Payroll records: Know exempt, nonexempt timekeeping requirements

Federal wage-and-hour laws require you to have a reliable system to accurately track employees’ hours and pay. Casual timekeeping systems can easily trigger a back-wage lawsuit.

Companies subject to the Fair Labor Standards Act (FLSA) must keep rec­­ords for both nonexempt and exempt employees. The regulations don’t say which types of record-keeping or time­­keeping methods you should use, but they do specify the necessary data you need to maintain on all employees.

Pay lawsuits on the rise

Wage-and-hour lawsuits are growing exponentially, according to the national law firm Seyfarth Shaw LLP. A recent report by the firm showed that class actions under the FLSA are dominating the legal scene. Another notable trend is the increase in back-wage suits on behalf of higher-income employees, such as those in financial services.

In both types of suits, the key is the time an employee puts in outside regular work hours. Companies should be particularly careful about hourly employees working extra time while off the clock. Even five or 10 minutes worked voluntarily off the clock can add up to a large verdict when multiplied out over a period of years.

Advice: Make it clear to all hourly employees that you prohibit any work over breaks, or before and after shifts.

In one recent lawsuit, a company allowed administrative staff to track their own hours on time sheets. It also allowed them to take comp time. It could only rely on handwritten time records when disputes arose over how much time employees had worked, how much the em­­ployer owed them and whether some of the comp time should have been overtime. In such cases, the employer loses because it’s the employer’s responsibility to keep proper records.

Record-keeping requirements for exempt employees differ from those for nonexempt workers.

Exempt records to keep

Because you don’t pay exempt em­­ployees by the hour, you shouldn’t track the exact number of hours they work on a daily basis. Doing so might appear to a wage-hour auditor as if you are indeed basing pay on the number of hours worked, which might raise the question of whether the employee is truly exempt.

However, just because a worker is exempt doesn’t mean your company is freed from keeping records on him. With exempt workers, you should keep records that describe the workweek and the wages paid for that period. Specifically, you should keep the following records concerning exempt staff:

• Personal information, including name, home address, occupation, gender, birth date for workers under age 19 and the person’s workplace identification number
• Time of day and day of the week when the workweek begins
• Total wages paid each pay period
• Date of payment and the pay period covered by each payment.

Your records for exempt employees also can track the days employees use for sick, vacation and personal leave.

Nonexempt records to keep

With nonexempt, hourly employees, you need to collect more details:

• Personal information, including name, home address, occupation, gender, birth date for workers under age 19 and the person’s workplace identification number
• Time of day and day of the week when the workweek begins
• Regular hourly pay rate for any week when overtime is due (include an explanation of the way wages are paid—such as per hour, per day, per week, per commission—plus the amount and nature of each payment that’s excluded from the regular rate)
• Hours worked each day and week
• Total daily or weekly straight-time earnings (not counting overtime)
• Total weekly overtime earnings
• Total additions to or deductions from the employee’s wages each pay period, plus an explanation of the nature and dates of those additions or deductions
• Total wages paid each pay period
• Date of payment and the pay period.

If employees are working under a special certificate that allows you to pay below minimum wage—such as a “training” wage for students—your records must note that fact, too.

Online resources: Wage-and-hour record-keeping

The FLSA’s record-keeping rules are quite complex. Additional factors such as industry and type of work can come into play.

To find more advice and read the pertinent federal regulations (29 CFR 516, subparts A and B), go to the record-keeping section of the U.S. Department of Labor’s website at www.dol.gov/whd/regs/compliance/whdfs21.htm.