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Payroll records: Fine-tune exempt, nonexempt timekeeping

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in Compensation and Benefits,Employment Law,Human Resources

THE LAW. Federal wage-and-hour laws don't require you to have a time clock, but they do require you to have a reliable system to keep track of employees' hours and pay accurately. Just filling in "9 to 5" every day won't cut it.

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

You can use various timekeeping methods as long as they track the information required by law. And you can use different methods for different workers, say, time clocks for nonexempt workers and paper for exempt staff.

In addition to federal rules, some states have their own mandates for keeping and storing records. And your state requirements are separate from the federal FLSA, one doesn't override the other. That's why it's wise to keep payroll records for the longer period required under federal or state rules.

If you misclassify employees as exempt, the U.S. Labor Department can order you to pay overtime to the worker going back two years or, in the case of willful violations, three years.

HOW TO COMPLY. Your recordkeeping requirements for exempt employees differ from those for nonexempt workers. Here's the deal:

Exempt employees. 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 could make it seem to a wage-hour auditor that 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 on exempt staff:

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

Your records for exempt employees can also track which days are used for sick days, vacation days or personal days.

Nonexempt employees. With non-exempt, hourly employees, you need to collect more details. Specifically, records must include:

  • Personal information, including name, home address, occupation, gender (for equal pay laws), birth date for workers under age 19 (for child labor laws) and the person's workplace identification number.
  • Time and day of week when the employee's workweek begins. If all employees have the same schedule, a single notation for all employees is fine.
  • Regular hourly pay rate for any week when overtime is due. This includes an explanation of the way wages are paid, such as per hour, per day, per week, per commission, etc., plus the amount and nature of each payment that's excluded from the regular rate.
  • Hours worked each day and the total for each week.
  • Total daily or weekly straight-time earnings, not counting overtime.  
  • Total overtime earnings for the week.
  • Total additions to or deductions from 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 pay period.

If employees are working under a special certificate that allows you to pay a subminimum wage, such as a "training" wage for students, your records must note that fact, too.

 

Resources: Wage and hour recordkeeping

The FLSA's recordkeeping 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 recordkeeping section of the U.S. Labor Department's Web site at www.dol.gov/dol/topic/wages/ wagesrecordkeeping.htm or call the agency's FLSA hotline at (202) 693-0067.

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