Recent rules proposed by the Department of Labor, if implemented, will represent a big change in the way certain employees will be paid. The proposed changes would compel companies to reclassify some employees currently deemed exempt as nonexempt employees if their salaries fall below the new threshold for white collar workers. If the proposed rules are implemented, many businesses may be required to use timekeeping methods that they haven't previously.

For exempt employees, who receive salaries and aren't eligible for overtime, timekeeping typically isn't a necessity. Pursuant to the Fair Labor Standards Act (FLSA), however, employers must maintain accurate timekeeping and pay records for nonexempt employees in order to track and pay overtime. Under the FLSA, companies must pay non-exempt employees at least the minimum wage and not less than one and one-half times their regular rates of pay for overtime hours. Accurate timekeeping is a must, but what does accurate timekeeping mean in practice? Will any system of employer timekeeping suffice, such as a paper sheet or a digital tracking system?

Keeping Complete and Accurate Time

The Department of Labor's Wage and Hour Division is fairly flexible regarding how to record time, stating in its Fact Sheet #21 that "[e]mployers may use any timekeeping method they choose. For example, they may use a time clock, have a timekeeper keep track of employee's work hours or tell their workers to write their own times on the records. Any timekeeping plan is acceptable as long as it is complete and accurate."

Let's take a step back to understand why accurate timekeeping is so important: Good timekeeping helps comply with the FLSA's requirement. It can also greatly limit businesses' exposure to wage and hour litigation such as class action suits or Department of Labor enforcement actions that can cost businesses time and money and damage reputations. Employers may also carry the legal burden of showing proof of the accuracy of their records, according to the 7th Circuit U.S. Court of Appeals decision in Brown v. Family Dollar Stores of Indiana, LP. But employers can't follow their workers around all day, nor can they assume with full confidence that all employees follow their normal shifts to the minute.

3 Basic Timekeeping Systems

To help employees track employee hours accurately, most companies consider three basic systems of timekeeping, each with its own benefits. A time card system may be the most accurate because in and out times can be recorded to the second. A computer system may work just as well, depending on your workplace. The third option is time sheets filled out by employees that may allow for them to round off to the nearest 15 minutes (at most).

Rounding may be a concern for both parties, however. If you allow rounding, a good practice would be to audit time records occasionally. The audit should ensure that the rounding occasionally benefits both the employer and employee, in a manner that demonstrates an employee is fully compensated for all time worked. Stop rounding if the practice proves disproportionately beneficial to either side, especially the employer. As a best practice, employers should strive to accurately records hours worked by minute.

The Good Sense of Conducting Regular Audits

Whatever system you choose, you'll need to evaluate it regularly to help ensure your business remains compliant with the FLSA and relevant state laws. Especially when it comes to software-based or automated systems, the output you get is only as good as the assumptions you put in. To stay up to date, incorporate regular audits into any timekeeping system you implement.

* A U.S. District Court has temporarily blocked the new overtime rules from going into effect on December 1, 2016. Read the Eye on Washington to learn more.

Tags: FLSA pay Overtime Fair Labor Standards Act timekeeping