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.
Gone are the days when businesses can simply use paper timecards, spreadsheets or an honor system, nor should they. An automated time and attendance system is a must for every busiess whether it has a few employees or thousands of employees. Most small businesses with fewer than 50 employees can implement a system for $50 - $100 per month and it will save the business thousands of dollars per year, providing a tremendous ROI for the business.
For businesses with greater than 50 employees, they will require a timekeeping system to breakdown who they have to cover and to manage employee hours. In addition, the more employees a company has the greater opportunities for savings.
How then do you go about choosing a good timekeeping system to meet your needs?
Payroll Processing comparability
One of the greatest reasons to implement a time and attendance system is its ability to save you time and reduce payroll processing errors. With a good timekeeping system that interfaces with your payroll processor, the timeclock data can be easily imported into the payroll processing software. Not having the ability to easily import the time records, negates many of the benefits that can be realized with a good timekeeping system. It is a shortcoming of many of the time tracking softwares built into Point of Sales systems (POS). Most POS systems merely collect punch data with no meaningful way to use it.
Easy to Setup and Roll Out
The electronic timekeeping should be easy to implement for the company. It should not require hundreds or in some cases thousands of man-hours for the company to develop, setup and roll out.
Most of the setup should be completed by the automated timeclock provider. The company will have to provide the rules, exceptions and a spreadsheet of employees to be uploaded to the system.
Training should be provided by the time and attendance provider to your key personnel and administrators.
Ease of Use
The system should be easy for employees to use and simple for them to access for clocking in and clocking out.
The user interface for the administrator should be easy to navigate, simple to enter new employees or remove inactive employees, add or edit payroll timecards.
- A good timekeeping system will provide you with the ability to match your work, labor and hour rules with the system. If you have shift differentials with different pay rates, the employee time tracking system should be capable of handling the pay rate differentials.
- For many companies a scheduling feature may be required
- Multiple methods of clocking in and out should be available.
- Webclock, biometric and punch clocks and mobile apps that allow an employee to clock in remotely should all be available methods for clocking in and out.
- Use an employee time and attendance system that offers Active GPS if you have filed personnel (drivers, construction workers, landscapers, off-site healthcare providers, sales team, etc.). Active GPS allows you to actively manage your outside employees in real time.
Reporting and Alerts
Real time updates - One of the most powerful feature's of the timeclock is maintaining and having a real time feedback for employees' hours each day.
- Alerts - Simply recording punch data is not meaningful. having the ability to receive alerts when exceptions occur is amazingly powerful. A few examples are for remote employees: A security guard or visiting nurse doesn't clock in at their scheduled time. , a delivery driver misses his or her delivery time, an employee is exceeding his or her standard 40 hour work week. These are just a few alerts that can be setup to allow you to actively manage your work force.
- Ability to breakdown and analyze labor hours - A good system will allow you to breakdown employees hours in a number of ways including by departments or location. With a good timekeeping system you can go back in and run custom reports to breakdown labor costs.
Tools for Compliance to Patient Protection and Affordable Care Act
The PPACA requires you have a system to accurately track and report hors worked by your employees. You will have to break the employees into two groups, part-time employees and full-time employees and then determine the number of full-time equivalent employees you have.
A good timekeeping system will have a report already built in, so all you to do is run the report for your specified time period and it will calculate the number of full-time and full-time equivalent employees.
A good automated timekeeping system will not only save you time, reduce processing errors and help with compliance to the Patient protection and Affordable Care Act and the Fair labor Standards Act.
When choosing an automated timekeeping system you want to make sure it is both flexible and scalable to meet the requirements of your business as it evolves and grows. there should be comprehensive reporting and management tools to help your business manage labor cost and and provide for improved record keeping so you can demonstrate compliance to new and existing regulatory requirements for timekeeping records.
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.
We work with many small businesses and are amazed at the number of Charlotte, NC small businesses that do not use an employee time and attendance system or how an automated timekeeping system can save them money.
We will break down the many benefits of using a system into two articles. The first will cover how much, even a small company with as few as 10 employees, can save by using a timekeeping system. The second article will cover how an automated timekeeping system helps you comply with regulatory wage and labor laws and why it will be increasingly important with the implementation of the Patient Protection Affordable Care Act (Healthcare) to have a system to track time for your employees.
Why an Automated Timekeeping System
According to the American Payroll Association (APA), companies can save 2-percent of gross payroll costs each year if they automate their time and attendance process. Many small businesses continue to use a manual process to track time. They do this using a manual time sheet, Excel spreadsheet or a mechanical timeclock. Many of these companies understand the power and savings of automation, as they have already invested in technology and automation for other parts of their business.
Manual timekeeping processes are tedious and often error-prone. Many are archaic processes that require an administrator to collect handwritten timesheets, transcribe the data into an Excel spreadsheet or some other software application and in some cases reenter it into a payroll software data entry page.
This process leaves open the opportunity for "padding" the hours by your employees, transcription and data entry problems and additional time required by your payroll administrator to collect and enter the data. Finally, overpaying payroll wages will cause you to incur additional payroll taxes and larger worker compensation fees.
Cost Savings with an Automated Employee Time Tracking System is Big
There are four ways you can save with a timekeeping system:
1. As an Employer you will not pay your employees for hours they do not work. Do you know how many of your employees show up five, ten, fifteen minutes late? How many leave early? How many say they will make up time but never do? How about those who take an extra five minutes during a break? With an automated time and attendance tracking system, they only get paid for the hours worked and not phantom hours.
2. It cuts down on the time required for the payroll administrator to prepare payroll. No longer will your administrator have to distribute timesheets, collect them, manually enter them into a spreadsheet and/or reenter them into a payroll software entry screen. The payroll reports are immediately available. With a few edits payroll data would be ready for payroll processing.
3. Payroll errors are reduced. Often times with a manual time tracking system, employees are over or under compensated for their time. Any employee that feels they were under compensated or shorted hours will immediately make it known to the payroll administrator. This causes additional administrative costs (time required to correct issue, reissue checks and will cause you to incur additional payroll charges from your payroll processor). The employees that are over-compensated will more than likely not notice or not bring it to you attention, unless it is such a significant difference and realize you will notice.
4. Social Security and Medicare taxes and Worker Compensation fees are tied directly to your payroll wages. As wages for your payroll increase so do payroll taxes and worker compensation charges. Payroll taxes are 7.65% and worker compensation fees can add 2.5% or more to your total payroll cost. Reducing payroll wages will reduce your payroll tax obligations and worker compensation payments.
How Much Can I Really Save with A Time and Attendance System?
Here is a conservative example of how much a company with just 10 full time employees can save:
The company has 10 full time employees that get paid an average rate of $15 per hour. Weekly compensation per employee is $600/week and annual compensation is on average $31,200 per employee.
Total payroll for the company is $312,000 (10 employees multiplied by $31,200 per employee).
The payroll administrator requires 2.5 hours every other week to track down, collate and enter the time in a spreadsheet and other payroll data entry applications.
Savings from Item 1 (Overpaying employees for hours not worked)
Let's be conservative and assume it is on average only 5 minutes per day per employee that come in a few minutes late, leave a few minutes early or take a few extra minutes at lunch or during a break. Many employees will do this without realizing it. Five minutes is truly below the radar and even the best employees may not even know it is occurring.
Five minutes per employee add up to an extra 50 minutes (0.83 hours) of pay per day. This works out to be an extra $12.50 per day, $62.50 per week or an additional $3,250 per year. If you have 20 employees you can double this cost, for thirty employees increase it by a factor of 3, etc. If it averages more than 5 minutes per day per employee than the cost to you is even greater.
- Annual Savings of Not Overpaying = $3,250/year
Savings from Item 2 (Payroll Administration Cost)
If the manual process requires your administrator to spend 2.5 hours every other week to distribute, collect, collate and enter data to prepare payroll for processing and you can reduce that down to 0.5 hours you realize a savings of 2 hours per pay period.
If the administrator is being paid $20 per hour the savings is $40 every other week or an annual savings of $1,040
Savings from Item 3 (Error Rate Associated with Manually Managing Payroll)
The American Payroll Association estimates that there are between 1% and 8% processing errors for payroll. Assume that your payroll processing errors is only 2% - on the very low side because you have a good administrator. With an annual gross payroll amount of $312,000 and an error rate of 2% the total cost to you is 2% multiplied by $312,000 or $6,240.
Savings from Item 4 (Savings from Social Security and Medicare taxes and Worker Compensation Charges)
If you add up the savings listed above you would save an additional 7.65% plus whatever additional worker compensation charges you pay. Even if you are paying a 2.35% workers comp rate the workers comp rate of 2.35% plus the 7.65% in payroll taxes add up to 10% in additional tax savings.
The total savings listed above is $10,530 ($3,250 + $1,040 + $6,240 = $10,530)
Multiply these savings by 10%. The additional savings is $1,053
Adding the $1,053 to the other savings above ($10,530) equals a total savings of $11,583.
- Total Estimated Annual Savings = $11,583
Are you a small business owner that can use an extra $11K?
What will an Automated Timekeeping System Cost?
The good news for an employer is not nearly as much as you think especially considering the cost savings it provides. For example our system for a small employer with 10 employees can be implemented for less than $50 per month. Sounds like an easy decision to make - an investment of $600 per year to save over $11,000 per year. The savings are even more dramatic with more employees and/or the employees you have are abusing your current attendance and tardiness policies.
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.