Protecting Employers Since 1985

Electronic Timekeeping – A Hidden Source of Liability

Your company utilizes electronic timekeeping software, whether purchased for internal use or provided by a third party payroll service. The system is operating, so it must be doing so legally, right? Not necessarily. On several recent occasions I discovered, much to the dismay of my clients, that the timekeeping system they have been utilizing for years was setup in a manner that violates state and federal wage and hours laws – often discovered, unfortunately and expensively, in connection with a Department of Labor audit or other legal action.

Below are a few examples of internal settings, not readily noticeable, that can be a source of potential liability – and they all stem from the manner in which the timekeeping system was set up:

  • Illegal “rounding” practices – the timekeeping system “rounds” employees’ time clock entries to the nearest quarter hour (or a similar increment), but only “rounds down,” in favor of the employer. The system must work both ways, and not just in favor of the employer. See, 29 CFR §785.48(b).
  • Uncompensated break times – the system automatically “clocks out” an employee for a break period that exceeds 15 minutes, making the break unpaid in violation of state and federal law. Employees must be compensated for all time spent in break or meal periods that are less than 30 minutes. See, 29 CFR. §785.18, .19.
  • Computation of overtime rate – when employees work at two or more different wage rates during the work week, the system calculates their rate of pay for overtime based upon the rate they were receiving when the overtime hours were worked, rather than a “blended” rate based upon their wages for the entire work week. See, 29 CFR §778.115.

In each of the above instances, the employer is incurring liability that grows with each passing day, week, month, etc. (the math adds up quickly, especially when you multiply the potential underpayment by the number of employees, each day, during every work week over a two-year period) – and is never even aware of it. Do not assume your system is operating in a lawful manner. Audit your electronic timekeeping system to ensure that it is recording your employees’ hours of work in a manner that complies with all of the requirements of the FLSA. When it comes to these systems, what you don’t know can definitely hurt you.

If you would like more information, or have questions about your timekeeping system, hours of work or the requirements of the FLSA, contact Attorney Alan E. Seneczko at (262) 560-9696, or alseneczko@wesselssherman.com.

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