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Employee Timekeeping Best Practices

Wage and hour best practices for SMBs

by stacy

A lawsuit is one of the most devastating things that can happen to a small business. They are time-consuming and expensive, and if a company does not have the necessary funds on hand, they can be financially catastrophic. Wage and hour litigation are one of the most typical types of lawsuits that businesses have to deal with. This is primarily due to the fact that there is simply so much to learn. Claiming ignorance does not fly with the Department of Labor, which normally decides in the employee’s favour, thus understanding best practises is essential to the success of a small business in this day and age.

It is important to comprehend the following four concepts: overtime, employee/contractor classifications, the minimum wage, and unpaid time.

1. Overtime

Numerous businesses are under the incorrect impression that if overtime is not allowed, it is not required to be paid. This isn’t correct at all. According to the Fair Labor Standards Act, any time spent working for an employer’s benefit must be compensated, and if that time exceeds 40 hours, time and a half must be paid. As an alternative to withholding pay when workers clock in extra hours without prior agreement from their supervisors, businesses could issue written warnings to employees and decrease their working hours before demoting or dismissing them.

Comp time is used in place of overtime.

According to the Fair Labor Standards Act, whenever an employee works overtime, they must be compensated at a rate equal to time and a half their usual rate of pay. Under the Fair Labor Standards Act, private businesses are prohibited from providing employees with compensatory time, even at a rate of one and a half hours off for every hour over 40 worked. Government employees, on the other hand, are permitted to accept compensatory time in place of overtime compensation.

Changing the timecards

Adjusting timecards such that the total time worked in a week is less than 40 hours is against the law, but some businesses continue to do so because they do not want to pay overtime to their employees. If an employee turns them in, the court fees will significantly surpass the money they would have saved had they not turned them in.

Misclassification of hourly workers as paid workers

Because of the revised wage level for exempt employees, misclassification of exempt employees as non-exempt employees will become less likely. It has been a significant issue in the past, and it has the potential to continue to be a problem even in the upper income categories.

2. Contractor/employee misclassifications

In order to avoid paying overtime and paying taxes, some employees are designated as independent contractors in order to avoid these obligations. Getting into trouble with the IRS is a perilous business in and of itself, but getting into trouble with the DOL is a recipe for disaster. Be extremely cautious about misclassifying employees. The vast majority of workers are employees, not contractors, so if you believe you have a contractor, double-check, triple-check, and even more thoroughly double-check to ensure they fall into that category.

3. Minimum wage

Paying less than the federal minimum wage is a clear violation of the Fair Labor Standards Act, but there are methods to pay less than the minimum wage without even realising that you are doing so.


Deductions such as employee-generated expenses, for example, can result in an hourly rate that is less than the federal minimum wage. It is not required by the FLSA that business expenditures be reimbursed; nevertheless, if an employer fails to reimburse them and the employee’s hourly rate, after deducting those expenses, falls below the minimum wage, the corporation is in violation of the FLSA and probably state law as well.

State laws are in effect.

There are several states that have their own minimum wage rules, which are generally higher than the federal minimum wage. These rates fluctuate from time to time, so it’s crucial to keep up with the latest information in your state.

4. Unpaid time

Many overtime infractions are purposeful attempts to withhold pay, but there are many legitimate ways for employees to lose their salary as a result of their work. All of the faults listed below are ones that employers make frequently.

Working hours that are not typical

Many businesses are unaware that preparation time, waiting time, and travel time are all considered compensatory time and must be compensated at a rate equal to or greater than the federal minimum wage. Any time spent working for the advantage of the employer must be compensated. This time comprises the following activities: waiting for a manager to arrive and unlock the door, setting up the workstation, and driving from work to another location for work-related activities.

Improper rounding of numbers

Time rounding is an old method that can be readily misunderstood and incorrectly applied. One common blunder is to round down instead of up while rounding. Employees must not lose any time while on the clock in order for rounding to be legal and acceptable. The practise of rounding numbers may have made calculations easier in the days before computerised methods were in place to accomplish the task. However, with online time clocks, there is no longer any need to manually tally up the minutes worked, making using the real minutes worked no longer an issue.

Not compensating for time spent working from home

Before the advent of online time monitoring technologies, remote work was viewed as an unavoidable source of disaster. Employees were required to record the time they spent working from home on scratch paper, have it approved by their supervisor, and then transfer the information to their timesheet before the end of the payroll period. Because it was so complicated, remote work was sometimes performed without compensation, putting businesses at danger of being sued. One of the most effective ways to avoid these problems is to implement a system that allows employees to check in from home and track the time they spend performing any kind of job whatsoever.

Compliance policies are number five.

It is a good idea to inform your employees that you intend to comply with the FLSA’s standards. If there is evidence that every attempt was taken to remain compliant, it may be beneficial in a case. A simple remark in the employee handbook, on the other hand, isn’t really a get out of jail free card in this situation. When employers disobey the regulations and do not act quickly to correct the situation, they often pay a significant price.

5. Compliance policies

If timecards are adjusted, management must ensure that the employee signs off on the correctness of the timesheet before the end of the payroll period. Mistakes happen, and modifications may be required; however, these adjustments cannot be accomplished in the dark.

Records must be kept for a period of time.

Employers are required to retain timekeeping records for employees even after they have been removed from their positions in the event of an audit. According to the Department of Labor, “each employer is required to save payroll records, collective bargaining agreements, sales and purchase records for a minimum of three years.” Documents that are used to compute pay should be kept for a minimum of two years. These records should include time cards and piece labour tickets, wage rate tables, work and time schedules, as well as records of additions to or deductions from wages.”

Timekeeping that is precise

The usage of an online service for time and attendance compliance is the most recommended practise. The concept has only been around for about 15 years, but it has already proven to be beneficial in defending firms from wage and hour litigation, which are on the rise. Being able to produce precise records is extremely beneficial, and online time tracking makes this process virtually effortless.

Here are a few of the reasons why online time tracking is a fantastic solution for meeting compliance requirements:

  1. Total visibility in terms of hours
  2. The ability to pay up to the last penny
  3. Signatures on time entry forms
  4. Time adjustments are subject to an audit trail.

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