From: The HR Pros at Richard A. Beauchemin, CPA/Carolina Accounting & Tax Service, PLLC
Many business owners and managers believe that tracking employee hours should only be applied to non-exempt employees. In this post we highlight the reasons and benefits of tracking hours, using an automated timekeeping system, for exempt employees.
The exempt verses non-exempt classification issue continues as a common area of confusion among employers. Often, many employers who are unfamiliar with the nuances of the issue also face practical challenges, including when and how to track time for exempt employees.
To be classified as exempt, the employee's job generally must satisfy both a salary basis test and duties basis test. Exempt employees generally must be paid on a salary basis, meaning they must be paid a fixed salary each week. The U.S. Department of Labor (DOL) enforces regulations that define the salary basis requirement to satisfy the exempt status tests. Exempt, Administrative, Executive, and Professional employees must be paid a predetermined amount each pay period that is at least the minimum weekly salary required by regulations. The current federal minimum is $455 per week; however some states require a higher minimum weekly salary to satisfy this test. The amount paid may not be reduced because of a variation in the quality or quantity of work performed.
Non-exempt employees are typically paid on an hourly basis and entitled to overtime compensation. According to the federal Fair labor Standards Act (FLSA) employees are required to track the hours worked and meal periods for non-exempt employees. This requirement ensures that such employees earn at least minimum wage plus overtime compensation for any hours worked above 40 in a work week (and in some states, for any hours worked above eight in a workday).
However, nothing in the law prohibits an employer from keeping track of an exempt employee's hours. Some valid reasons for tracking exempt employee hours can still be compelling. For example, an employer may opt to track an exempt employee's hours for purpose of client billing, Family Medical Leave Act (FMLA), 401(k), hours-based benefits calculations, attendance, paid time off (PTO) benefits, etc. Some employers opt to track employees' time simply to ensure the equitable treatment of all employees regardless of classification in the company.
With a few exceptions, exempt employees must receive their full salary for any week in which they perform without regard to the number of days or hours worked. Accordingly, if exempt employees clock in late or leave work early at the end of the day, the employer may not dock their pay as they may for non-exempt employees. If an employer does dock an exempt employee's wages, such a deduction may jeopardize the individual exempt status.
Should an employer opt to track the hours of exempt employees, the company will need to be very careful with respect to how it uses this information. As explained above, the exempt employee's salary should not fluctuate based on the number of hours worked within the workweek. Prorating an exempt employee's salary based on hours worked may result in the loss of the exemption, which may be very costly for the business. The company may only take a deduction from an exempt employee's salary under limited circumstances without jeopardizing the exempt status. These circumstances are listed below:
- When an employee is absent from work for one or more full days for personal reasons other than sickness or disability;
- For absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness;
- To offset amounts employees receive as jury or witness fees, or for temporary military duty pay;
- For penalties imposed in good faith for infractions of safety rules for major significance;
- For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions;
- In the employee's initial or terminal week of employment if the employee does not work the full week, or
- For unpaid leave taken by the employee under the federal FMLA.
While the company may opt to track the hours of exempt employees, the company must ensure that such information is not used to take deductions from their employees' regular salaries, unless such deductions comply with relevant guidelines.
The Wage & Hour (W&H) division of the U.S. Department of Labor has increased its enforcement and audit efforts with employers. The Wage and Hour division wants to ensure workers are fairly paid and employers uphold the law. Unfortunately, businesses that have violated wage and hour laws can face heavy fines and penalties. Many employers often assume a low likelihood of being audited for payroll, but they can be targeted, and the likelihood of an audit has been increasing.
An audit can be announced or unannounced. Usually, it occurs when an employee formally complains to the Department of Labor (DOL) about wages and/or hours concerns. The Wage and Hour division sometime randomly "targets" specific industries for investigation. In the last few years, the Department of Labor visited a wide array of employers in industries such as hospitality and restaurants, healthcare, day care, retail, temporary staffing, among others.
Non-Complaint Business. Certain employers may be high on the DOL watch list especially for repeat violations including:
- Failure to maintain accurate timekeeping and payroll records and overtime payments to non-exempt employees.
- Salaried employees classified as exempt from overtime without assessment of the performed job duties.
- Unlawful wage deductions for items (e.g., cash register shortages, uniforms, etc.) against employees.
- Inaccurate payment to immigrant workers and minors who receive less than minimum wage requirement.
- Insufficient tips that do not adequately make up the difference between minimum wage and employer's wage obligations.
Penalties and Recourse
During the audit if the investigators uncovers violations they will attempt to resolve any issues of compliance, or payment of back wages, but be aware the FLSA provides for the following recourses as noted right from US Department of Labor Wage and Hour Division Fact Sheet #44:
While many of the above provisions are found in laws administered by the W&H, there are also many state and local labor laws, that have to be complied with as well that can also result in enforcement penalties or law suits.
- An employee may file suit to recover back-wage, and an equal amount in liquidated damages, plus attorney's fees and court costs.
- The Secretary of Labor may file suit on behalf of employees for back wages and an equal amount in liquidated damages.
- The Secretary may obtain a court injunction to restrain any person from violating the law, including unlawfully withholding proper minimum wage and overtime pay.
- Civil money penalties may be assessed for child labor violations and for repeat and/or willful violations of FLSA's minimum wage and overtime requirements.
- Employers who have willfully violated the law may face criminal penalties, including fines and imprisonment.
- Employees who have filed complaints or provided information during an investigation are protected under the law. They may not be discriminated against or discharged for having done so. If they are, they may file a suit or Secretary of labor may file a suit on their behalf for relief, including reinstatement to their jobs and payment of wages lost plus monetary damages.
Be ready if ever a DOL representative visits your business to conduct an audit. Consider the following actions:
- Have an interview room mad privately available only between you and the DOL representative.
- Ensure that all required labor law posters are up-to-date, highly visible, and posted in common areas.
- Revisit time-tracking devices or methods to determine accuracy of actual time worked.
- Review and organize payroll records since DOL may check up to the last three years of the wage-and-hour records and any documented practices and procedures.
In all, it's best to prepare now instead of gambling and worrying about whether or not random audits and compliance investigations by the DOL may occur. Plan as if an audit will occur, unless you as the employer can easily afford paying thousands of dollars in fines and penalties. Find ways to determine good faith efforts of understanding and effectively resolving any employee's complaint about your company's compliance to wage and hour laws.
By: The HR Pros at Richard A. Beauchemin, CPA/Carolina Accounting & Tax Service, PLLC
Every employer, regardless of size, must comply with basic employment laws that regulate wage and hour factors. At a time when litigation and agency investigations are ramping up, getting a good grasp of fundamental wage and hour information and tools is especially important.
We have assembled seventeen useful tips to help you with employment laws and Fair labor Standards Act (FLSA) compliance.
- Familiarize yourself with the overtime exemption criteria and remember that simply because an employer is paid on a salaried basis does not automatically disqualify the employee from entitlement to overtime compensation.
- Secure and maintain signed timesheets from all nonexempt employees verifying their hours worked. Retain such timesheets for at least three (3) years.
- Avoid prorating/reducing an exempt employee's salary based on the quantity or quality of work performed, unless such a deduction is specifically permitted under federal law.
- Familiarize yourself with the break laws that pertain to the states in which you employ personnel.
- Ensure that employees are properly classified as either W-2 employees or 1099 independent contractors in accordance with the IRS guidelines. Remember, just classifying them as W-2 employee does not make it so. The IRS has strict guidelines on when a worker should be classified as an employee. We put together an extensive 1099 checklist that the IRS uses to determine the correct classification. Incorrectly classifying a worker as 1099 contracting when they should be on your payroll will get you fined and cause you to owe back payroll taxes. You can obtain a copy of our guide: Employee or Independent Contractor - 20 Factors Used by the IRS amd Why This Matters, here.
- Assure that all employees are earning at least minimum wage at either the state or federal level, whichever is higher.
- Specify the seven day 'work-week" that will be used for overtime calculations.
- Verify that the frequency of pay days conforms to your state's requirements.
- Make sure that any requirement of "direct deposit" of wages is permitted in your state.
- Determine each position's non-exempt or exempt status under the Fair Labor Standards Act (FLSA) or any relevant state equivalent.
- Ensure that overtime is being calculated and paid correctly based on the state and federal requirement for the payment of overtime on a daily and or/weekly basis.
- Ensure that the overtime rate is being calculated correctly based on the "regular" rate of pay.
- Verify whether there are ant state requirements for mandatory meal and rest breaks. If so, verify that non-exempt staff is adhering to the requirements.
- Train non-exempt staff and supervisory personnel on the requirements to accurately complete time reporting records such as time sheets.
- Assure that final payment of wages to terminating employees is in accordance with your state's final paycheck requirements, including any payment of unused vacation time.
- Make sure that any non-standard deductions to paychecks such as uniform expenses, expenses for tools, etc. are authorized in writing by employees and are in conformance with your state's wage and hour regulations.
- Double check if federal and state labor law posting requirements have been satisfied.
Every employer is challenged with complying with multiple federal, state and local employment laws. Failure to comply can result in fines, law suits and general employee dissatisfaction. In addition to all of the employment laws an employer must comply with they must also be in compliance with payroll tax deposit requirements and payroll tax reporting at the federal, state and in some cases the local level.
The complexity and compliance requirements are more challenging than ever for businesses. We would love to hear your biggest challenge managing your business while trying to keep up to date and comply with all of the employee labor laws, tax compliance, licensing requirements and other specific business compliance requirements. Leave your comments below.
Business owners do not realize that former employees can establish an unemployment claim very easily. Simply terminating an employee with cause including substandard performance does not disqualify the employee from collecting unemployment. In most states the employee's behavior has to an egregious overstep or be considered inappropriate misconduct for the employee to be denied the ability to collect unemployment.
Employees terminated for an inability to perform their job because of a lack of skill or knowledge, underperforming, or just incompetence will in most instances capable of collecting unemployment benefits.
For employers to terminate an employee with cause and not have that employee collect unemployment, the employer will have to demonstrate the employee's behavior did rise to the level of "misconduct" as written in that state's law. The burden is on the employer to prove that the terminate employee either knew or should have known they would be terminated if the behavior in question continued.
A critical area that many small and growing businesses overlook is their HR policies and procedures. It is why a clearly defined policy with steps to handle these situations is critically important. The company should have clear supporting documentation that details and illustrates to a reasonable person how the employee's behavior and misconduct crossed the line, what steps were taken to notify the employee of his or her behavior and what recurred. In some cases the behavior may be so egregious that the employee was terminated immediately with cause such as criminal misconduct.
Here are a few suggestions that will help a business to proactively manage the process and not find itself in the unenviable position of fighting unemployment claims.
1. Have a policy in place that provides employees with a written warning regarding a violation of the company's HR policies prior to termination. There is currently no federal labor law that requires a private, non-unionized organization to issue written warnings prior to terminating his or her services. However, showing that you attempted to have the employee correct their behavior and correct the issue prior to termination will help you fight the unemployment claim. It is also good policy, if you outline in your HR procedures employees will be given an opportunity to correct their conduct prior to termination, it is good policy to follow those procedures.
2. Have an Employee HR Handbook in place and obtain written acknowledgment from employees they received a copy. Employers should be able to cite specific HR violations in order to have a chance of fighting unemployment claims. When you have written acknowledgment forms on file for each employee, it is proof that each employee was made aware your HR policies, procedures guidelines and of the consequences of noncompliance to your policies.
3. All discrimination, workplace complaints, harassment and any other serious workplace complaints should be investigated and documented fully. An employer can find itself in a position of loosing a fight over an unemployment claim if the employee resigned with "good cause." If the employee demonstrates they brought a serious workplace issue to your attention, such as a non-safe work environment or harrasment from a fellow worker, and it was not investigated or addressed, the employee will most likely be awarded the unemployment benefits.
4. Use the "reasonable person" standard. It is a common standard when making deicions about termination. Consider whether a reasonable person would terminate an given the present circumstances.
5. Treat employees fairly and with respect in regards to termination decisions. State employees that process unemployment claims are themselves employees. They will have opinions, whether right or wrong about the process and whether they felt it was fair. Finally, your previous history and past practices of how you handled similar situations will be part of the determining factor. If an employee can demonstrate that the termination aligned with the companyy's policies and past practices, it will be more difficult for the employee to successfully make an unemployment claim.
The pros and cons of any termination decision should be considered carefully. There are times when a situation is correctable and other times when a termination is warranted. The potential cost of an unemployment claim can be insignificant when compared against the cost of continued employment for an individual.
With the new Healthcare Law (Patient Protection and Affordable Care Act) comes new timekeeping requirements. An automated timekeeping system helps you manage your employee timekeeping records to comply with the law and will save you money. Watch our new video about PPACA and how businesses can save money with an employee time tracking system.
Why would an automated timekeeping system have anything to do with the Patient Protection and Affordable Care Act you ask? Quite frankly, everything!
It is now essential, for employers to track and accurately measure employees' hours for the new health care compliance requirements. Beginning this year employers need easy access to historical time records and proof of employees' hours for the Patient Protection and Affordable Care Act.
To understand why you first need to to understand a few basics of the new health care law.
- For your company you have to define a measurement period from 3 to 12 months. This is the period of time after hiring an employee where you measure and track the employees hours for the purpose of classifying them as a full or part-time employee.
- The Patient Protection and Affordable Care Act requires you, as an employer, to determine the number of full-time employees or full-time equivalent employees. To calculate this, requires you have an accurate record of how many hours each employee works for the months you choose for your measurement period.
- If you calculate the number of full time employees and full time equivalent employees and you have more than 50, you are required to comply with the health care law mandates for a large employer. This means providing a minimum amount of health care coverage for your full-time employees or paying a fine.
- You only pay health care coverage (or fines if you choose not to provide health care coverage) for workers that are classified as full time employees.
Since health care coverage cost or fines are tied directly to the number of full time employees you have, and a full time employee is determined during your measurement period it will be important to:
- Have an accurate way to track an employees hours.
- Pull custom reports over a 3-12 month period that corresponds with your measurement period.
- Have an automated employee time and attendance system that sends out an alert as a part-time employees' hours reach a threshold you do not want to exceed. Many companies have opted to limit their part time employees to 26 hours per week or less. This minimizes their healthcare coverage cost or fines by minimizing the number of full time employees they have on their payroll.
An automated timekeeping is ideal for effective time tracking and reporting. For any company that has more than 50 employees it will be difficult to maintain adherence and accurately track and pull reports to determine compliance to the new helathcare law with some automated timekeeeping system.
In addition to helping you comply with the Patient protection and Affordable Care Act an employee time and attendance system will help you comply with the Fair Labor Standards Act which requires employers to:
- Collect and maintain certain key employment data
- Retain key timekeeping records for a minimum period of time as specified by the FLSA
- Have available key timekeeping records in a central location for immediate access if requested by a regulatory agency.
- Demonstrate a complete and accurate system for measuring and tracking employee hours as required by the FLSA.
We outline these requirements in a previous article that can be found here.
We also outline in our previous article that can be found here how an automated employee time and attendance tracking system will save you money and presents a great return on your investment.
If you are not currently using an automated employee tracking system it is an investment that is well worth making. In the coming years, most businesses will be unable to operate and compete efficiently without accurately tracking employees hours to manage employee cost and having a system for accurately reporting those hours to regulatory agencies.
If you would like more information about automated timekeeping systems you may visit our timekeeping page here.
We are also offer a free 30 day trial for a timekeeping system that cna be requested here. No credit card number required or long term obligation required. Just sign-up and you have full access to the web clock so you can check it out to see if it meets your needs.
When it comes to compliance with labor laws, the government does not mess around. Did you know that violations of the minimum wage or overtime pay can result in civil penalties exceeding $1,000 or that penalties for non-compliance of youth labor laws can exceed $10,000?
As an employer, it is your responsibility to know and comply with the labor laws. As with taxes and other laws, ignorance of the law is not a defense against non-compliance.
- What is the FLSA and Why do I Need to Care
The Fair labor Standards Act (FLSA) Recordkeeping (29CFR Part 516) specifies the minimum wage, overtime pay requirements and youth employment standards. Failure to comply with the regulations set forth by the FLSA will result in penalties, fines and possibly imprisonment. Good accurate record keeping is key to showing compliance.
- Collect All Required Information
Employers must maintain records for at least 14 key pieces of data for an employee. Including:
- Employers full name and social security number
- Complete Address
- Birth date if younger than 19
- Sex and occupation
- Time and day of week when employee’s work week begins
- Total hours worked each week
- Basis on which employee’s wages are paid (e.g., $9 per hour, $440/per week, piecework)
- Regular hourly pay rate
- Total daily or weekly straight-time earnings
- Total overtime earnings for the work week
- All additions or deductions from employee’s wages
- Total wages paid each pay period
- Date of payment and pay period covered by the payment
- Record retention is Important
The employer must maintain key records for a minimum length of time. The table below shows the length of time these records must be maintained.
||Min. Length of Record Retention
|Payroll Records, Collective Bargaining Agreements
|Records on how wage compensation is calculated (time cards, piece work tickets, wage rate tables, work and time schedules, and records of additions to or deductions from wages.
- Easy and Quick Access to Records is Critical
Records must be kept and maintained at place of employment or in a central records office and be readily available for inspection. An inspector may request copies of records or require confirmation of computations.
- Employers Have Flexibility on Timekeeping System
Employers are not restricted to any one system or method of timekeeping, but must have a timekeeping plan in place that is acceptable and can be proven to be complete and accurate.
Having information readily accessible, easy to sort, find, and produce on-demand demonstrates to an inspector or auditor that you are organized and have a system and procedures in place for the required documentation. Most importantly, it allows you to prove compliance with the labor laws. The more quickly you can satisfy the auditor, the more quickly you can get back to activities essential to managing and growing your business.
What system are using? sign up for a 30 day Free Trial for our automated timekeeping system or learn more about our automated timekeeping system.