03/18/2014 03:28 pm ET Updated May 18, 2014

March Madness Offers Risks and Rewards for Small Business Owners

Get ready -- March Madness is underway and that means business owners should brace themselves for a dip in productivity. Global outplacement firm Challenger, Gray & Christmas said an estimated 50 million Americans participate in March Madness office pools, and companies stand to lose $1.2 billion for every unproductive work hour during the tournament's first week. (Not me, I'm not a basketball fan.)

Some people believe the March Madness hoopla, including betting on your favorite team, builds morale. But what may seem innocent enough could land you in legal hot water. Office pools are legal in most states, but not all.

"Office pools can be great fun, but they can do more than waste company time," explained Florida employment lawyer Bob Riegel of Fowler, White, & Boggs, "Although some companies support friendly office betting, certain states may have some extenuating prohibitions on gambling of any sort."

For example, in Kansas office betting can be a class B misdemeanor whereas in Colorado most gambling is illegal but betting pools in the office are an exception to the definition of illegal gambling so long as the pool is "incidental to a bonafide social relationship." Don't guess at the legality, check with your legal counsel.

The best bet to protect your small business is to establish a company-wide policy pertaining to office-betting. If office gambling is prohibited in your state, then you need to clearly communicate it's not acceptable in your company. Don't look the other way. If you live in a state where office pools are allowed then you should set parameters for your team. Once your policy is in place make sure it is distributed to all your employees and/or included in your company handbook.

Here are a few other tips to protect your small business:

Maintain Respect. Trash talking and sports can often go together like peas and carrots, but it has no place in the office. It's one thing to engage in a little verbal rough-housing, but personal attacks and/or offensive language are not acceptable. Not only could it cause turmoil and conflict in your office, it may also rise to the level of harassment resulting in liability for your firm.

Paul Abercrombie of Abercrombie Communications, Inc. said, "It is so important to observe good etiquette in the workplace. Just because the fun and excitement of the betting pool carries over into the office, doesn't mean the other parts -- like chastising your competitors -- should too. Always ask yourself... would I say this if my grandmother were listening? If the answer is no, then you probably shouldn't say it at work."

Keep the betting low. The best way to ensure your office pool will stay fun and professional is to enforce a low betting rule. When the risk and reward are kept within a reasonable range, so too should the intensity and the possibility of fierce and volatile competition between employees. If your small business doesn't feel comfortable allowing financial stakes consider creating a pool with no buy in, but with company-sponsored sports tickets, gift cards or simply bragging rights for the winners. Finally, make sure employees can "opt out" of participation. Even if the buy-in is small, some employees may not have the extra cash. Others may not want to participate for religious, moral or other personal reasons. Your team should understand a "no" is a "no."

Internet Reasonableness Standard. Ten years ago, employees would call in sick to watch March Madness at home. Not anymore. They'll be watching online at their desks or via their mobile devices. It's nearly impossible to stop this phenomenon entirely, but you can make it clear to your team that you expect a level of reasonableness. Some employees admit to spending several hours a day tuned into the game. I'm sure you'd agree that's unacceptable. So recommend short breaks during the day to check out their scores and catch up with their favorite teams, but remind them to keep their focus on their work.

Take advantage of the team building. You know the old saying, "If you can't beat 'em, join 'em." Use the March Madness craze to boost morale around the office by incorporating group activities. Some companies put televisions in the office break room or other common areas where employees can gather to watch as a group.

Another great idea is incorporating a fundraising activity. "We've incorporated March Madness betting into our [American Cancer Society] fundraising by collecting a fee for filling out a bracket and donating 50 percent to our Relay for Life team. It's been such a success and we are doing it again this year," explained Nicole Buergers of TopSpot Internet Marketing.

March Madness is a annual tradition in most companies today. What does your business do?