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Small Business Human Resources Workforce Development Your Questions Answered Success Stories

January 2008 — Vol. 85, No. 11

SMALL BUSINESS

Accurate timekeeping essential for nonexempt employee wages

By Debra Susca

Freelance writer in Portland

What’s the best way to track my nonexempt employees’ hours? What should I be tracking? Can I be penalized if it’s done incorrectly?

At some point, every employer has asked these questions — and wisely so. Last year the state Department of Labor (DOL) collected from employers $7 million in unpaid overtime wages, assessed employers $2 million in civil penalties and arrested 40 employers for failure to comply with state wage payment requirements.

“This is serious business,” says Ron Marquis, assistant director of DOL’s Wage and Workplace Standards Division, which investigates employee complaints about wage and overtime payments. According to Marquis, employers can save themselves a lot of trouble by keeping accurate time records for all nonexempt employees and abiding by the state’s wage payment laws.

Timekeeping

The timekeeping law requires that time records be “true and accurate,” says Marquis. Though employers can decide what method they’ll use to track hours, they must track them in three ways:

  • Time in and out
  • Daily total hours worked
  • Weekly total hours worked

Marquis advises employers to ensure the accuracy of their records by making it clear to employees how early they can punch in before their shift begins and when they are expected to actually begin work. “We understand that everyone can’t be lined up to punch in exactly at, say, 8 a.m., but if employees are signing in earlier, they need to know that they won’t be paid until their shift begins,” he says. He recommends posting a sign near the time clock stating that. Also, the time-in-and-out record is waived for employees who work off-site and submit their own time sheets.

There are three methods for recording nonexempt employee hours:

  • Handwritten on time sheets by the employee
  • Punched on time cards
  • Logged through a computerized system

The most accurate way to record hours, Marquis says, is through punch cards. He points out that any alteration can be easily detected with this method.

A computerized system is the second-best tracking method as long as it’s configured to meet the “true and accurate” standard and does not make assumptions about when employees arrive, leave and take lunch. “If an employer wants to use a computerized system, they need to use it properly,” says Marquis. He says most employers purchase systems that assume employee start and end times and deduct for a lunch break they may or may not take. “They aren’t necessarily capturing what’s actually going on.”

He says employers with a computerized system should make sure employees are well trained in how to use it and should limit who has the authority to make changes to an entry. “If we see a lot of changes, red flags go up,” says Marquis. He recommends that the system include a field requiring an explanation of why changes were made.

The least-accurate form of tracking is a time sheet filled out by the employee. Time must be recorded exactly as worked. “If [time sheets] aren’t well kept and we have to go back to an employee to get their time, they’ll probably overestimate what they actually worked,” says Marquis.

Wage payment laws

According to the state’s wage payment laws, employers must also:

  • Establish a payday that is not more than eight days past the last day of the pay period. Employers must pay their employees weekly unless they have the labor commissioner’s written permission to do otherwise.
  • Have a written hiring agreement with every employee — minimum wage earners to the CEO. This is typically a job-offer letter that outlines, at a minimum, the rate of pay, general work hours and pay schedule. Employees should also be notified via memos, posted notices or written personnel policies about vacation pay, sick leave and other benefits.
  • Make only those paycheck deductions permitted by state and federal law (taxes, FICA, garnishments), for medical insurance (with employees’ authorization) or for any other purposes as long as they have the employee’s written authorization on a form approved by the labor commissioner.

Violation of these requirements can result in penalties of up to $10,000 and five years in prison, depending on the amount of wages the employer failed to pay. Failure to pay owed wages of $2,000 or more is a felony.