Day to day, business owners and C-level executives are focused on the big picture of the company: business growth and positive optics. When you’re looking at an enterprise from such a high level, the nitty-gritty details can get forgotten. One of those easily forgotten details: labor compliance.
Labor compliance at an enterprise level requires tracking and documenting a number of different moving parts. Not to mention an understanding of what details must be tracked for which employees. Enterprise-level labor and compliance are regulated by multiple laws, including the Fair Labor Standards Act and the Sarbanes-Oxley Act. These laws require enterprise-level organizations to keep detailed, meticulous records that can be time-consuming and confusing. Let’s break down exactly what you need to track and why.
Labor Compliance Laws
For an enterprise business to be in line with labor compliance laws, it needs to follow guidelines set down by the Fair Labor Standards Act (FLSA) and also look at how payroll costs (especially time off liabilities) affect financial regulations like the Sarbanes-Oxley Act (SOX).
Fair Labor Standards Act
The FLSA sets down regulations for:
- Minimum wage
- Overtime pay — which employees are eligible and when
- When workers are “on the clock”
- What hours are paid or unpaid
- Child labor standards
- Recordkeeping requirements
The FLSA is administered through the Wage and Hour Division of the U.S. Department of Labor. The FLSA also provides guidelines on recordkeeping. Investigators authorized through the Department of Labor conduct investigations to ensure compliance with the FLSA and check employment conditions.
The Sarbanes-Oxley Act of 2002 is a U.S. law that requires corporations to make financial disclosures to prevent accounting fraud. Also known as SOX or Sarbox, this law is designed to protect investors and create independent oversight of corporate accounting. SOX is administered by the U.S. Securities and Exchange Commission or SEC.
SOX has the largest impact for corporations in record-keeping for payroll and employee time off. To adhere to SOX guidelines, corporations must maintain stringently accurate accounting records of paid time off. Under Section 404 of SOX, senior management must attest to the accuracy of their financial reports, under penalty of law.
What’s Required for Labor Compliance
To be in compliance with the FLSA and SOX, corporations must accurately track employee time, adhere to business rules, and properly maintain documentation. These actions limit your company’s risk for non-compliance and expensive litigation.
Accurate Employee Time Tracking
For most organizations, the largest compliance concern and the biggest data set is tracking employee time. Not only is time tracking a compliance issue for enterprise-level corporations, but it’s also one of the largest line items for most businesses. Accurately tracking employee time ensures accurate payment of employees and compliance with the laws.
The FLSA sets standards for minimum wage, overtime pay, and record-keeping. Most companies have difficulty tracking hours worked, overtime pay, and maintaining accurate records without using an automated process. The American Payroll Association estimates that 1 to 8 percent of payroll costs are due to human error when using a manual tracking system. These errors not only add to higher costs for a corporation’s bottom line but can also open a corporation to wage and labor law non-compliance litigation.
Set and Adhere to Business Rules for Time Off
In addition to setting rules for the minimum wage and overtime pay, the FLSA also has regulations for how corporations manage time off, meal breaks, and rounding.
According to the Department of Labor, 88 percent of FLSA violations are overtime violations. Improper management of employee time off can cause other employees to unexpectedly work overtime.
It’s critical for an enterprise-level corporation to plan ahead for time off to accurately project operation costs and to be aware when one employee’s time off causes another to work overtime. Unexpected overtime can cost your company money and result in accidental non-compliance with overtime regulations.
SOX Section 404 stipulates that HR departments account for paid time off, which includes vacation time, paid holidays, and accrued PTO. This time is considered a financial liability for the company balance sheet. To comply with SOX and avoid litigation, it’s vital that your corporation rigorously and accurately track all employee time off.
To stay in compliance with FLSA labor laws and SOX, it’s important to set business rules for requesting time off, tracking meal breaks, and rounding hours worked.
Proper Tracking for Each Type of Employee
For corporations with a mix of different types of employees, it’s important to understand which FLSA and SOX regulations apply to which employees.
Full-time, salaried employees are exempt from time tracking and overtime pay, according to the FLSA. Contingent, contract, and hourly employees are considered non-exempt and must follow FLSA regulations.
If your enterprise-level corporation employs different types of employees, it’s important to recognize that depending on their employment type, they may or may not be affected by FLSA regulations.
Proper Documentation in Case of an Audit
The FLSA and SOX set down regulations for employee wages and time off, but they also set clear guidelines on what information must be collected and how long that information must be stored.
Hours worked, time off taken, pay rates, straight pay, and overtime earnings must be recorded, reviewed, authorized, and then stored in case of a future audit. These detailed records must be kept for at least three years, more in some cases.
If your company is audited and doesn’t have the correct documentation, it could result in an unfavorable audit and fines.
What You Can Do to Improve Compliance at an Enterprise Level
If you have concerns about labor compliance at your enterprise business, there are some simple steps and investments you can make to improve your data accuracy, make data collection and storage easier, and reduce anxiety over compliance and potential audits.
Automate Time Tracking
The easiest way to get more accurate data for FLSA compliance is to automate time tracking. Automated time tracking for an enterprise has a number of benefits, even beyond labor compliance. Automated time tracking limits time theft and accidental tracking errors, can more accurately track and predict payroll costs, and stores data for easy approval and long-term storage.
Automated time tracking software can also help your business to track employee time off. The more specific the data you can track, the more likely you are to have accurate records of the time off employees take and accrued paid time off. These accurate records will help your company to stay in compliance with Section 404 of SOX.
Automated time tracking does come at a financial investment for businesses, but the benefits, financial and legal, far outweigh the cost.
To improve data accuracy, your enterprise-level business should track tasks, not just hours worked. To track tasks, create pay codes that are attached to individual tasks. By tracking tasks, you improve your time tracking data and can more accurately track what employees do and how much time they spend on specific activities.
One of the many headaches faced by administrative workers is remembering all the weekly and monthly tasks required for accurate time tracking and employee payment. By automating reminders to employees to submit hours, you can save administrative time and ensure on-time submission of hours and approvals.
Use Cloud-Based Time Tracking
One of the many headaches of time tracking is submitting and reviewing hours. Using a cloud-based time tracking system can limit those headaches by making time tracking available to employees through an online system or app that can be accessed from anywhere. Cloud-based time tracking makes tracking time easier for everyone, which means higher employee compliance and accurate submissions. This can reduce employer compliance concerns and ensure that a company is complying with FLSA and SOX guidelines.
For many enterprise-level organizations, compliance with labor laws can be an afterthought. Unfortunately, non-compliance can lead to audits and costly fines. Accurate tracking of employee time off, time worked, and overtime can be simple and painless with the right tools. Accurate time tracking ensures that your business can avoid audits, costly fines, and time theft — saving you time and money.
About the Author
Page Grossman is a freelance writer for Replicon with experience writing about small business, the future of the workplace, and health. Replicon provides award-winning products that make it easy to manage your workforce. With complete solution sets for client billing, project costing, and time and attendance management, Replicon enables the capture, administration, and optimization of your most underutilized and important asset: time.
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