Running a business is complicated work – a lot of old-school processes can slow down the progress of even the most cutting-edge businesses. One of the biggest sources of this red tape is payroll. Your payroll system may be complex, be hard to use, and lack one-on-one support.
At CorpStrat®, we do payroll with a big difference – dedicated support from a payroll account manager, so that your payroll is in the hands of someone you know you can rely on. Here are the biggest risks we see in payroll set-ups that cause business owners some big headaches:
Inaccurate Overtime Exemptions
Risky practice:
- Assuming all salaried employees are exempt
- Failing to analyze under both federal and state law
- Failing to analyze whether an employee’s job duties qualify for exemption
- Making deductions of exempt employees’ salaries
Best practice:
- Establish a process to review the duties for new and changing jobs
- Audit all jobs in lowest two pay grades at least every other year
- Adopt a “safe harbor” policy for salary deductions
- Exempt employees must be paid a full salary for any week if work is performed, even if only a few minutes.
Independent Contractors
Risky practice:
- Misclassifying an employee as an independent contractor.
- Misclassifying a former employee, who has been re-hired, as an independent contractor.
- Assigning contractors work similar to an employee.
Best practice:
Establish a process to preapprove contractors and be sure to analyze an independent contractor’s status under:
- IRS 20-factor test
- FLSA economic reality test
- Federal common law
- State law
Timekeeping
Risky practice:
- Paying employees based on their scheduled shift.
- Rounding shift times up or down
Timekeeping Red Flags:
- Same in and out times almost every day
- Same out/in time for meal period every day
- No out/in time for meal periods
- Time punches are always the exact time that the shift begins
- Time punches for all or most employees are at almost the exact same time
Best practice:
Use electronic timekeeping. Require workers punch in and punch out when they begin or stop working, as well as have them certify their hours worked.
Training & Meeting Time
Training time is considered compensable working hours unless all four of the following requirements are met:
- Attendance is outside regular working hours
- Attendance is voluntary
- The training/meeting is not job related
- The employee does not perform any productive work during the training/meeting
Travel Time – FLSA
What is considered compensable travel:
- Travel time between job sites
- Travel to another city for special one-day assignment
- Overnight travel during the employee’s normal work hours (on a work or non-work day)
What is not compensable includes:
- Normal home-to-work commuting, unless an employee begins a substantial amount of work prior to commuting
- Overnight travel, if it is outside the employee’s normal working hours (on a work or non-work day)
Pre- and Post-Shift Activities
What is considered work and requires pay:
- Booting up and turning on the computer
- Reading emails
- Shift-change conversations
- Donning and doffing
What is not considered work and doesn’t require pay:
- Commuting
- Walking from the parking lot to the work station
- Waiting to punch a time clock
Bonuses and Commissions
Risky practice:
Not paying the additional overtime due on bonuses or commissions.
Best practice:
Audit payroll systems to ensure:
- Bonus and commission pay codes are flagged as included
- Tied to workweeks over which it was earned
Weekly “Extras”
Risky practice:
Not including weekly “extras” in calculating overtime pay, such as:
- Shift differentials
- Job differentials
- On-call pay
- Prizes and awards
Best Practice:
- Add weekly “extras” to other wages to calculate the correct regular rate of pay.
- Ensure each pay code in your payroll system is flagged as included or not included in the overtime calculation.
Business Expenses
Risky practice:
Making deductions from non-exempt employees to pay for:
- Tools, equipment
- Uniforms
- Travel expenses
- Cash register shortages
- Unreturned company property
Best Practice:
- Never issue a paycheck that is below the minimum wage, and always obtain an employee’s authorization for any deduction.
Meal Period Deductions
Risky practice:
- Automatically deducting unpaid meal periods from a non-exempt employee’s pay.
Best practice:
- Require employees to clock out and back in for meal periods, in addition to requiring workers certify they took a meal period.
If you’re not sure that your payroll practices are fully compliant, chances are you’re taking an unnecessary risk. CorpStrat® can make migrating and maintaining your payroll policies simple and friendly with our dedicated support.
