This article was updated on October 2, 2019.

Small business owners should be aware that there are certain situations that require time tracking for employees, even when workers are paid salaries. By having a firm grasp on current government standards and proposed rules, small business owners can better determine their time-tracking needs when it comes to exempt and non-exempt workers.

Exempt vs. Non-exempt

Before developing a time-tracking plan, small business owners should have a basic understanding of the difference between an exempt and non-exempt employment status as defined under the Fair Labor Standards Act (FLSA). Non-exempt employees are usually hourly workers who meet certain requirements set forth by the FLSA. However, there are some salaried workers who are non-exempt, too. As the DOL explains, non-exempt employees are classified as salaried workers who earn less than $455 per week or $23,660 per year.

On the other hand, employees who perform exempt job duties and are compensated at not less than $455 per week and paid on a salary basis are classified as exempt. (See 2020 figures below. *)

Overtime Matters</p>

It is important to consider that overtime situations may occur for both exempt and non-exempt employees. Therefore, tracking time remains an important business function, regardless of employment status.

For instance, under the FLSA, when a non-exempt employee works more than 40 hours per week, the employer must pay workers "at a rate not less than time and one-half their regular rates of pay," according to the DOL. Individual states have their own overtime requirements that may require more generous compensation. Timekeeping is vital because small business owners can face compliance penalties and fines if overtime is not tracked or paid correctly for their hourly employees.

On the other hand, small business owners may find that time tracking for employees is not always necessary, especially for salaried, exempt employees, since their pay is generally straightforward and determined by their salary. However, the Business and Technology Law Group explains that employers may choose to provide additional compensation to employees who work beyond what the company dictates to be a normal workweek. In this case, time tracking may be necessary, even for exempt workers. For example: time off needs to be accounted for and businesses should be able to track that employees are working when they are scheduled to work. It is a best practice to have a signed record of time worked.

Proposed Overtime Changes

Despite current FLSA standards, it is important to note that the DOL passed a rule effective January 1, 2020,* that increases salary level requirements for white-collar and highly compensated employees and expand overtime pay protections. This is something small business owners should keep in mind when planning time-tracking initiatives, since it could affect a greater number of employees.

Staying informed of government regulations can help you better understand when it is necessary to track the work hours of your employees and and pay them according to federal and state wage and hour laws. This can help mitigate risks to your business, but it may also help foster better decision-making that could positively affect your workforce management down the road.

Want to learn more?

Be sure to read this alert about the 2020 overtime rules and subscribe to ADP's Eye on Washington to keep up-to-date on legislative updates.

Register for or replay ADP's 30-minute webinar to be held on October 16, 2019: "Understanding and Preparing for the New OT Rule Changes"


* On September 24, 2019, the United States Department of Labor (DOL) released its final rules for establishing the amounts required to be earned by an employee in order for that employee to be exempt from the Fair Labor Standards Act (FLSA) overtime requirements.

Under the final rule to be effective January 1, 2020, the amounts required to be earned by an employee for that employee to be exempt from the FLSA overtime requirements will be $684 per week ($35,568 annually).

The new salary level for a Highly Compensated Employee (HCE) will be increased to $107,432 from the current level of $100,000. Read the Eye on Washington to learn more.

Tags: Payroll Administration Time and Attendance FLSA Midsize Business Large Business Research & Insights Articles

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