Employee record keeping requirements must include proper time and payroll records for it’s workers. The Fair Labor Standards Act, as well as most state wage and hour laws, are the ones who determine what is or is not “proper”.
In January, the USDOL (United States Department of Labor) announced that it had recovered $1 million in unpaid overtime from federal defense contracts in California. This recovered money was based, in part, on the DOL’s findings that the contractors had violated the record keeping requirements, which are part of the Fair Labor Standards Act (FLSA). Specifically, the DOL found that the contractors in question had failed to maintain proper time and payroll records for it’s workers. Read the entire article by clicking here.
The Fair Labor Standards Act sets minimum wage, overtime, record keeping, and youth employment standards. Unless exempt, covered employees must be paid at least the current minimum wage and not less than one and one-half times their regular rate for overtime hours worked.
Employers are also required to display an official poster outlining the provisions of the Fair Labor Standards Act. Posters are available free of charge from the DOL website at http://www.dol.gov/oasam/programs/osdbu/sbrefa/poster/matrix.htm
Every covered employer must keep certain records for each non-exempt worker. The Act requires no particular form for the records, but does require that the records include certain identifying information about the employee and data about the hours worked and the .wages earned. The law requires this information to be accurate. The following is a listing of the basic records that an employer must maintain:
- 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 week when employee’s workweek begins.
- Hours worked each day.
- Total hours worked each workweek.
- Basis on which employee’s wages are paid (e.g., “$9 per hour”, “$440 a week”, “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.
The U. S. Department of Labor indicates that an employer must keep payroll records and collective bargaining agreements for a period of three (3) years. Additionally, records on which wage computations are based, time cards, wage rate tables, records of additions to or deductions from wages, and work and time schedules need to be retained for two (2) years. These records must be available for inspection by a DOL Auditor, who may the employer provide extensions, computations, or transcripts of the records.
Employers may use any timekeeping method that they choose, as long as those records are complete and accurate; acceptable methods include the use of a time clock, appoint a single employee to be a “timekeeper” and record the hours worked by all other employees, or tell their the employees that they are responsible for documenting the hours that they work.
For employees who work a fixed schedule that seldom varies, the employer may keep a record showing the exact hours worked on a daily and weekly hours and indicate that the specific worker did follow the schedule as shown. If, however, the employee works a shorter or longer period that the schedule shows, these hours must be documented as an exception.
From my own past experiences, a contractor who performs work on Federal or State funded construction project subject to prevailing wage/Davis Bacon laws should keep records for 3 years after the project is complete.
Payroll is an essential part of your business – not just a weekly, bi-weekly, or monthly annoyance. Payroll is the primary way that employees are rewarded for good job performance and retained. If you are issuing late or incorrect paychecks it can lead to dissatisfied, unmotivated workers – or worse. It’s hard to keep good employees when a company gets payroll wrong.
The relationship between employees and employers is highly regulated by the government and many of these regulations involve payroll. There are literally hundreds of things that you have to know, as well as hundreds of mistakes that you can make. As a result, the payroll process is much more complicated than anyone who has never done it can possibly know.
The consequences of some mistakes can be more serious than just your paychecks simply being incorrect. Many mistakes result in getting a very hard time from people you don’t know (and certainly don’t want to know) – the federal and state enforcement types.
Below are 5 Common General/Miscellaneous Payroll Mistakes that can occur all year long.
1. Poor Record Keeping
You’ll need to maintain payroll records as a chronological history of your employment practices, which is certainly troublesome; but, the alternatives are the usual – fines, penalties, interest, and even jail.
Approximately 10 different agencies and laws have their own requirements – counting the state as only one. Did someone mention the “paperless office”? Below is a list of common items that you must keep – but we certainly won’t even try to advise you on the “how long you have to keep them” aspect.
- Timesheets
- Cancelled or cashed checks, check stubs
- Payroll registers (reports) showing payment, work or trade classification, and deduction detail
- Federal and State W-4 Forms
- Copies of Certified Payroll Reports for each prevailing wage job
- Copies of Form W-2 and 1099
Some states and/or agencies require an employer to be able to provide copies of these records within a certain period of time or incur the fines.
2. Being Ill-Prepared for an Audit
An audit of any sort – be it Worker’s Compensation Insurance, Prevailing Wage Audit, State Unemployment Audit, or a General Liability Insurance Audit – can happen at any time. Being prepared for that Audit can cut down on the amount of time you have to spend gathering all the data and even can cut down the amount of time that the auditor has to spend to do the review. (Which translates into you not being able to do the other things that you need to because you have to keep stopping what you are doing and running off to “find” something.)
Be organized, keep good records, and make QuickBooks track some of the information for you.
- If you work on Prevailing Wage Jobs – purchase inexpensive 3-ring binders and keep a job notebook with copies of the Certified Payroll reports.
- File Weekly timesheets and payroll summaries together.
- Make sure that you use QuickBooks payroll wage items to track employee work or trade classifications.
- Make sure that you have current W-4’s, I-9, and W-9 information on hand.
- Create a custom field in QuickBooks to track when Subcontractor Worker’s Compensation Insurance Expires
These are just a few of the things that you’ll need to track – it does give you a starting point.
3. Breaches in Confidentiality
It’s seldom that anyone talks specifics about their salary in public and no one should find out someone else’s salary in private.
There is at least one taboo left in public discourse: your weekly salary. The best place to find out someone else’s salary is in your company’s payroll processing records.
Most large companies have full-time professionals using automated systems with high levels of security. But, when you do payroll, do you push your ledger sheets aside to the corner of your desk to take a call or does your accountant pass the task around to several bookkeepers in the office?
Your payroll system should be designed with complete confidentiality in mind. Remember, it tells how much money you make, too!
Of course, all this tends to go right out the door if you work on Prevailing Wage jobs as this information is used to verify that employees are being paid the pre-determined rate for the Work or Trade Classification in which they performed work. So, even here, there is an exception….
4. Check Fraud
There are dozens of ways to change the dollar amount on a regular business check and, unfortunately, more are being invented every day. With sophisticated color scanners, copiers and printers easily available, reproducing checks to commit fraud isn’t rocket science!
Perhaps no one working for you would ever commit check fraud, but they might endorse your check over to someone who would. . . or, could it be that the person who you least suspect (your accountant, bookkeeper, even a ProAdvisor) will commit check fraud – we all read about it often enough in the newspaper. As a business owner, make sure that you monitor your checking account on a regular basis – monthly – or, that you actually balance the company account on a monthly basis and question checks appropriately.
5. Thinking that “NONE of THIS APPLIES” to me
This is the most dangerous mistake of all! Please don’t think that your business is too small, to local, or too simple to have to comply with all these constantly changing federal and state rules and regulations. Thinking that “None of This Applies to Me” is dangerous – so don’t fool yourself.
Assume that you must comply until you are definitely told otherwise. If you aren’t sure ….. pick up the phone, make some calls and ASK!
FREE Payroll Mistakes eBook:
Did you find QuickBooks Tips – Payroll Mistakes – Parts 1-4 helpful and informative? If so, request our FREE 18 page eBook; Payroll Mistakes – It’s NOT As Easy As 1-2-3, which expands on this series.
When a contractor works on Federal and/or state funded construction projects and fails to pay the appropriate “prevailing wages” or overtime to their employees and/or fails to submit the required “certified payroll reports” to the appropriate agencies —- well it’s pretty serious business.
The following article from SouthCoastTODAY.com will give you a little insight into just how serious it can be.
New Bedford drywall firm settles wage problem
By Staff Report
June 17, 2009
BOSTON — Attorney General Martha Coakley’s Office has reached a settlement with a New Bedford drywall company resolving allegations that the company failed to pay employees the prevailing wage rate, the correct overtime rate and failed to keep proper payroll records for work performed at four Massachusetts public works job sites.
Garcia Drywall Inc. and its president, Emanuel Garcia, have agreed to pay more than $41,600 in restitution to the affected employees and more than $18,000 in fines for intentionally violating the Prevailing Wage, and Overtime and Record Keeping Laws, Coakley’s office said in a press release.
In addition, Garcia Drywall has agreed to a one-year debarment, which prevents them from bidding on any public construction projects, as well as from accepting any contracts for public work for a one-year period in the commonwealth, the Attorney General’s Office said.
In an e-mail to The Standard-Times, the owners of Garcia Drywall wrote that they “truly regret the past errors in interpretation applied in our prevailing wage and overtime payment practices. Upon notification of a complaint, Garcia voluntarily came forward to resolve the aforementioned errors and are in the process, with the Attorney General’s Office, of making restitution to the affected past and current employees.”
The company owners went on to say they “regret any hardship that this may have caused to those affected employees and (we) are committed to complying with the laws of the commonwealth now and in the future.”
In January, the Attorney General’s Office received a complaint alleging that Garcia and his company failed to pay the prevailing wage rate to employees at public construction projects. Investigators from the Attorney General’s Fair Labor Division reviewed a self-audit prepared by the company and discovered that the company had misclassified 26 employees at four public construction sites, including two separate projects at UMass Dartmouth; the Massport State Police Station at Logan Airport; and the Prattville Apartments in Chelsea.
Additionally, according to the press release, Garcia Drywall failed to submit certified payroll records to the awarding authorities at these job sites. Investigators also discovered that the company failed to pay time and a half to employees for working more than 40 hours in a work week.
