In Part I of “Getting the Most Out of Your Employee Performance Review Process” we covered an overview of the benefits to an employee appraisal program. In Part II, we discussed a few common methods for getting the most of your program. In Part III, we provided you with employee performance review tips and strategies that will help the process proceed smoothly. In Part IV, we focus on goal setting and employee performance measurement.

Employee Performance Review: The Goal Setting Process

One of the most important benefits of the employee performance review is the goal setting process. It keeps the employee focused on their goals for the coming year with periodic milestones to measure progress. The manager needs to take into account the employee’s ability, skill level, and potential to form concise, measurable goals that further the company’s agenda. For many managers, the SMART process provides them with the tools needed to formulate professional development goals.

SMART – Specific, Measurable, Acceptable, Realistic, Time Bound

• Specific – The goal must be specific in order for a manager to realistically appraise the result. Setting a sales goal of “getting more customers” is difficult to measure while targeting “10 new customers” is specific.

• Measurable – Using the example above, it can be argued that the employee achieved their goal of “getting new customers” if they acquire at least two new customers. However, if the goal was acquiring “10 new customers” then they have fallen well short of the mark.

• Acceptable – To ensure that the goal is acceptable to the employee it is important to involve them in the goal setting process. Participation allows them a say in both their personal and professional development.

• Realistic – The goal must be attainable within the time period stipulated. An unrealistic goal will only cause frustration in the long term.

• Time-Bound – There must be a deadline to attain the goal.

Once the goals are set it may be wise to set a series of quarterly or monthly milestones. This allows managers to keep track of progress and help with any issues that have arisen. In addition, the manager must ensure that the employee is given the resources to achieve the goals. This could include resources such as training, equipment, and staff.

An effective employee performance review is a collaborative event where employer and employee agree on past performance and goal setting for the coming year. If performed effectively, it matches employee goals and aspirations to the needs of the company.

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In Part I of “Getting the Most Out of Your Employee Performance Review Process” we covered an overview of the benefits to an employee appraisal program. In Part II, we discussed a few common performance review methods for getting the most of your program. In Part III, we provide you with employee performance review tips and strategies that will help the process proceed relatively smoothly.

Managers Are the Key to Effective Performance Reviews

The reviewing manager must effectively evaluate the employee’s past performance, provide constructive feedback, and set clear expectations for the coming year. For these reasons, managers are the key to effective performance reviews. The problem is that managers who perform this function once a year never have the opportunity to become efficient with the process. An annual refresher course on how to conduct effective performance reviews by human resources may alleviate this problem.

There are other issues to remedy however. An annual review has managers reaching back in memory when trying to gauge employee performance over the course of the year. This can result in key performance issues being forgotten or skewed due to the effect of time. A manager may take an overall impression of the employee and apply it across the board without regard to actual performance or employee development. Or they may “cherry pick” certain performance indicators and make an overall assumption based on the results. So, how does a manager resolve these issues?

Employee Performance Review Tips and Strategies

• For starters, don’t let the formal annual review process get in the way of effectively communicating with employees over the course of the year. Ongoing dialogue and written communication leaves no doubt about what is expected from both the employee and manager.

• Allow some time between the formal review and the actual submission. This allows you and the employee time to digest the information discussed and come back with questions and clarification.

• Schedule the review ahead of time (no surprises like “Hey, its review time, let’s go) and be sure to explain the process that will be followed.

• Identify problem areas in advance and allow the employee time to prepare a response. Also, don’t start off the meeting discussing problem areas or you risk losing positive interaction with the employee.

• Have employees prepare their own performance review in advance of the meeting. It gives an added perception to the performance appraisal.

The employee review process should be designed around employee development and not just a rating system with a pay raise. To get the most out of employees you must inspire them to perform at a high level. It’s a win-win situation when the employee’s goals and the goals of the company are in sync. In Part IV, we are going to discuss employee goal setting and performance measurement.

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In Part I of “Getting the Most Out of Your Employee Performance Review Process” we covered an overview of the benefits to an employee appraisal program. In Part II, we discuss a few common methods for getting the most of your program.

There is more to the employee performance review process than providing and obtaining feedback. Accenture’s report “Mastering Workforce Performance Appraisal” states that “developing accurate behavioral performance criteria can raise an organization to new performance heights, as increasing the quality of performance criteria can boost the impact of several HR processes.” The question is; how do we reach those new performance heights through our employee appraisal model?

The Employee Appraisal Model

For many companies, the performance review is an annual ritual that measures the employee’s performance and issues a pay raise commensurate with that performance. But is that really enough communication between two parties whose goals are so tightly woven together? Or should there be milestones set with more frequent mini-reviews throughout the year in quarterly or monthly intervals? It need not be a lengthy review but simply a progress report to help ensure that employee goals are met or that corrective action needs to be taken.

An effective employee performance review process may look something like this:

• Develop professional and personal development goals with the employee
• Split those goals into quarterly milestones
• Further divide them into monthly objectives and establish progress updates
• Review employee performance annually and set new objectives for the coming year

I realize for many managers this may seem like a lot of extra work in an already full schedule but results are what are important. It takes a lot less time to explain how your department achieved its goals than to come up with excuses as to why it didn’t. A manager who doesn’t achieve their departmental goals may be susceptible to additional supervision from their boss as well. Take the time with your employees, achieve your departmental goals, and open yourself up to being a results-oriented, promotable manager.

Employee Appraisal Methods

Two of the more popular employee performance review methods are Management-by-Objectives and the 360-degree appraisal method.

Management-by-Objectives (MBO) is a performance appraisal method that sets annual goals for each employee and measures the results of attaining those goals. It attempts to marry the employee’s personal goals with the objectives of the company.

360-Degree Appraisal is a performance review method that obtains feedback from various sources including other departmental managers, peers, suppliers, and customers. This type of performance review provides managers with an overview of how the employee operates within the total organization.

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In Part III, we’re going to discuss performance review tips and strategies and Part IV will provide goal setting strategies and measurement.

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Most business owners and managers agree that the performance review process is a necessary component of the employer/employee relationship. Some companies opt for the annual employee performance review while others perform it more frequently such as quarterly and even monthly. While most managers understand the benefits of the process, there are many who do not look fondly on it. That poses the question: Are companies taking full advantage of the employee performance review process and all of its benefits or are they just going through the motions? In this 4-part series of posts we’re going to cover the benefits of the employee review process and how to get the most out of it.

Overview: Employee Performance Review

In Accenture’s report ‘Mastering Workforce Performance Appraisal’ the authors state that “the quality of an organization’s performance appraisal system has a profound impact on human capital development because performance appraisal is the bedrock of many other human capital processes. Processes such as career development, succession planning and rewards and recognition are dependent upon performance appraisal information.”

In addition to human capital development, the report suggests that the performance appraisal process is a key strategy for high performance achievement. It allows for companies to retain, develop, and promote productive employees that fit within the corporate culture. At the same time, weaker employees can be transitioned into more suitable positions, offered training and development, or let go.

The performance review also offers the opportunity to establish a goal-setting process for the employee. The employee and manager review goal achievement from a prior performance review and set goals for the future. It is the manager’s job to transform the employee’s personal and career goals into company results.

Benefits of the Employee Appraisal

There are numerous benefits to administering an employee performance appraisal. They include:

• Employee and Employer Feedback
• Identifying Employee Training and Development Requirements
• Basis for Personnel Decisions including wage increases, bonuses, promotions, and disciplinary actions
• Assists with Career Development
• Provides a Record of Employee Performance History
• Establishes Employee and Organizational Goals
• Helps Meet HR Legal Requirements
• Establishes Job Standards

Although there are many benefits to the employee performance review process, I believe the one that stands out is employee development. For a company to succeed, not just now but well into the future, it must develop its employees to the best of its ability. That’s how successful companies are built.

In Part II, we’re going discuss a couple of performance review methods and some ideas on how to achieve the best results from them. In Part III, we’re going to discuss performance review tips and strategies and Part IV will provide goal setting strategies and measurement.

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Payroll Series Part 4 0f 4

When you are starting or expanding a small business there comes a time when you must hire employees to take on some of the workload. While many entrepreneurs believe they can do it all, the long hours can begin to take its toll on your stress levels. There are a few items that need to be considered with the type of payroll system you are going to use at the top of the list.

Choosing a Small Business Payroll System

A small business payroll system involves making several decisions as to the format of the process. Here are a few questions to answer in order to get you started.

• Will you be paying employees by the hour or with a salary? This will depend a lot on the type of work they are performing. Production workers are generally paid by the hour while support staff tends to draw a salary. No matter what you decide overtime rules apply to both hourly and salary. There are no hard and fast rules here so decide which option works for you.

• If you opt for hourly workers then you’ll need to decide on how they will report their hours.

• How often will you run the pay cycle? Pay cycles in the United States can run weekly, biweekly, twice a month, or monthly in most states. Consider how you expect your cash flow to run when deciding this process. The longer the pay cycle, the more time you have to receive payments from your customers. Note that some states require that withholding taxes are to be paid more frequently than once a month so be sure to check with the tax authorities before choosing a monthly pay cycle.

• What will your overtime pay policy contain? All employers must at least follow Federal guidelines for paying overtime. Some states have more stringent rules so check the state rules for paying overtime in your jurisdiction.

• Will you be providing paid time off? This includes sick time, personal days, statutory holidays, bereavement, and vacation time.

• What benefits are you going to offer? Are they going to be fully funded by the company or are deductions from employees required? Benefits such as health, dental, and 401(k) require written authorization from the employee in order to be legally deducted. This is also true of wage garnishments, property, and employer loans.

Processing Payroll

Once those questions are answered, the next step for a small business owner is to decide how the payroll will be processed. There are a few options to consider and with the complexity of the payroll process in our times its ideal that there are so many choices to consider.

• Professional Employer Organization (PEO) – is an outsourcing firm that handles hiring, payroll, benefits administration, and withholding tax submission. These firms handle the details while the small business owner grows the business.

• CPA or Bookkeeper – will in some cases process the payroll for small businesses.

• Payroll Software – there are many excellent software programs that can be implemented to process payroll. The downside is that you require an employee to run the software including data entry, printing checks, direct deposits, and calculating and remitting withholding taxes.

• Online Payroll Processing – is a fairly new way to process payroll. Again, you require an employee to enter the data into the system but the actual processing is done by the supplier of your choosing.

Once you have answered these questions and decide on a course of action then you can get to work on finding key employees.  The payroll process is not something to take lightly as there can be serious repercussions from federal and state tax authorities if things go awry. If the thought of all this makes your head spin a little then a PEO may be your best option.

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Payroll Series Part 3 of 4

In Part I of “Understanding the Payroll Process for Small Business” series we discussed the necessary documentation required in order to hire employees in the United States. In Part II we looked at the various withholding and employer taxes that the small business owner is responsible for deducting and recording. In this post we are going to cover the necessary government reporting that must be done for the various taxing authorities.

Reporting Payroll Taxes to the IRS

In addition to depositing the appropriate payroll taxes to government agencies it is the responsibility of small business enterprises to file various tax reports as well as Worker’s Compensation. The reporting requirements include:

• Form 941 – Employers Quarterly Tax Return
• Form 940/940EZ – Federal Unemployment Tax Act (FUTA) Return
• Form 945 – Annual Return of Withheld Federal Income Tax
• Form W-2 – Wage and Tax Statements
• State Worker’s Compensation
• State and Local Tax Authorities – Depends on your area(s) of operation. For example, Arizona requires the quarterly filing of the A1-QRT and UC-018 as well as an annual A1-R. So be sure to check with state tax authorities.

Form 941 – Employers Quarterly Tax Return

This report is filed with the IRS detailing the withholding taxes payable for each employee, the amounts paid, and those still owing. Social Security and Medicare deductions are also included in this report.

Form 940/940EZ – Federal Unemployment Tax Act (FUTA) Return

This report, filed with the IRS, details the unemployment deductions made from each employee, the amounts paid to date, and the amounts owed. These two reports have been simplified (as much as the IRS can simplify things) and combined into one report. For those who have filed a Form 940EZ in the past you will now use Form 940.

Form 945 – Annual Return of Withheld Federal Income Tax

This filing reports all non-payroll deductions withheld for payment to the IRS. It includes backup withholding taxes, pensions, annuities, and IRAs among others.

Form W-2 – Wage and Tax Statements

Small business employers are also responsible for filing a Form W-2 for each employee in the organization. It must be issued to the employee by January 31st based on the previous year’s income. If an employee’s income is earned in more than one state then it must be broken down into amounts earned in each jurisdiction. Form W-3 is a summary of all of the data reported in the W-2 forms.

State Worker’s Compensation and State and Local Taxes

Be sure to check with state and local tax authorities for regulations in your area(s) of business operation.

As you can see, the tax authorities don’t make it easy to be in compliance when it comes to payroll taxes and reporting. And any errors can come back to haunt the small business owner in the form of interest and penalties so be sure to find the best solution for your payroll needs.

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Payroll Series Part 2 of 4

In Part I of “Understanding the Payroll Process for Small Business” we discussed the legal forms that are necessary to be filled out upon hiring a new employee. In Part II we are going to delve into deducting and processing payroll withholding taxes. While the responsibility of filling out the various forms falls to the new employee, it is the employer’s responsibility to withhold and remit the various withholding taxes to the proper taxation authorities.

The key phrase for handling these taxes is ‘attention-to-detail’ – you need to get it right to prevent interest and penalties being assessed.

Withholding Taxes for Small Business Payroll

There are basically five types of employee withholding taxes that the small business owner must be concerned with. In some cases, there are employer taxes to be paid in conjunction with the employee portion which we will cover further on. The five types of withholding taxes include:

1. Federal Income Tax
2. FICA Tax – Social Security and Medicare
3. Federal Unemployment Tax Act (FUTA)
4. State Unemployment Insurance (SUI)
5. State Income and Other Local Tax

Each pay period will have you deducting taxes from each employee at the federal, state, and local levels. These amounts will be cumulatively accrued or recorded into payroll tax accounts until it comes time to pay them. In addition, the employer must also calculate and record the company portion of employee taxes such as Social Security, Medicare as and Unemployment Insurance. Worker’s Compensation is calculated for each employee and is a burden to the employer as opposed to a payroll deduction. Be aware that some of these taxes are payable at both the state and federal levels. Other deductions such as healthcare insurance, 401(k) plans, and life/accident insurance are also deducted, recorded, and paid where applicable.

Remitting/Paying Taxes to the Government

How often you have to remit taxes to the government is based on the amount of your company payroll. Federal, State, and Local taxing authorities will determine the frequency of payment although, in most cases, it will be semi-weekly at the federal level. Many states require you to deposit taxes on the same schedule as at the federal level but be sure to check with state tax authorities.

Late payments will result in an automatic penalty of up to 10% of the amount due and non-payment can result in a penalty up to 100%. Be sure to keep these funds separate from your general cash accounts so that payment can always be made when they become due. A separate bank account for withholding taxes is always a good idea.

Federal taxes are the easiest to handle when it comes to recording and remitting amounts due. Local and state taxes can be a little more complicated even if you operate in only one locality. If you operate in several states and localities then the record-keeping and payments become a much more complicated process. The good news is that the whole process can be outsourced at an affordable rate allowing the small business owner to concentrate on doing what they do best…growing their business.

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Payroll Series Part 1 of 4

It’s not easy launching a new business or expanding an existing one. But with careful planning and execution, the business plan will fall into place. A key component of any small business with employees is the payroll function. Although payroll is not complicated in itself, it requires a significant amount of attention to detail. Your employees need to be paid correctly and the various levels of government, of course, want their share. And they want the correct amounts each and every time. So, we’re about to embark on a 4-part series of blog posts to take the small business owner through the payroll process.

Getting Started with Small Business Payroll

Before you begin hiring employees, you must determine the type of entity that you want your company to operate under. There are payroll tax issues that must be considered for LLCs operating as sole proprietorships or partnerships. The right organizational structure for your company can help keep your payroll tax obligations to a minimum. A PEO can advise you on the best strategy for your circumstances.

The first step that needs to be taken when hiring new employees is to obtain an Employer Identification Number (EIN) from the IRS. You may have already registered for this number during your business start up, however, if you don’t have one you can obtain this by filing an SS-4 or by applying online on the IRS website.

Once you have taken care of obtaining your EIN then you can begin to hire new employees. As with all things in regards to government there are a few forms that need to be filled out by each new employee. Although the IRS legally requires you to have new hires fill out these forms, they also serve to protect your business from potential tax liabilities in the event of falsified information. So, without further ado, here they are:

• W-4 Form – All U.S. employees are required to fill out this form in order to inform you, the employer, how much federal income tax to withhold. Just a quick note here for you to refrain from giving advice to an employee on filling out the W-4 form to protect your business from any future tax liability in the event of an error.

• I-9 Form – This form verifies that the employee is authorized to work in the United States. In addition to completing the I-9 form, each new hire must provide documentation in regards to their identity and U.S. employment eligibility. A passport, green card, driver’s license, and Social Security cards are some of the eligible documents required.

• State and Local Taxes – You will also have to check with state and local governments in order to withhold and remit taxes based on the legalities of your locality.

Human Resource Policies

To prepare for new employees joining your organization you’ll need to have some procedures in place in order to integrate them into the company culture. Here are a few Human Resource issues to consider in order to get you started:

• Job Applications
• Employee Handbook
• Background Screening
• Drug Testing
• Employee Assessments

These initial steps will set you up to hire new employees for your small business. If it appears a little daunting then a consultation with a Professional Employer Organization (PEO) can ease the pain and help prevent any slip-ups along the way. In the ensuing posts we’re going to cover the withholding taxes in more detail due to the fact that interest and penalties due to error can financially bury a new enterprise. We’ll then move into making the critical payroll setup decisions, tools to process payroll, and various report filing legalities. So, stay tuned.

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Putting guidelines in place is the best way to eliminate any misunderstandings that may arise between employees and management because of a lack of understanding of management expectations.

Clearly written policies will also go along way when addressing issues such as inappropriate behavior, or poor performance.

Employee policies do not need to be long or complicated tomes. A few clearly written sentences that highlight your expectations is all that you need.

Although there are many policies that may be part of a company’s employee manual, there are nine employee policies that are important policies for any small business:

1. Probationary Period
2. Confidentiality Policy
3. Time Away From Work
4. Use and Access of Company Property
5. Internet and Social Media Use in the Workplace
6. Telecommuting Policy
7. Workplace Behavior
8. Disciplinary Policy
9. Termination Policy

Over the next several weeks, I will highlight each of these policies in detail as part of my “Small Business Employee Policies” series.

Dianne Shaddock is the Founder of Easy Small Business HR.com, a website which provides “Quick and Simple Human Resources Strategies for Small Businesses, Non Profits, and Entrepreneurs. Go to EasySmallBusinessHR.com for more tips on how to hire and manage your staff more effectively.

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Don’t:

Leave the task to someone who does not have direct supervision of the worker being fired. If you are their direct supervisor, you have the ultimate responsibility to deliver the “bad news”.

Why? Not only does it put the person who does not supervise the employee in an unfair and uncomfortable position of being the messenger of your decision, but it makes the affected employee feel dismissed, angry and resentful. Sit with your employee and be clear with them as to why they are being fired. If you have been communicating with your worker prior to notifying that they will be let go, (and I hope that you have), the fact that you have reached the point where they will be fired should not be a surprise to them.

Don’t:

Fire an employee on the spot unless the actions are so egregious that it requires immediate removal from the workplace.

Why? It is critical to be consistent with how you determine what acts of employee conduct or misconduct rise to the level of firing an employee. All businesses no matter how small should have basic standards in place that highlight your expectations relating to employee conduct or behavior in the workplace and the consequences of violating these standards. Firing an employee without having company standards in place that show that you have specific expectations of employees and their behavior complicates situations where an employee feels that they have been treated unfairly.

You should always investigate all situations that are brought to your attention whenever possible. This means talking not only to the employee in question, but any other staff members, customers, or clients who may be able to provide details that will inform your decision to keep or fire the employee.

If you don’t have any standards or policies in place, the best approach for firings involving less complicated work violation situations may be to give the employee a warning that their actions are inappropriate and then clearly highlight your expectations moving forward. Let them know that any future violations will result in termination. Document the date that the employee received this information and place a note in their file.

Be proactive and summarize your expectations of all employees in writing including the consequences for misconduct. Give a written document to all of your employees that highlight your expectations. Employees deserve to know what is expected of them, as well as the consequences of certain actions or behaviors in the workplace.

Do:

Fire workers who have crossed the line of what is considered egregious inappropriate behavior if you are absolutely certain based on the facts that the employee is guilty of misconduct. Behaviors that might require immediate dismissal if proven are:

• Violence against others
• Sexual harassment
• Threats
• Bringing weapons to work

Remember to be proactive and have written standards in place that highlight the company’s position on employee conduct and behavior. Be careful to fully investigate any complaints before making the decision to fire a worker. If you are not sure if a worker is guilty of any violation and you need time to learn more in situations such as the ones described above, suspend the employee with pay until you are able to research the situation and talk to all of the individuals involved.

Do:

Respect the privacy and confidentiality of everyone involved by meeting with your employee(s) in a private area; (it’s o.k. to have a management person present if appropriate as a witness).

Do:

Tell your employee the reason for the termination. Have a letter prepared briefly summarizing the reason for their being fired, the date of the firing and when their benefits will end, (if applicable).

Give your employee their last paycheck if at all possible when you notify them that they are being fired. If this is not possible, let them know when they can expect to receive their last check and that it will be mailed to their home.

It is recommended that you consult with an employment law attorney if you do not have a dedicated human resources professional in place to help you through these more complicated situations.

Dianne Shaddock is the Founder of Easy Small Business HR.com, a website which provides “Quick and Simple Human Resources Strategies for Small Businesses, Non Profits, and Entrepreneurs.

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