From the HR Pros at Richard A. Beauchemin, CPA/Carolina Accounting & Tax Service, PLLC
Federal, state and local laws require employers comply with all labor laws and including those governing compliance to wage and hour laws. Wage and hour requirements apply to all employers regardless of size. Failure to comply can result in litigation brought forth by employees or agency investigations. Critical to compliance is understanding the fundamentals of wage and hour requirements. Here are some basic requirements for compliance but in no way a complete list.
Minimum Wage Requirements
All employees must make minimum wage. Because the state and federal minimum wage limits can differ, an employer must pay the highest minimum wage whether that is the state minimum or federal minimum wage. If an employee earns tips, an employer can pay less than the minimum wage; however, the tips plus the wages must meet or exceed the minimum wage.
The seven day "work week" must be specified for overtime calculations. You cannot vary the pay period or work week to avoid paying overtime hours.
Overtime must be calculated and paid correctly based on the "regular" rate of pay.
Because overtime calculations can vary between federal and state requirements, you will have to make sure you conform to the daily/weekly overtime requirements for both federal and state laws governing overtime pay.
You are not required to pay exempt employees overtime, however they must meet the definition of an exempt employee under the Fair labor Standards Act (FLSA) and your states relevant requirements. You will want to familiarize with the overtime exemption criteria and remember that simply because an employee is paid on a salaried basis does not automatically disqualify the employee from entitlement to overtime compensation.
Employee Time Tracking
Accurate time tracking and time reporting records are important. Train non-exempt staff and supervisory personnel on the requirements to accurately complete time reporting records such as time sheets.
An alternative to hand written time sheets and time reporting data, is an Employee Time and Attendance systems. A Time and Attendance system, allows you to accurately track employee hours.
In addition to providing you with access to electronic database that stores employee time records, they offer a significant Return on Investment (ROI). It is not uncommon for even a small company with fewer than 25 employees to be able to save thousands of dollars per year.
An electronic timekeeping where you can run labor reports with custom dates, allow you can match time records to payroll reports. This is a life saver when responding to an agency's investigation or litigation for violation of wage laws.
Secure and maintain signed timesheets for all non-exempt employees verifying their hours worked for at least three years.
Make sure that any state specific requirements for "Direct Deposit" are followed if you provide "Direct Deposit"
Many companies are moving toward a paperless payroll, using "Direct Deposit" and giving employees access to a web portal to view their paystub and W2. If you intend to move towards a paperless payroll, make sure you conform to your state's requirements.
Any non-standard deductions to paychecks such as uniform expenses, expenses for tools, etc. need to be authorized in writing by employees and are in conformance with your state's wage and hour regulations.
Federal and state agencies are examining closely how employers classify workers with an increased emphasis on employers that use 1099 workers. Make sure you properly classify workers as either W2 employees or 1099 workers in accordance to IRS and your state requirements. Failure to comply can result in large penalties and you owing back taxes for payroll taxes not paid if workers are reclassified from 1099 contractors to employees.
Critical to the success of a company is compliance to all federal, state and local laws. Although we often focus on tax compliance, labor laws as well wage and hour compliance is equally important. To assist you we have a number of guides and resources available. Our Resource Library page includes a list with descriptions of each. On the page is clickable link to request any guide or checklist available. All information is available at no charge.
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.
The court granted final approval to an $85-million settlement in a wage and hour lawsuit against Wal-Mart brought about by employees. This settlement is one of the largest wage-and-hour class suits in the US history and was brought about because of poor practices, procedures and policies by Wal-Mart.
The crux of the lawsuit, was that employees had been uncompensated for hours worked. According to the lawsuit, employees were required to work through lunch breaks, rest breaks, pre and post shifts and overtime without compensation. It also alleged that Wal-Mart manipulated time cards.
As part of the settlement Wal-Mart is required to use an electronic timekeeping system and have written policies and procedures in place as safegards to insure compliance with wage and labor laws.
Every business that has employees may be exposed to a Wal-Mart type lawsuit, albeit not as large as the one filed against Wal-Mart.
Businesses should take advantage of this teachable moment. Below are some of my take away messages from the Wal-Mart situation.
Understand the Law
There are strict labor laws governing minimum wage, rest breaks, and overtime. Overtime is one of the areas that is least understood and the area that employers try to circumnavigate. One argument or justification that employers try to use is the total number of hours worked in a pay period, rather than what the law clearly states, and that is overtime accrues on a week to week basis, regardless of the pay period.
If you pay your employees biweekly, you must pay OT as soon as an employee works more than 40 hours in a work week. For example, if an employee works 45 hours one week and 35 hours the next, you cannot pay the employee 80 hours at his regular rate for that pay period. The law requires that you pay him 75 hours of regular pay plus 5 hours overtime. If you do not, you may find yourself under the scrutiny of the Department of Labor for violating overtime laws and be the subject of lawsuits by your employees.
Have Clear Written Policies that Align with State and Federal Labor Laws
Be sure to understand, not only the Federal labor law but also the State and local labor laws. When writing your policies make sure they align with all labor laws.
Make Sure Your Policies and Procedures Are Outlined in an Employee Handbook
By having a clearly written HR employee handbook and reviewing it with each employee, your employees will know and understand your policies and procedures for handling compensation, breaks, overtime, as well as all other policies that could lead to an unwanted lawsuit.
Make Sure You provide Frontline Managers and Supervisors with Training Regarding Your Company's Policies and Procedures
If your policies and procedures, are not understood or your managers and supervisors do not know how to execute them, then they are not worth anything. The key is to make sure they are clearly communicated and enforced in accordance with the company's written policies and not enforced according to a manager's or supervisor's interpretation.
Use an Electronic Timekeeping Systems to Track Employees Hours and Electronically Store Employee's Timesheets
In addition to an electronic timekeeping systemsaving you money by not having to pay employees for coming in late, leaving early or taking extended breaks, it will also save an administrator the time. The administrator will not have to compile timsheets and enter data. It also cuts down on the number of errors due to copying data onto payroll data sheets or entering it into a payroll system.
An electronic timekeeping system makes it extremely easy to retrieve the information and run reports by date, employees, departments or locations. This will allow you to match up payroll records with electronic timesheets and provide an easy verification that you are in compliance and have properly compensated employees for hours worked.
Having the proper written policies , procedures and systems in place, will go a long way in preventing or minimizing your exposure to an employee lawsuit and srutiny by the Department of Labor.