If you look at your employee files right now, do you have the necessary records of who worked, when and for how long? Would you pass an audit?
Not understanding the rules established by the Fair Labor Standards Act (FLSA) means you could run the risk of an inspection for possible violations, legal battles and significant fines.
Let’s take a closer look at FLSA and what you need to know to avoid FLSA record-keeping violations.
What is the FLSA?
The FLSA is a federal law that establishes the minimum wage, overtime pay, record-keeping and youth employment standards governing the employer-employee relationship. But there are several specific categories for which exemptions are made.
For example, a certain employee may be exempt from minimum wage, overtime pay and record-keeping, while another may be exempt only from overtime pay. In other words, every exempt employee may not be exempt from the same requirements.
It is, therefore, very important for employers to identify the applicable exemption and review the criteria for the applicable exemption.
So the first consideration of the law to avoid record-keeping violations is to identify the record-keeping requirement for all of your employees. You should classify all your employees as either:
- Exempt (for example, an individual performing executive work is generally not eligible for overtime pay, a minimum hourly wage or hours tracking)
- Non-exempt (for example, an individual performing as a cashier is generally eligible for overtime pay, a minimum hourly wage and hours tracking)
States differ in overtime laws, but federal regulations use a 40-hour workweek as the measurement.
The U.S. Department of Labor (DOL) states non-exempt workers must be paid overtime at a rate not less than 1.5 times the regular rate of pay after 40 hours of work in a workweek.
Non-exempt employees must also receive a minimum wage of not less than $7.25 per hour as of July 24, 2009. Many states have minimum wage laws that raise the minimum wage beyond the federal level for everyone employed in that state.
Which employees are included under FLSA regulations?
How do you know if your employees are covered under the FLSA?
All non-exempt employees are paid based on an hourly amount. The common misconception is that all employees paid by salary are exempt. Some non-exempt employees are paid a salary for a set number of hours and then overtime is paid over that amount at a rate of 1.5 times the regular rate of pay.
For example, under federal minimum wage law, a non-exempt employee can be paid a weekly salary of $600.
- If the employee works 43 hours, that employee would be paid the salary for the first 40 hours, plus three hours at a rate of $22.50 (or an additional $67.50) for the three hours of overtime.
- Total pay for the week would be $667.50, not just the $600 salary.
Paying in this manner is no different at the end of the pay period than paying an hourly rate as an employer still must meet the minimum wage and overtime requirements of the FLSA. The mistake an employer makes is not paying overtime to these employees just because they earn a salary.
An employee exempt from the minimum wage and record-keeping requirements of the FLSA (and thus, would not receive overtime pay) must meet these three criteria:
- Make a salary of at least in excess of $684 per week (or $35,568 per year)
- Must be paid on a salary basis or with an unchanging paycheck
- There is no regard for the quantity or quality of work. The exempt employee can work one hour or 100 during a work week and still receives the salary amount.
- Work in an executive, administrative or professional position. If the job requires a degree to perform duties, such as a doctor, lawyer or engineer, the employee is exempt from overtime pay per the professional exemption.
Some employees are only exempt from overtime pay, while others are exempt from both the minimum wage and overtime pay provisions.
Examples of specific exempt industries include:
- Some seasonal amusement or recreational establishments
- Certain small newspapers
- Seamen employed on foreign vessels
- Employees engaged in fishing operations
- Those delivering newspapers
Because exemptions are sometimes challenging to determine under the FLSA, an employer should confirm each position for eligibility. Check with your local Department of Labor office or legal counsel well versed in wage and hour laws.
What records do I need to keep to be compliant with FLSA?
For each employee, business owners must track:
- Employee’s full name and Social Security number
- Address, including ZIP code
- Birth date, if younger than 19
- Sex and occupation
- Time and day of the week when employee’s workweek begins
- The basis on which employee’s wages are paid (e.g., “$9 per hour” or “$684 a week,” or “piecework”)
- Regular hourly pay rate
- Total daily or weekly straight-time earnings
- Total overtime earnings for the workweek
- All additions to or deductions from the employee’s wages
- Total wages paid each pay period
- Date of payment and the pay period covered by the payment
For non-exempt employees, you must also track:
- Hours worked each day
- Total hours worked each workweek
These crucial records serve to protect both employees and employers. If a dispute arises, having this information can help you prove that you were paying employees correctly for the time they worked.
It will also save your business from penalties and fines. The DOL states: “Employers who have willfully violated the law may be subject to criminal penalties, including fines and imprisonment.”
How long must these records be kept?
Preserve at least three years of an employee’s payroll records and anything relating to collective bargaining agreements, sales and purchase records. For records used to compute employee wages, plan on keeping those for two years.
The types of data include:
- All timecards and piece work tickets
- Wage rate tables
- Work and time schedules
- Records of additions to or deductions from wages.
This information should be maintained and readily available for inspection by Department of Labor employees. Keep records either at the place of employment or in a central records office.
Also, check with your state’s wages and hour laws for added compliance requirements. Consult your legal counsel well versed in wage and hour laws or HR specialists for clarity on your regulatory compliance efforts.
What are the most common FLSA record-keeping violations?
There are seven common types of FLSA recording-keeping violations:
- Misclassifying employees
- Overlooking or encouraging off-the-clock work
- Failure to pay authorized overtime
- Not tracking work breaks properly
- Keeping inaccurate or incomplete records
- Not paying interns or volunteers appropriately
- Not staying current with DOL or state labor regulations
How can you avoid the most common FLSA record-keeping violations?
Prevention is the best approach any employer can adopt to avoid facing a Department of Labor audit.
A DOL audit can happen without notice and usually comes in response to employee complaints of not being paid fairly or missing a paycheck. Even if the complaints are unfounded, the more complaints employees report, the more likely you will face an audit.
An investigator could also show up at your business unannounced because the industry is known for its lack of record-keeping. In either case, stay ahead of the game by keeping accurate records.
If you’re found to be out of compliance, FLSA violations can range from $2,050 on up on a per violation, per employee basis. If you are fined for every single violation for each employee, that can add up.
Should a DOL investigator visit your business to perform an audit, give them your documents and a quiet place to review them. Make sure you and your employees are available to talk to the investigator.
5 tips to help you prevail in an FLSA audit
- Keep your employee records and information accurate, organized, readily available and current.
- Use employee time-tracking software that also tracks overtime, or a comprehensive Excel spreadsheet, to maintain accurate records.
- Ensure that both the employee and a supervisor or manager signs off the hours worked each week, so records show both parties confirmed the data.
- Regularly update your job descriptions, especially how much you’re paying people for that role and why. Job descriptions help prove you are paying employees equitably and per the law.
- Review your employee handbooks every two years, especially the time-keeping and recording sections, which shows that that your company follows FLSA guidance.
As always, when it comes to regulatory compliance, if you have questions about the complex wage and hour laws, consult an HR expert or legal counsel well versed in wage and hour laws.
Learn more about regulatory compliance issues like avoiding FLSA record-keeping violations by downloading our free e-book: HR compliance: Are you putting your business at risk?