The Cost of Inaccurate Recordkeeping on Time Tracking & Payroll Compliance

June 11, 2021 - minute read

When it comes to paying employees correctly, many employers forget the key is often in time tracking and compliance rather than any math calculations. As a recent example, a court case from earlier this year started with allegations over unpaid work hours and ended in a full blown lawsuit with the Department of Labor (DOL) over unreliable records and claims that instruction had been given to employees to not record pre- and post- shift work.

The case, U.S. Department of Labor v. Five Star Automatic Fire Protection LLC, is yet another cautionary tale for employers who are using outdated time tracking methods. The manual timekeeping and mismanaged workforce data resulted in $121,687.37 in back wages and liquidated damages.

Let’s go over some of the key takeaways from the case, and identify how you can safeguard your operations against similar payroll mistakes.

DOL v. Five Star Automatic Fire Protection LLC

Hourly construction workers of Five Star Automatic Fire Protection LLC, who hand-recorded their hours on a company time sheet each work day, brought claims forward against their employer for not compensating the hours worked before and after their designated shift times. The employees testified that they were expressly told not to include the overtime, which inevitably resulted in concerns of wage theft.

All attainable evidence showed that the employees were definitively owed compensation, but the employer refused to back the wages, arguing that their employees should have recorded the appropriate times the first time. When asked to produce accurate records of the off-the-clock times to justify their counter claim, the company could not. The only charts the owner could offer were constructed from memory.

After a thorough investigation, the courts found the company liable. The DOL filed suit against the company, alleging overtime and record-keeping violations of the Fair Labor Standards Act (FLSA) and sought back wages and liquidated damages for the employees. For other hourly workforce employers watching from the sidelines, it may be time to consider the potential costs of your own payroll practices.

Key Compliance Takeaways of the Lawsuit

Without extensive time collection data and proper payroll records, your business doesn’t stand a chance against claims of uncompensated work. That’s why it’s important to regularly review your practices and learn from others’ mistakes.

Based on the aforementioned compliance case, here are some key takeaways to keep your payroll efforts consistently compliant:

  • If you’re still using manual time keeping practices, consider switching to a cloud-based time and attendance system. Adopting more secure time collection methods can help defend your operation against potential time theft scenarios and any pitfalls related to record-keeping, payroll and tax management.
  • Including lawful payroll policies in your employee handbook isn’t always enough. You must ensure your supervisors and workforce members are actively following the policies in daily practice to guarantee your defense against claims. Even if your guidelines are compliant, if your employees’ actions aren’t following them, you could still be liable.
  • Accurate records of all employee time and attendance data are critical to maintaining compliance, especially when it comes to processing payroll. No matter how you choose to track and analyze hours or wages, you cannot risk filling in blanks with guesswork after-the-fact. Keep workforce management a top priority without exception, and hold your team accountable for analyzing inconsistencies if they arise.
  • Even if you’ve implemented a strong payroll policy, you should regularly review it to avoid liability under the FLSA. Staying up-to-date on federal, as well as state-level, changes is a simple step that could save your business from complicated lawsuits later on. Stay conscious of court cases and industry changes in order to get ahead of potential setbacks.

For more guidance on avoiding making common payroll mistakes, check out our guide: “Payroll Compliance Checklist: Your Guide To Not Getting Sued.”

Say Goodbye to Inaccurate Payroll

With the workforce management technology available for modern businesses, there’s no longer an excuse for inconsistent timekeeping records, inaccurate payroll, or noncompliance. EPAY's complete payroll and tax processing solution works alongside our award-winning time and attendance software to make managing and paying hourly workforces like yours that much easier.

Our Human Capital Management (HCM) platform accommodates multiple FEINs, states, and localities while also being able to process garnishments, year-end taxes, and pay card programs with ease. With flexible pay rules, compliance safe guards, and mix-and-match time collection options, you’ll be able to customize your experience to fulfill the unique needs of your business.

Check out “The Ultimate Guide to Human Capital Management Solutions” for more insight on the benefits of an HCM solution. Want to see our solution in action? Take a two minute tour, or register for a personalized demo today!

Filed Under: Compliance COVID-19 Human Resources