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”Rates: The opportunity to hire an individual™s friend or past acquain-
tance can diminish the motivation to negotiate a fair market rate for
the services to be rendered. By having HR negotiate the rate, man-
agement can be better assured that a reasonable rate was negotiated
through this segregation of duties.
”Employment status: Very few managers are familiar with the tests to
determine if a person can qualify as an independent contractor.
Through its training, the HR department is best qualified to deter-
mine whether a person who wants to be treated as an independent
contractor meets sufficient criteria to qualify for such status. Failure
to properly classify such personnel may result in significant claims
for overtime, benefits, taxes, and other perquisites to which employ-
ees may be entitled long after their temporary assignment has ended.
If not accounted for properly, significant penalties may be assessed.
”Purchase order control: To ensure firm control over the use of inde-
pendent contractors and consultants, it is best to use a purchase order
that clearly spells out the terms and conditions of the assignment in-
cluding the commencement date, due date, deliverables, rate of com-
pensation, and the maximum amount of money authorized under the
agreement. The topic of recruiting is covered in depth in Chapter 11.

Performance Evaluations
One of the most important managerial tools used in the professional services
firm is the performance evaluation process. Legal review and approval of
forms used in the process can significantly improve the firm™s position in a
legal action, but only if the forms are used on a regularly scheduled basis. In
general, it is the HR department™s responsibility to distribute such forms
and follow up with managers/supervisors to ensure the form is completed in
a timely manner and reviewed for content before being discussed with the
employee. That review should ensure that all statements made, particularly
those that may not be well received, are supportable and written in such a
manner that would not create a potential legal liability.
Employee performance should be evaluated formally at least once a year,
with at least one or two feedback points made during the year. Some firms
stagger their evaluation process to coincide with the employee™s anniversary
while others conduct them in batches once or twice per year. Either way may
be used based on management™s personal preference; however, the critical
factor is to ensure that at least one written evaluation is given to every
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Finance, Accounting, and Human Resources

employee at least once per year, with a signed copy placed in the employee™s
personnel file. Done properly, this is one of the simplest ways to improve
performance and morale. Employee appraisals and career tracks are covered
in depth in Chapter 9.

Layoffs/Reduction in Force
The decision to lay off a significant number of workers is always a difficult
task. Invariably, such decisions become muddled with personal conf licts,
performance issues, and, simply, who likes whom. Life-altering decisions
made by managers who are under a tremendous amount of stress subject the
firm to increased risk of liability. Before “the list” of names of employees to
be terminated is assembled, the firm should fully evaluate its revenue and
expense forecasts and ensure that it has identified not only its most likely
projection, but also its best and worst cases. Layoff plans should be devel-
oped around all three of these scenarios so that management can build as
much of a holistic plan as possible. It is important that staff remaining after
the action is taken be confident that the worst is over, and are enthusiastic
about pulling together and moving forward.
Key points in the layoff process include:

• Keep the list confidential. Only those who absolutely need to know
should be involved, and great care should be taken to shield irrelevant
information (e.g., a manager may see only a layoff list of people he or she
selected within his or her team/department). The only people who
should see the entire list are the CEO, COO, CFO, and HR director.
Department heads should be concerned with only their own lists. For
every person who has a copy of the list, there is an exponential increase
in the probability that a leak will occur. Often these lists evolve over
time and change right up until the last minute before an employee is no-
tified that his or her position is being eliminated. If people found out
that they were supposed to be laid off but ended up being taken off the
list, their attitude toward the firm and management may be forever
tainted. Key points to safeguard the list™s security include:
”Never label it with titles or headings that may suggest its true meaning.
”Never let someone else copy it.
”Never let it leave your possession.
”Never allow more than the absolute minimum number of trusted
staff members in finance and HR to have access to it.
”Never print it out on a network printer”memory problems are not
uncommon, and it is possible that the report could print out long
after anyone responsible for it leaves the printer unattended, leaving
it available for the first set of curious eyes.
344 The Back Office: Efficient Firm Operations

Unplanned Communication
The administrative assistant to the CFO of a professional services firm
was assisting in the late night preparation for a major presentation of the
local office™s plan to reduce staff in light of a wave of significant client
losses over a short period of time. The multipage presentation was pre-
pared in a very short amount of time and required that several charts be
printed out in color. The only color printer was located in another part of
the building, far removed from the assistant™s desk. For some reason, ini-
tial network print commands failed to work, so the assistant printed the
pages a second time. That night the presentation was completed; how-
ever, the next morning, a single copy of the page that failed to print the
night before was found sitting on top of the printer by another employee.
Within minutes, copies of management™s layoff plans were photocopied
and posted throughout the building. Needless to say, morale plummeted
over the following days and weeks leading up to the layoff action as a re-
sult of this very innocent error in the printer system network.

• Set financial targets for each department to achieve rather than target a
specific number of people to lay off. Let the department head prioritize
his or her needs and then challenge that team™s ability to perform its
function in the post-layoff environment. Don™t nitpick or micromanage
the decisions of the department head.
• Have a legal review of the list. Include searches for discrimination
based on age, sex, and other protected classes. Further, counsel should
review documentation supporting the action being taken and the spe-
cific reason(s) each person was selected to be included in the RIF.
• Do it only once whenever possible. Often, employees are aware that the
firm is facing financial difficulties before a layoff action. Their antici-
pation of the date can be distracting and lead to morale problems and
productivity declines. If all cuts are made at once, management is in a
much better position to make an affirmative statement to the remain-
ing staff that acknowledges the action taken and assures them that
“there is no other shoe to drop, so let™s get back to business as soon as
possible.” Without such a statement, nagging concerns can continue to
drag down the firm and become a self-fulfilling prophecy. In many sit-
uations, it is not possible to complete all layoffs at once and actions must
be taken in stages; but minimizing the time that elapses between those
stages is very important.
• Reorganize workf lows and improve processes before taking action. Sim-
ply cutting the number of personnel is an exercise almost anyone can
execute. However, great managers will anticipate potential business
downturns and prepare for that day by working to constantly improve
internal processes. By developing process improvements before a layoff,
345
Finance, Accounting, and Human Resources

staff remaining after the action will be prepared and equipped to com-
plete all required work without undue burden. Unless the firm has al-
lowed nonproductive employees to remain on the payroll, simply
cutting the number of workers without a plan in place to achieve each
department™s workload objectives will result in chaos and confusion,
and key work may not be completed properly, if at all.

Recognizing Job Function

Management of a large professional services organization ordered that ac-
counting operations personnel be reduced by an arbitrary amount because
of consolidation with another division. Almost immediately, a third of the
combined staff was laid off under the belief that the team would be more
productive even though new procedures had not been developed and the
workload remained the same as before the consolidation. Once the staff
left, their work was attended to by remaining staff on a “when they could
get to it” basis. One of the tasks performed by the departing staff was the
reconciliation of the travel advance account, including airline tickets.
Over the next two years, the firm lost more than a half million dollars in
airline ticket fares because unused tickets were not reconciled with the
airlines in a timely manner, a function that had been performed for less
than $30,000 per year by staff that had been laid off without the benefit
of improved procedures.


Records Management
The HR department is responsible for maintaining all government required
forms and other prudent information on each employee. Depending on local
legal requirements and firm policy, this information should be maintained in
separate files for each employee with current data on a regular basis (e.g.,
daily, weekly, or monthly). Rules as to specific data requirements vary from
state to state, but, in general, these records should be maintained in separate
file folders: (1) personnel file, which is available for the employee™s inspec-
tion, (2) employee™s benefits file, (3) medical or disability files, and (4) an
“investigation” file, which may be used to temporarily house confidential
meeting notes and other forms of documentation related to the employee.
Contents of these files may include:

Personnel File
• Resume and employment application
• Employment offer letter
• Immigration paperwork (e.g., I-9) and tax verification forms (e.g., W4)
• Copy of Social Security cards and driver ™s license
346 The Back Office: Efficient Firm Operations

• Personnel action forms
• Temporary employee authorization forms (if applicable)
• Written acknowledgment of the firm™s key policies
• Leave of absence approval
• Final reports related to investigations made of employee™s conduct
• Disciplinary documents
• Performance and bonus evaluation forms

Employee Benefit File
• Benefit forms supporting the employee™s selection of specific benefits
• Vacation earnings and usage details
• Benefit tracking documents including requests for reimbursement

Medical or Disability File
• Workers™ compensation claim data
• Relevant medical and /or disability-related documentation

Investigation File (Confidential)
• Interview notes
• Complaints against employee
• Preliminary results of background investigation
• Manager ™s documentation of performance incidents

As a matter of policy, report drafts and notes should not be included in
files and should routinely be destroyed after their immediate usefulness has
expired in order to maintain only relevant information in each employee™s
files. Further, no information about any other employee should be included
in an employee™s files to maintain each employee™s privacy rights. The inves-
tigation file is a confidential temporary file used to collect relevant informa-
tion related to an investigation of the employee. After a summary level
report about the incident(s) has been written and included in the personnel
file, preliminary information should be destroyed in accordance with local
legal counsel guidance.

Benefits Administration
In general, HR personnel are responsible for designing and administering
benefits offered by the firm. This is a critical element in remaining competi-
tive in the “employment” market. Well-managed firms ensure that at least one
person in the HR group is fully versed on all aspects of every benefit offering
and has been trained to know where the line is drawn among offering a full
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Finance, Accounting, and Human Resources

explanation, including some interpretation based on the individual™s situation,
and advice (which should not be offered). Discussions about benefits typi-
cally are one of a new employee™s first impressions of the firm and, if well ex-
ecuted, can help the new employee form a long-lasting, favorable opinion of
the firm. Getting this one right is a no-brainer that many firms often miss.

Compensation Administration and Forecasting
Responsibility for salary administration and forecasting is both a finance and
HR function. Which group takes the lead on these critical processes is gen-
erally a function of the relative strength of the personnel involved as well as
the personal preference of the executive team. Either way, both teams must
work together to ensure that forecasts coordinate all changes in compensa-
tion known by both HR and finance. In particular, HR should review com-
pensation plans to identify potential equity issues that may present legal
liabilities. Compensation plans are discussed further in Chapter 10.

SALARY ADJUSTMENTS. The art of determining actual salaries paid to
employees and all adjustments made thereto relies heavily on being compet-
itive in the local, regional, and national marketplace, depending on the na-
ture of each position. Salary surveys often are the best measure of
determining the relative worth of a position. National or regional salary sur-
veys for many industries and positions are available for free or a nominal cost
from various professional organizations including placement firms, trade or-
ganizations, and consulting firms. In certain situations, competitors within a
city or region work together to retain an independent consultant or CPA to
conduct an industry-specific salary survey tailored to local economic condi-
tions and position descriptions. Such data, when updated annually before ini-
tiation of the annual planning process, can be used very effectively to ensure
that employees are compensated fairly for their efforts.
A general rule of thumb to guide the use of survey data is that employees
should be paid within a 20 percent band (i.e., ±20 percent) around the me-
dian compensation level for any given position. When an employee first be-
gins taking responsibility for a position, he or she is paid at a rate that is 20
percent below the median for the position. Over time, and as the employee
becomes more competent at the position, the employee would receive raises
within that band until such time that he or she reaches the top of the band at
20 percent above the median. After that point, raises generally would ref lect
only cost of living adjustments (i.e., to the median salary) as reported for
each position in the annual salary survey. To receive a larger pay adjustment,
an employee would have to be promoted into a higher paying position. Main-
tenance of such a salary administration program generally results in an equi-
table pay scale that balances the internal payroll with realities of the
relevant local market.
348 The Back Office: Efficient Firm Operations

BONUS PROGRAMS. When properly administered, bonus programs can be
tremendous motivational tools that help propel a firm to be a leader in its
field. If not well conceived and executed, bonus programs simply increase
costs with very little in return. Three types of bonus programs are found fre-
quently in well-managed professional services firms:

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