer by asking yourself these questions.

Have you put in the work and given them multiple chances?

In other words, you’ve thoroughly looked at why you’re unhappy with the employee and taken steps to support them and improve their performance. This could mean extra training, coaching, a performance improvement plan, or disciplinary action. Despite these efforts, however, the employee is not meeting expectations, and the situation is not getting better.

Are they costing your company productivity—and, therefore, money?

Whether the individual in question is underperforming due to a lack of skills or has an attitude problem, they’re affecting your bottom line. The stats above show that underperforming and disengaged workers can lead to significant productivity loss. This can have a major impact on profitability, which small businesses feel even more because they don’t have enough people to make up for the underperformer’s slack.

Has the position grown?

As businesses grow, so do roles and responsibilities. Perhaps the role has grown, and the employee can no longer fulfill your needs. If you’ve provided resources and development and even offered them opportunities to move laterally, yet it’s still not a fit, it’s time to move on. 

Would you hire them again?

Go with the first answer that pops into your head—if it’s no, then you probably shouldn’t keep them now. Hiring is challenging, which is why firing poor employees is even more important than hiring! Despite how well you interview candidates and what type of assessments you use, many still lie and embellish during the application and interview process. And sometimes, people simply change over time. So, if you wouldn’t hire the employee as they stand in front of you today, then it’s time to let them go.

Have you evaluated the risk?

If you’ve:

• Consulted with your HR and legal teams to ensure the employee termination is compliant (i.e., for just cause and non-discriminatory)
• Documented all efforts like performance reviews, coaching, and corrective actions
• Determined that you would terminate any other employee for the same issues

…then you’ve covered your bases—and you have one more sign that firing the employee is the best decision. It’s time to get your employment termination checklist in order and prepare for the tough conversation.

The Best Approach to Employee Terminations: Rip Off the Bandage

Delaying the termination of an underperforming employee may seem like a way to avoid discomfort, but it often causes more harm to your business in the long run. As Gino Wickman’s concept of “36 hours of pain” highlights, the short-term discomfort of letting someone go is far outweighed by the long-term benefits of a more productive, engaged team. 

If you’ve followed the right steps—evaluating performance, providing opportunities for improvement, and consulting with your HR and legal teams—you owe it to your company and your employees to take action.

If you’re struggling with when and how to make these tough decisions, BlueLion is here to help. Contact us today for expert guidance on navigating employee terminations with confidence and compliance.

The commission noted that noncompetes negatively impact the economy and workers by keeping wages low and stifling new ideas and businesses. They are common and often take advantage of workers by forcing them to either keep a job they wish to leave or take on “other significant harms and costs” (e.g., lower pay, relocation, being out of work, or costly legal battles).

Through the new rule, the FTC aims to provide Americans “the freedom to pursue a new job, start a new business, or bring a new idea to market.” The commission estimates that the noncompete ban will result in:

• 2.7% increase in new businesses formed annually—that’s more than 8,500 additional new businesses a year!
• $524 more per year in earnings for the average worker
• An average of 17,000 to 29,000 more patents each year

Get the details of the FTC’s new rule, who it affects, and your responsibilities and options as an employer below.

A Breakdown of the FTC Ban on Noncompetes

Most workers’ existing noncompetes will no longer be enforceable after the rule’s effective date, which is currently set for September 4, 2024. There is an exception for existing noncompete agreements with senior executives earning over $151,164 annually and in policy-making positions. Employers can keep these existing agreements but may not form or enforce new noncompetes with senior executives.

The rule will be retroactive, and employers will need to notify any applicable workers that their noncompetes will not be enforced against them in the future.

What is a Noncompete Agreement Defined As?

The FTC kept the language of the ruling broad, only specifically banning noncompetes. The ruling bans any noncompete clause or agreement that “prohibits a worker from, penalizes a worker for, or functions to prevent a worker” from finding work or starting a business in the United States.

However, it also notes that other restrictive covenants, such as non-disclosure and non-solicitation agreements, are also illegal when they are written broadly for the same purpose as noncompetes (i.e., preventing a worker from obtaining a job or starting a business in the same field).

What are the Exceptions?

The noncompete ban doesn’t apply to banks, savings and loan institutions, federal credit unions, common carriers, air carriers, foreign air carriers, and individuals and businesses subject to the Packers and Stockyards Act. Nonprofits are another exception, as the FTC only has authority over for-profit businesses.

Are Noncompetes Currently Banned?

Not yet, the rule will not go into effect until September 4, 2024—120 days after it was published in the Federal Register. However, there have already been several lawsuits challenging the ruling, which has raised a significant question: Does the FTC have the authority to regulate noncompetes, which have historically been regulated by state law? 

These challenges could extend the rule’s effective date or prevent it from ever going into effect at all. So, what should you do about noncompete agreements now?

Next Steps for Employers

If noncompetes are part of your new hire onboarding paperwork at all, you should stay tuned for updates regarding the rule. Employers have a few options for preparing for the potential noncompete ban.

• Operate as business per usual: Since the rule is not effective yet and the legal challenges are likely to draw it out, you can continue doing what you’re doing while keeping an eye on changes. Either way, all employers should use noncompetes, non-solicits, and non-disclosure agreements with caution, as many states are restricting their use.
• Implement changes today: Move forward as if the rule will go into effect on September 4, 2024, by updating employment agreement templates to remove noncompete clauses. Limit the use of nondisclosures and non-solicitations along with any other similar clauses or agreements that could inhibit workers from finding new jobs or starting a business. Prepare notices informing employees that their noncompetes will be unenforceable—you’ll want to send these before the effective date, but.
• Use an in-between solution: Continue using noncompetes with senior executives and other highly compensated employees. It’s possible the legal challenges will result in a modified version of the FTC ban on noncompetes that will treat workers of different levels accordingly.

Keep Up with the Latest on Noncompete Agreements

With the effective date approaching and several lawsuits pending, the final turnout is still unclear. We recommend that all employers monitor the progress of the noncompete ban and use these agreements sparingly. Since this is an evolving topic that will impact many of our clients, we will continue sharing updates here as well, so be sure to check back!

Do you have questions about noncompetes or other employment agreements? Contact BlueLion today at info@bluelionllc.com or 603-818-4131 for guidance!

Unfortunately, we’ve seen many employers and labor organizations make mistakes in this area, often because they are unaware of crucial employer obligations and union rights, like Beck rights. So, let’s take a straightforward, non-sugar-coated look at what you can, cannot, and must do regarding union agreements.

What is a Collective Bargaining Agreement?

When a workplace unionizes, the CBA is an essential early step. Typically, leadership, HR, and legal counsel negotiate with the union representatives to develop this contract, which outlines requirements and protections for both parties. It usually includes terms and conditions of employment, including:

• Wages
• Hours and breaks
• Benefits
• Dispute resolution and disciplinary action procedures
• Anti-discrimination laws

The CBA should be as clear and specific as possible and note the agreement’s validity period. Learn more about labor union agreements.

Types of Union Security Agreements

Whether your employees want to unionize or have already done so, you probably already know that unions are anything but black and white. For instance, there are several types of union security agreements. 

A union security agreement is typically part of a CBA. It is a contract between an employer and a labor union that outlines the extent to which the union can require employees to join the union and/or pay union dues as a condition of employment. These agreements aim to help ensure stable union membership and funding, supporting the union’s ability to represent and negotiate on behalf of the workforce. The specifics of these agreements vary and are subject to state laws, particularly in right-to-work states where such mandatory provisions are restricted.

The most common types of union security agreements are:

• Closed shop: Employers may only hire union members, which means new employees must already be union members before being hired. Closed shops have been illegal since the Taft-Hartley Act of 1947. 
• Union shop: Employees don’t need to be union members to be hired but must join the union within a specified period after starting their job. This is common in industries with a strong union presence but is subject to legal limitations, especially in right-to-work states.
• Agency shop: Employees aren’t required to join the union but must pay a fee (often called an agency fee) to cover the costs of collective bargaining and other representational activities. 
• Open shop: Employees are free to join or not join the union without any impact on their employment—meaning union dues and fees are entirely voluntary. This is predominant in right-to-work states.
• Maintenance of membership: This clause requires employees who join the union to remain members for the duration of the collective bargaining agreement, although new employees are not required to join.

Right-to-Work vs. Non-Right-to-Work States

Currently, 27 states have right-to-work laws, meaning employers cannot require employees to join a union or pay union dues as a condition of employment, even if their workplace is unionized. However, the CBA still protects all workers.

In a non-right-to-work state, on the other hand, employees may be required to join a union and pay union dues or fees as a condition of employment if their workplace has a union security agreement.

Note that exceptions may apply to public service employees. For example, although New Hampshire is a non-right-to-work state, public service employees can’t be required to join a union. So be sure to check your state’s union laws regarding public service workers and other specifics.

Today, it’s common to find companies where management employees are not union members but floor workers are. Whatever type of agreement you establish, you must understand what you can and can’t include in a CBA and require of employees. 

A good rule of thumb? You can add clauses to the CBA that provide additional benefits to union workers, but you may NOT attempt to supersede labor laws and take legal benefits away. For example, employers can’t state that certain employees are not eligible for overtime pay when they would be entitled to it according to wage and hour laws.

Beck Rights: How Do They Impact Union Rights & CBAs?

As explained earlier, unions entail regular dues, which go toward two broad expense categories: 1) collective bargaining and representational activities and 2) additional tasks and services (e.g., political activities). 

So, what are Beck rights, and how do they impact labor laws and CBAs? Thanks to the 1988 case Communications Workers of America v. Beck, the National Labor Relations Act (NLRA) prevents unions from requiring employees to become full union members. Employees can object and become “core” members, paying specifically for representation costs. The union contract still protects these workers.

Beck rights vary between states and unions, but generally, employers:

• Can require staff to pay partial dues (if located in a non-right-to-work state)
• Must notify employees of this choice and explain how union dues work if they opt out
• May NOT require workers to join the union fully
• May only use core members’ dues for representational costs, NOT political activities (if located in a non-right-to-work state)

Remember, if your business is located in a right-to-work state, employees can choose to either pay partial dues or not join the union at all. 

Understanding Union Rights & Employer Obligations

Navigating CBAs and union security arrangements can be tricky, but understanding the basics is vital for any employer with unionized staff. Different types of union security agreements affect how unions operate and what’s required from employees. 

In right-to-work states, employees can choose whether or not to join a union or pay dues, while union membership and dues might be required in non-right-to-work states. Plus, Beck rights also allow employees to opt for partial union membership, covering only representational costs.

Staying informed about these rules helps employers create fair and effective agreements that respect everyone’s rights. By doing so, you’ll foster a positive workplace and ensure compliance with labor laws.

If you need guidance from HR consultants with a significant understanding of union rights, contact BlueLion today at 603-818-4131 or info@bluelionllc.com. We’re happy to help you in this complex area!

What are the increases, and what do they mean for both employees and employers? The final rule will impact about a million salaried executive, administrative, professional, outside sales, and computer employees come July 1 and another three million as of next January. This gives employers a lot of planning and budgeting to do in the meantime. Plus, the change includes a bump in the total annual threshold for highly compensated employees. 

Find everything you need to know about the DOL’s new overtime rule and what you should consider in the coming months. 

What are the New Overtime Rule Salary Thresholds?

Currently, the minimum salary for executive, administrative, and professional (EAP) employees to be exempt from FLSA minimum wage and overtime pay protections is $684 per week or $35,568 per year. This will increase to: 

• $844 per week (equivalent to $43,888 per year) as of July 1
• $1,128 per week (equivalent to $58,656 per year) as of January 1, 2025

The new overtime rule will also increase the salary threshold for highly compensated employees (i.e., those not entitled to overtime pay under the FLSA if they meet certain requirements) from $107,432 per year to $132,964 per year on July 1 and then to $151,164 on January 1, 2025.

These changes will impact not only typical overtime but also weighted overtime calculations. If you have employees who fill multiple roles and have multiple pay rates, now is the time to start planning and adjusting.

When is an Employee Exempt vs. Nonexempt?

Need a refresher on exempt vs. nonexempt employees? Nonexempt employees are paid hourly or do not meet the minimum salary thresholds listed here. They must be paid for all hours worked and any overtime (i.e., hours worked beyond 40 hours each week). Overtime must be paid at 1.5x their hourly rate.

Exempt employees are not entitled to overtime and/or minimum wage provisions set by the FLSA. Exempt employees usually hold executive, administrative, or professional roles. These employees must qualify for the EAP exemption, which is met when:

• The employee is paid on a salaried basis
• The salary is not less than the minimum salary threshold amounts listed above
• The employee’s primary duties are executive, administrative, and/or professional 

While the DOL states that it’s on the employer to determine whether the EAP exemption applies, you can generally use these guidelines: 

• Executive exemption: Their primary duties involve managing two or more full-time employees or their equivalent. They have the authority to hire or fire employees, and their recommendations regarding hiring, firing, advancement, or promotion hold particular weight (e.g., managers and supervisors).
• Administrative exemption: They perform office or non-manual work directly related to the management or general business operations and must exercise discretion and independent judgment (e.g., HR personnel or financial analysts).
• Professional exemption: Their primary duties require advanced knowledge in a particular field, prolonged, specialized education and/or invention and originality, and the consistent exercise of discretion and judgment.

What Other Changes Come with the New Overtime Rule?

Between 1938 and 1975, the DOL increased minimum salary thresholds every five to nine years. These periods became longer after 1975, meaning the salary threshold became less effective at helping qualify exempt EAP employees. 

As part of the DOL’s new overtime rule, they state the eligibility thresholds will be updated every three years starting July 1, 2027. The department says this ensures the minimums will “keep pace with changes in worker salaries, ensuring that employers can adapt more easily because they’ll know when salary updates will happen and how they’ll be calculated.” 

How Should Employers Handle the New OT Rule?

You’ll need to remain compliant as the new overtime rule goes into effect. However, as a small business owner, it may not be wise or financially feasible to give all affected exempt employees a raise to ensure they still qualify as exempt under the FLSA. And remember, it’s not only about the earning level—the worker also has to be paid on a salaried basis and perform exempt job duties, as explained above.

So, as you prepare for these increases to take effect and before you jump into any decisions:

• Evaluate current employee classification. Determine if they meet the updated salary threshold for overtime pay exemption. Check each team member’s salary level and primary job duties to ensure compliance with the new regulations. 
• Identify impacted employees. This means those who currently fall below the new salary threshold and are classified as exempt but may now be eligible for overtime and need to be reclassified from exempt to nonexempt status. 
• Assess the potential cost implications on your organization. That means payroll expenses, budgetary considerations, and overall labor costs. Do you need to make adjustments to accommodate overtime pay? 
• Consider compensation adjustments. Does it make the most sense to increase salaries to maintain exempt status? Can you adjust work schedules to minimize overtime hours or implement alternative compensation structures? Note that having more nonexempt employees could complicate your administrative responsibilities and software needs regarding employee timekeeping.
• Communicate changes transparently. If employee classification or compensation changes will occur, communicate them clearly and as soon as possible. Explain the reasons for the changes, how they’ll be implemented, and how they may impact affected employees.
• Review overtime policies and procedures. Update them to reflect any changes in employee classification or compensation resulting from the new overtime rule, and ensure they are clearly defined and consistently applied. Remember to train employees (especially newly nonexempt people) in areas like time tracking, rest and meal breaks, and overtime approval.
• Train managers and supervisors. Ensure those in leadership roles understand the updated regulations, employee classification criteria, and overtime policies. This will help maintain compliance across the organization, maintain morale, and prevent dissatisfaction and turnover. 

Know Your Overtime Regulations

If you have two or more employees and your business makes yearly sales of at least $500,000, it is covered by the FLSA, meaning you must provide overtime pay to nonexempt employees. Your state may also have specific overtime laws, even if you’re exempt from FLSA requirements.

Simply put, you should understand overtime pay rules and how they’ll affect your business and workers!

But we get it—these approaching increases are significant, so you may be wondering what the best strategy is for adjusting employee compensation and classification and communicating these changes with your team. If you want a partner to help you navigate this challenging matter in the coming months, contact BlueLion today at 603-818-4131 or info@bluelionllc.com to learn how we can help.