Small Business: Record Your Employees' Time!

By: Bill Pokorny

January 14, 2016

Over the years I've had the opportunity to represent and advise a number of small businesses on wage and hour issues. Small businesses are understandably reticent to spend money on legal fees, so my first contact with many of these clients tends to be after they are served with a summons or visited by a DOL investigator looking into complaints of wage and hour violations. Unfortunately, that's often too late for us to help the client avoid significant liability stemming from obvious and easily-avoided compliance problems. In the hope of sparing at least some small business owners the pain and expense of dealing with these mistakes after the fact, I'll be offering a series of posts on common wage and hour mistakes that we see again and again from small (and some not-so-small) employers. This week's edition: Keeping track of employee time.

Business owners, if you don't currently have any record of how many hours your employees have worked each workweek, do yourself and your future wage and hour attorneys a favor and follow these steps:

  1. Go to the store. Purchase a notebook. Any kind will do.
  2. When your employees get to work each work day, have them write their name, the date, and the time they arrived at work in the notebook.
  3. At the end of the day, have them write in the time they left work.
  4. If they took an unpaid break during the day of 30 minutes or more, have them write in the start and end time of the break.
  5. Then have them total up their hours for the day, minus any unpaid break, or do it for them.
  6. Repeat each day.
  7. When pay day comes around, make sure the amount you pay each employee matches up with the hours they've recorded in your notebook.
  8. Don't lose the notebook.

Follow the above steps and you will take your first major leap toward wage and hour compliance.

Why is this important? First, recordkeeping is mandatory under the FLSA and in most states. Employers who fail to keep required records may find themselves subject to fines and penalties if they are ever audited. Second, and of even greater concern, in a wage and hour lawsuit the burden of proof is effectively on the employer to show how many or few hours an employee worked in any given week. That is incredibly difficult without consistent, reliable time records. Failure to keep such records means that employees can easily come up with inflated estimates of their work hours, dramatically expanding your potential liability.

Of course, you don't have to use a notebook. If you want to create a custom time sheet form for your employees to fill out, wonderful, just make sure it has the basic information necessary to track their work hours on a daily basis, and ideally include someplace for each employee to sign at the end of the week or pay period to certify that their time entries are accurate. Go retro with an old-fashioned punch clock and time cards. Or opt for a computerized time and payroll system. Just make sure that you know how it works and make sure that you will still have access to your time and payroll records if you drop your contract or if the vendor goes belly up.

While the format is up to you, neatness and organization do count. Remember, you may need these records for up to three years under federal law (the statute of limitations for wilful violations under the FLSA), and even longer under state law. Make sure you can go back and reconcile the time records with your payroll. And also remember that you may need other people, like your CPA or lawyer, to be able to read these records. So make sure the records are legible and, ideally, in English. If you end up facing a lawsuit or DOL audit, the last thing you want to worry about is having to reconstruct your time and payroll records from a pile of indecipherable scraps of paper.

In our next installment - Don't pay your employees in cash!