FLSA Timekeeping Requirements For Nonexempt Employees

How do you track time so that it is compliant with federal labor laws? Which employees are exempt from FLSA? Ensure your company complies with the FLSA timekeeping requirements to avoid FLSA hour and wage violations. Learn about the FLSA exemption test, accurate timekeeping, and much more.

Okay… so what is the FLSA? The FLSA is the federal law established in 1938 by President Franklin D. Roosevelt, setting the standard for pay and work hours for hourly employees. This law is used to determine whether construction companies are treating their employees fairly, providing justified compensation, and paying for hours worked. As far as the actual verbiage of the law, according to the Department of Labor: The FLSA establishes the minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments. Covered nonexempt workers are entitled to a minimum wage of not less than $7.25 per hour effective July 24, 2009. Overtime pay at a rate not less than one and one-half times the regular rate of pay is required after 40 hours of work in a workweek. In clear terms, the FLSA has been established to make sure that employers pay their employees at least minimum wage for up to 40 hours per work week, and “Time and a half” for anything over. A “work week” can start any day during the week, and goes to that same time the following week, usually defined as Monday thru Sunday. Basically, it’s there to make sure you pay fair wages to your employees.

The construction industry has been monitored a little more closely, being the 4th most penalized industry under the FLSA laws. We’ll talk more about this later.

What this means is construction companies need to find accurate ways to track time, ensuring employees receive fair pay for time worked and are paid overtime. In the past, it worked to hire “1099” employees and treat them like sub-contractors. However, the Department of Labor has recently come down hard on this strategy, as many construction companies have had it proven they were overworking their employees. With employees working more than 40 hours but, because of the “sub-contractor” classification, were paid less than minimum wage or no overtime.

Having Employees Sign Time Sheets

Okay, so now that we’ve covered some of the basics of the FLSA, let’s go over what it looks like for a construction company to be compliant when it comes to wage and hour time tracking. It is important to research your state laws regarding minimum wage, as each one has different criteria based on their own living costs. While you can focus on the minimum wage of your state, even more, important is an accurate time tracking method for each employee. If you end up with a wage & hour violation the Department of Labor (DOL) is going to put the burden of proof on the employer to demonstrate they paid the employee fairly. In other words, if you can’t prove fair wages were paid out… you’ll be on the line for overages and fees.

Many companies ensure compliance by having daily time logs with signatures, ensuring with verbiage that indicates the employee agrees they are being paid fairly.

See the examples below:

FLSA timekeeping requirements for nonexempt employees

Safe: This is a DAILY TIME LOG, with date and signature. This identifies the job, cost code, and equipment used.

Perhaps the most important feature is the signature and date, which ensures accurate time was collected for that day, and the employee agrees it is accurate.

There are other versions of this time card. Generally, the more accurate the time card the safer.

Unsafe: The challenge with this time card is the lack of details and the absence of a signature line. Time cards that display an entire week’s worth of time on a single page are notorious for inaccuracies, which increase the likelihood of a Wage & Hour violation.

FLSA Exemption Test

So there is at least SOME silver lining to the FLSA rules regarding construction. Some employees are exempt from the wage and hour rules of the FLSA, but in construction, there won’t be many.

The FLSA law states that employees can qualify for the “Administrative Exemption” if they meet all three of the following criteria:

  1. The employee is paid salary that exceeds $455/week
  2. The employee performs office and/or non-manual work on behalf of your company that is a management or business operations role for the company or your company’s customers.
  3. The employee has responsibilities of significant discretion and judgment on behalf of your business.

To break this down, ask yourself the following questions in regard to each employee:

  1. Does this employee make more than $455/week?
  2. Does this employee only perform office work?
  3. Does this employee manage any other team members?
  4. Does this employee manage any business operations?
  5. Is this employee a decision maker?

If you answered “yes” to all 5 of those questions, it is likely this employee could be exempt from FLSA rules.

If you answered “no” then they likely fall under FLSA guidelines and you’ll need to make sure to pay them overtime.

This quick infographic should help clarify things a bit for you:

FLSA exemption test from FLSA Regulations

Don’t get too excited about all of this yet, however. Saying an accountant qualifies as exempt could be a stretch.

The general rule of thumb is any office employee that makes more than $100,000/year qualifies as exempt, as long as they perform at least one of the responsibilities listed above.

FLSA Hour and Wage Violation in Construction

A Wage & Hour violation is anything that results in employees being shorted pay. A claim is made when enough evidence is gathered to support an accusation.

Whether intentional or not, chances are high that your business has violated the FLSA laws regarding wages. Anyone with experience with multiple employers has been shorted wages, just as many employers have had employees misreport their hours resulting in an overpayment. In the past, this behavior was just considered part of the biz, but the times are changing.

If you’ve never had to experience a DOL investigation then you’re likely in the majority… for now. Don’t expect this to continue moving forward. In the last decade, there has been a significant increase in private cases (initiated by an employee) being brought forward against construction firms.As your business continues to grow the chances increase that you’ll have to deal with the Department of Labor sooner or later.

As wage & hour suits continue to rise, so are the classifications of those cases being prosecuted as class-action. With 75% of cases being considered class action suits in 2015, this indicates state and federal agencies are lowering the threshold for prosecution, which is resulting in low-cost, easy-win cases for prosecutors. The process of getting a case categorized as class-action is almost a guarantee the employer will lose the case.

In addition to the majority of cases receiving class-action certification, of all wage & hour suits, 75% resulted in a determination of a violation. This means the chances of an employee winning a wage & hour case is very high.

This infographic provides some Wage & Hour Lawsuit Statistics:

Construction most penalized for FLSA Wage and Hour Violations

Ensure Your Construction Company is Safe From FLSA Violations

As has been stated earlier, even the best practices can still result in a wage & hour case being brought against your construction business. However, there are a few steps you can take to protect yourself from liability.

  • Carry out an internal audit of all positions in your company, ensuring wage & hour rules are met for each role.
  • Anyone making less than $23,660 annually is automatically nonexempt – they automatically qualify for overtime rules.
  • Be sure to check the rules for anyone making between $23,660 and $100,000 annually, as most wage & hour violations happen within this group of employees.
  • Have systems and processes in place that ensure proper wages were calculated for your labor force.
  • “Commission” or “Piece-Rate” employees are not exempt from FLSA Wage & Hour Laws. Ensure time is being recorded and wages calculated for these employees.
  • Electronic time tracking apps such as BusyBusy are helping to protect many construction businesses from wage & hour lawsuits. This is due to accurate location and time tracking at the time of clocking in, clocking out, and taking breaks.

Worst Time Tracking Methods

With all the different strategies employers use to pay their labor force, there have been a few strategies used to circumvent the FLSA Wage & Hour laws. These strategies have created issues for construction companies all across the nation and with varying amounts of fines and back wages. Here are some of the strategies construction companies have used:

Piece Rate

Paying an employee for each “unit” of work accomplished. This payment method has issues when employees have put in more than 40 hours per week, without overtime compensation. Regardless of the pay, the employees are performing labor. A field labor employee cannot be considered exempt.

Commission

Paying an employee based on a “unit” of work, and/or percentages of the job value. Similar to piece rate, this pay structure has problems because as an employer the DOL is going to want to see the employee is paid at a set rate. The commission is notorious for variability.

Paper Time Cards

The benefit of paper time cards is primarily that they’re cheap and tangible. With the ease of carrying these paper cards around, many employers find it more efficient to gather time at the end of the day from their team. The challenge with paper time cards is the lack of verifiable clock in/out times.

Here are some of the challenges to using paper time cards:

  • Difficult to keep track of records over a long period of time.
  • Difficult to prove accuracy in court cases.
  • Scalability –  As a construction company grows, time tracking practices become more important and more challenging.
  • Double Entry – Any process that requires manual processes is subject to mistakes. Paper time cards usually have to be gathered from the field, then input into the accounting system.
  • Illegible entries create challenges for both employees and accountants, with many mistakes made due to poor handwriting.

As a rule of thumb, time cards that show the same clock in/out times day after day are generally unreliable and could open up a construction company to liabilities. One of the strategies construction companies have started using is having employees sign the time cards, as this provides an agreed-upon record of time worked. If this is you, be sure to include a lot of details, such as job or project #, as well as work codes, or cost codes. The more details, the better.

Under The Table

This is an obvious mistake for any company but has become especially dangerous for anyone in the construction industry. Paying employees under the table places the employer carrying ALL OF THE RISK, creating a ripe opportunity for the employee to sue for back wages… in a situation where there is no proof, ANY wages were paid. Resulting in the employer paying for the wages that were paid, as well as any determined overages that were missed, in addition to all of the fines.

In general, ensure your construction company can calculate an hourly rate, as well as overtime for each employee, for each paycheck. The more records an employer keeps, the more protected they become against wage & hour lawsuits.

Other Tracking Methods

There are strategies employers have chosen to track employees times. Here are a few:

Key System – This is when an employee carries around a set of tokens and flashes a different one in front of a reader/scanner depending on the function they’d like logged. While these are effective systems, challenges arise when employees forget to flash the correct token for each activity, creating a manual editing process for the bookkeeping team back at the office.

Supervisor Logs Time – Many construction firms have started making it the responsibility of supervisors/foremen to track the time of employees, requiring the team to check in at the beginning and end of their workday. The challenge with this system is scalability. Larger companies have struggled to keep track of which hours go with which employees, resulting in overpaid and underpaid team members, and usually requiring supervisors to spend extra time checking hours, usually after the workday.

Mobile timekeeping software- This method of timekeeping tracks the number of hours your employees have work. That information is integrated with your payroll software. Busybusy is a free GPS mobile tracking app that tracks your employee hours to eliminate time rounding and time-clock padding

Make sure your company complies with the FLSA timekeeping requirements to avoid FLSA hour and wage violations. FLSA doesn’t require a specific type of tracking methods for your employees. Any system that improves time tracking methods for your business is recommended, as long as it provides accurate records. One of the upsides to an electronic method is the ease with which you can quickly and easily pay your employees. Many construction companies have been looking to the world of apps to help manage time tracking. The benefits of busybusy have proven to be very valuable, such as adapting to labor laws, accurate time tracking, and instant payroll. Schedule a free demo today!