This article was updated on Oct. 5, 2018.
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 nonexempt workers.
Exempt vs. Nonexempt
Before developing a time-tracking plan, small business owners should have a basic understanding of the difference between an exempt and nonexempt employment status as defined under the Fair Labor Standards Act (FLSA). Nonexempt employees are usually hourly workers who meet certain requirements set forth by the FLSA. However, there are some salaried workers who are nonexempt, too. As the DOL explains, nonexempt 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.
It is important to consider that overtime situations may occur for both exempt and nonexempt employees. Therefore, tracking time remains an important business function, regardless of employment status.
For instance, under the FLSA, when a nonexempt 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.
Proposed Overtime Changes
Despite current FLSA standards, it is important to note that the DOL proposed a rule that would increase 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.
* A U.S. District Court has temporarily blocked the new overtime rules from going into effect on Dec. 1, 2016. Read the Eye on Washington to learn more.
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