Sometimes, even the best-intentioned employers are tripped up by our complex wage and hour laws. Unfortunately, even an honest mistake in this area can be costly.
The cost of non-compliance can include unpaid back wages, liquidated damages, civil penalties, interest, and the employees’ attorneys’ fees. Make sure you’re not shooting yourself in the foot by committing one of these common errors in your timekeeping and wage and hour practices.
First Mistake: Improperly Classifying Employees
The IRS, the federal Department of Labor (DOL) and the states are all focusing on the issue of employee classification lately, so it’s especially important to get it right.
There are two classification issues:
- First, is the worker an employee or an independent contractor? The answer can have significant tax implications for the employer and the worker. (This is why the IRS and cash-strapped states are taking such a close look at classification.) If you’d like more information, read this recent newsletter article: Employee or Contractor?
- Second, if you’ve determined the worker is an employee, are they covered by overtime regulations, or are they exempt from overtime rules? It isn’t a matter of “salaried employees don’t get overtime.” In fact, many salaried workers are not exempt, and must be paid overtime if they work more than 40 hours a week. There are specific exemption criteria that must be met in order for an employee to be exempt. This was also covered in more detail in previous newsletters: Exempt vs. NonExempt, Part One and Exempt vs. NonExempt, Part Two.
The bottom line: consult with your labor law advisor to make sure your employee classifications conform with the law. Document your analysis and the reasons you’ve classified employees as you have. In the event somebody audits you and determines you’ve classified workers incorrectly, your documentation can help show the examiners that any classification errors were unintentional (which might reduce your liability).
Second Mistake: Not Accurately Recording Employee Time
All too many wage and hour lawsuits include an allegation the employer failed to accurately record the time worked by employees.
Some employers use manual time slips. While these are acceptable under the law, they’re also notoriously inaccurate. Still, those using basic handwritten time slips are ahead of the game compared to some. A distressing number of employers seem to be using a “best-guess” method of determining how much time their employees worked.
Unless you consistently and accurately track employee time, how do you know you’re paying your overtime-eligible employees correctly? Beyond this (somewhat obvious) point, tracking employee time allows you to more effectively manage your workforce and help prevent unplanned overtime… thereby potentially saving you money.
The bottom line: you need to accurately record your employees’ work time. Guessing, estimating or simply automatically paying them for their scheduled hours is a recipe for disaster. Record everyone’s work time. Even if you think they’re exempt, record their time — there are many good reasons why you’d want to do this. (It’s OK to record exempt employee work time, as long as you don’t use the time as a basis for computing their pay.)
Third Mistake: Taking Improper Deductions
There’s been an upsurge recently of wage and hour lawsuits alleging employers improperly deducted for lunch periods when in fact the employees were required to work through lunch.
In some states, employees can opt to work through lunch; in others, the lunch break is mandatory. In any case, according to many state laws, for an employer to deduct the lunch period from an overtime-eligible worker’s time the worker has to be “completely relieved of work duties” during their lunch period. If you’re deducting the time, you need to ensure the employee actually took the break.
Customer service reps, repair techs, nurses and others are often required to wear pagers or carry cell phones, and to answer messages within a certain time — and so often find themselves responding to messages while they’re supposed to be at lunch. This becomes a problem when an employer’s time clock or time and attendance system is programmed to automatically deduct the lunch period — especially when there’s no easy mechanism for the employees to report when they work through all or part of their lunch.
The bottom line: make sure you don’t deduct for lunch and breaks unless the employee in fact took the break. In most cases, you’re probably better off requiring employees to clock out when they stop work for their lunch breaks, and clock in whenever they return to work.
Fourth Mistake: Not Maintaining Proper Records
The Fair Labor Standards Act (FLSA) requires employers to maintain payroll records — such as employees’ hours worked and what they got paid each week — for a period of at least three years. Many states require you to keep such records on hand even longer.
There are a couple of reasons why you want to make sure you hang on to these records long enough:
- It’s the law. If you’re audited, even if everything else appears to be on the up-and-up, even if employees say they’ve been paid properly all along, the lack of these historical records can lead to penalties and fines.
- It helps protect your business. If you find yourself ordered to pay back wages as the result of employee reclassification or other issues, your accurate employee time records could be used by the courts to determine how much you had to pay. Without your records, the courts will rely on employees’ testimony to determine how much overtime you owe. Would you really want the word of a disgruntled employee or ex-employee to be the determining factor in a case such as that?
The bottom line: once you’ve accurately recorded an employee’s time worked and computed their pay, make sure you retain your time and attendance and payroll records as long as the federal DOL and your state’s laws require. If you’re short on storage space, you might consider a software-based or web-based time and attendance system. All their records can be stored electronically, taking up no more space than a few CD-ROMs or a bit of room on a computer hard drive.
Save Money and Reduce Risk
Nothing will totally prevent you from being selected for a wage and hour audit or from ever finding yourself involved in a lawsuit. However, if you avoid these classic mistakes, the odds will be much more in your favor… and if you do get audited or sued because of a time and attendance issue, you’ll have the records you need on hand to properly defend yourself.
Beyond that, a modern time and attendance system will help you save money and retain more profits by streamlining your payroll preparation, giving you more control over your labor costs and reducing or eliminating clerical errors.
The bottom line: if you have a good time and attendance system, you need to make sure you’re using it properly and consistently. If your timekeeping practices could use an upgrade, we invite you to take a look at Acroprint’s full line of time tracking products. With everything from traditional heavy-duty punch clocks to sophisticated web-based time tracking, we can accommodate most any business’s time and attendance needs.