I conducted a webinar the other day on the top five wage and hour violations that companies commit. These include misclassification as exempt employees resulting in overtime not being paid. Employees complain and an investigation ensues, employees get their pay and the company pays fines and penalties. I am going to suggest a fix for part of the problem.
Often when companies classify employees they use the terms “salaried” and “hourly” rather than the proper terms of exempt and nonexempt. Thinking that someone who is being paid a salary does not need to track their time worked the company is one of the major mistakes that companies make. Many times that employee has been improperly classified as an exempt employee. Since they are a nonexempt employee, in reality, they must be paid on the basis of their time whenever their work week exceeds 40 hours. Unfortunately, there are no time records to verify the actual hours the employee worked. So the Department of Labor relies on the recall of the employee, which may often be inflated over actual hours.
Two companies recently suffered fines and penalties for just such a case. In addition to the back pay they owed workers, they were also fined for having no time records, a requirement of the FLSA for nonexempt employees. What can be done to avoid this problem? Record the time for all employees.
When you record the time for nonexempt employees this time need to be accurate. You can use whatever method you want to record time, with the provision that it must be accurate. Writing in the same time every day is not realistic, the DOL wants to see the minor variations that are bound to occur. I have been told by investigators that absolutely consistent records are a possible indication of something being hidden by the employer.
Recording time by exempt employees, despite what many think, is not illegal. It is using these time records as the basis for payment of wages that result in deductions from pay being taken that is illegal. Fact Sheet 17G from the USDOL points out that there all allowable deductions for an exempt employee. To be able to utilize these deductions you have to have some idea of what hours your exempt employee has worked. Additionally, how do you track vacation usage for exempt employees if you don’t record time worked? I have known many companies that end up with vacation accruals that have to be paid out because they did not track the time employees were on vacation.
Tracking time on all employees solves a multitude of problems. First, it puts you in compliance with the FLSA for all nonexempt employees. Secondly, for those employees who have been misclassified from the outset, when it is discovered, you will have time records to fall back on, rather than having to rely on the employees’ memory of time worked. Thirdly, you will have a much cleaner record of time spent on vacation, or FMLA, or whatever reason you need to track time.