Want to Stay Out of News Headlines? Be Wary of Common Payroll Pitfalls!

All too frequently employers make news headlines for violating wage and labor laws. A recent example was cited in the Detroit News when it reported a major health care system was fined nearly $100,000 to settle payroll and record-keeping violations (Bouffard, 2017). Employers can find themselves unknowingly breaking the law by miscalculating overtime, unfairly rounding time clock punches, and docking pay. The Wage and Hour Division of the Labor Department (DOL) typically will complete an investigation when complaints are made.  If violations are found, the fines can quickly add up. In this recent case, the health care system violated the Federal Fair Labor Standards Act (FLSA).

According to the DOL, the FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in federal, state, and local governments. Employers are required to follow all the payroll rules established at the federal, state and sometimes local levels.  They are also required to post the FLSA Minimum Wage poster and the Michigan Workforce Opportunity Wage Act poster to remain in compliance with the law.

When a large health care system fails to follow the established rules, it is easy to imagine that startup companies and small to medium size businesses would be equally prone to making unwitting mistakes as well. Without the luxury of a human resource or payroll department, small businesses are left to find their way through the legal pitfalls, and unfortunately often fall short. The DOL lists the fines associated with violations that range from $1005.00 to $111,616.00 per occurrence.  To make matters worse, employers need to monitor federal, state and local laws as they are often different.

A simple mistake often made by employers is disciplining an employee by docking their pay when he or she fails to report to work on time. This type of policy is against the law as the State of Michigan notes “The employer is required to pay an employee for all wages earned” (MCL 408.472), and “Time records must be computed to the nearest 1/10 of an hour (6 minutes) or finer measure” (MCL 408.702; LARA). In contrast, the federal position per the FLSA allows an employer to round employee time to the nearest quarter hour. It is clear that payroll rounding is another example where employers can go wrong. Through HR consulting audits, it is discovered that employers may round up the time clock punches to “dock” time when employees show up for work late and they also round down at the end of the day to avoid overtime pay. Employers need to be careful with their rounding practices to ensure they are not violating federal, state or local laws.

The DOL provides several interesting examples for employers to use as a guide to test whether their practices follow FLSA laws. Here is one example they provided:

“An employer only records and pays for time if employees work in full 15-minute increments. An employee paid $10 per hour is scheduled to work 8 hours a day Monday through Friday, for a total of 40 hours a week. The employee always clocks out 12 minutes after the end of her shift. The employee is paid $400 per week. Does this comply with the FLSA? No, the employer has violated the overtime requirements. The employee worked an hour each week (12 minutes times 5) that was not compensated. The employer has not violated the minimum wage requirement because the employee was paid $9.75 per hour which exceeds the Federal minimum wage ($400 divided by 41 hours). However, the employer owes the employee for one hour of overtime each week”.

Wage and Labor laws are very complicated and startup companies and small to medium sized businesses often require expert help to maintain compliance.  Sage Solutions Group can be that help by providing complimentary audits to help ensure businesses are following the standards set the law.  Having a cost-effective human resource consultant can be just what employers need to avoid stiff penalties and fines for unknowingly violating the law. In general, if an employer follows the most stringent payroll practices when comparing federal, state and local laws, they will best suited to weather a DOL investigation.

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Bouffard, K. (2017, September 13). Henry Ford pays $90,000 fine on pay violations. Detroit News. Retrieved September 18, 2017, from http://www.detroitnews.com/story/business/2017/09/13/henry-ford-health-pay-violations/105576466/

https://www.dol.gov/whd/flsa/

http://www.michigan.gov/lara/0,4601,7-154-11407_32352-180812--,00.html