Cover Package: Regulatory Compliance Tech Support

Time-tracking systems play a key role in complying with wage and hour laws and in reducing compensation claims.

By Dave Zielinski Feb 1, 2013
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0213cover.gifTalk to human resource leaders who have invested in a next-generation automated time-tracking system, and the first benefit they're likely to mention will be process efficiencies. These systems greatly reduce HR and managers' administrative burdens around tracking employee hours, enable automated shift scheduling, and generate detailed and actionable labor cost reports.

Given the complex federal and state wage and hour regulations with which HR professionals must contend, these automated systems must be "compliance-smart" as well. Time and attendance issues such as accurate overtime pay, meal and rest break periods, and minimum-wage laws are common targets for employee lawsuits, and time-tracking technologies that calculate or record those data often attract the attention of plaintiffs' attorneys.

Leah Messenger, a payroll and project manager for Aztec Shops Ltd., knows the importance of complying with regulations. All employers must comply with the federal Fair Labor Standards Act, which establishes standards for overtime pay, minimum wages, youth employment and payroll record keeping. Some states' wage and hour laws are more rigorous than the federal FLSA. Messenger's time-tracking system has to account for California's employee meal and rest break period mandates, a provision that's not in the FLSA.

California employees can't work for more than five hours without an off-duty meal break. Aztec Shops employs 650 students and other part-time employees who sell textbooks and clothing and who provide food service on the San Diego State University campus. If an Aztec employee works more than five hours without a meal break, the Kronos system Messenger uses automatically assesses one hour of missed lunch. "If one of our employees forgets to clock in and out for the meal, the system puts a missed lunch on their timecard for them," Messenger says.

Just as important, the time-tracking system includes "attestation" statements that enable Aztec employees to approve their timecards at designated periods. That's essential, say employment attorneys, since such "auto-deduction" features can leave employers vulnerable to lawsuits if they don't check back with employees to ensure that the workers actually took their full meal periods.

Messenger says the system enables accurate tracking of overtime and breaks, and its reports provide data on employee work time in granular detail.

"If I want to know who had a missed lunch for a certain pay period in a specific department, I can run reports just for that," Messenger says. "I can do the same for overtime pay. Our department managers used to have to ask our information technology group for these reports."

Messenger says her two-year investment of $500,000 in the Kronos software-as-a-service time-tracking system, including seven software modules and some customization, has been "well worth the cost."

Complex Laws

While many wage and hour regulations are straightforward, human resource leaders, corporate counsel and line managers need to be educated on—and automated time-tracking systems need to reflect—variations and exceptions to those rules.

Employers need to know, for example:

  • When exempt employees might be eligible for overtime.
  • How to correctly calculate overtime.
  • When certain work considered "off the clock" might be compensable.
  • How minimum-wage rules vary, depending on the nature of the job and job holder.

Chief among those challenges is understanding the differences between federal and state laws, says Lisa Schreter, a shareholder and co-chair of the national wage and hour practice group at law firm Littler Mendelson in Atlanta. Many states have their own minimum wages, overtime pay, and meal and rest break period laws. "When Congress wrote the FLSA, it didn't pre-empt state law, so both federal and state wage and hour law can apply to employers," Schreter says.

Employees covered by federal and state overtime pay laws, for example, are entitled to the higher rates of pay called for. There also can be contractual, state-specific wage payment requirements and state wage statutes apart from minimum-wage or overtime requirements. "In regard to the FLSA, you have its statutory requirements, but then layered on top of that are regulations interpreting those requirements," Schreter says.

This creates an intricate web of laws that time-tracking technologies need to address.

Early generations of these technologies were designed with little input from employment attorneys or human resource experts knowledgeable about wage and hour issues, says Schreter, who worked in HR before moving to law. That situation has improved with newer automated systems. "The early technologies strived to give employers a great deal of flexibility around things like staff scheduling, which is good provided that flexibility is consistent with legal requirements," Schreter says.

The automatic meal deduction component of time-tracking technology—the feature used by Aztec Shops—has been a target for recent litigation, Schreter says. Rather than requiring employees to punch in and out for meal breaks, the software provides automatic deductions from pay for meal periods.

The practice is lawful, Schreter says, so long as employees actually take full meal periods. She says plaintiffs' attorneys have argued, with mixed results, that some timekeeping systems with the auto-deduct feature violate federal or state laws because they don't have mechanisms for checking with employees to ensure that the workers took those meals.

"More of today's systems do have the capability of asking employees at the end of each workday whether they took their duty-free meal periods," she says. "Unless employers have that kind of verification system in place, they leave themselves susceptible to disgruntled employees who may say they didn't get their meal periods."

Legal Vulnerability

Other areas of wage and hour compliance that can be trouble spots include accurately classifying exempt and nonexempt employees, determining when workers officially go on or off the clock, and navigating timekeeping rounding rules, says Brian Koniuk, a principal who leads the workforce management practice at The Hackett Group in Miami.

"We've seen a growing amount of litigation around employees classified as exempt who may not necessarily be doing exempt types of work and who might be owed overtime," Koniuk says.

Determining when employees officially start their workdays is also receiving attention from the plaintiffs' bar, he says. Koniuk cites the example of a call center service representative. "Are they officially on the clock when they walk into the call center, or when they turn on their computers, or when they put on their headsets?" he asks. "What is the moment that constitutes start of pay?"

Rounding employees' punch or "swipe" times up or down to the nearest tenth of an hour can also lead to lawsuits, Koniuk says.

At least one recent court case involving rounding favored employers, however. In a 2012 California class-action lawsuit involving See's Candy Shops of San Francisco, an appeals court ruled that California employers may round employees' time entries, provided workers are properly compensated over the long run—in effect, adopting the federal rule on the practice and permitting rounding.

Mobile-Friendly Tracking

Improving accommodations for mobile workers serves as a growing rationale for implementing next-generation time-tracking technologies, while still ensuring compliance with wage and hour laws. CORA USA is a Springville, Utah-based company that provides staffing and marketing services for special events held within U.S. Costco stores. CORA workers used to call in from Costco phones to clock in and out each workday.

"We knew, based on caller IDs, where they were calling from, but the process was inefficient," says Aaron Stern, SPHR, CORA's senior director of human resources.

The company now uses FotoPunch technology. Facial recognition and GPS features allow CORA employees to clock in and out using the cameras on their cell phones.

"Employees take a picture of themselves in front of their displays at Costco, and we get facial recognition to confirm their identification and eliminate any buddy punching," Stern says. The technology automatically compares check-in or check-out times with the employee's shift schedule. And with GPS technology on smartphones, "we know they are clocking in where and when they say they are."

CORA relies on its vendor-partner to help it comply with wage and hour laws. "We have employees in 35 states, so we have to deal not only with federal regulations but also with varying state regulations," Stern says. "We have a small administrative staff, so we're relying on the vendor's expertise and technology for things like calculating daily and weekly overtime provisions for employees based on the different states they work in." One example of a state complication: Unlike the FLSA, California has a daily overtime requirement for employees working more than eight hours a day.

The FotoPunch system factors in breaks for workers in states with mandatory meal and rest break laws. "We know when employees are and aren't taking breaks in localities that mandate it, which keeps us compliant with varying laws," Stern says.

Another employer with 600 employees working from field locations implemented a cloud-based time-tracking system from Replicon three years ago. The Institute for Applied Behavior Analysis in Los Angeles provides services for adults and children with developmental disabilities. The prior paper-based system required workers to fill out time sheets and then drive them to regional offices for processing, says Ashley Cleary, director of administrative services.

The institute's employees now can fill out timecards online from the field, and the Replicon system automatically feeds data on work hours, overtime and standard hourly rates into an Automatic Data Processing system for payroll processing, says Cleary, who oversees HR.

"Being located in California, we have stricter wage and hour laws, and we rely on our vendor's knowledge and software to help calculate and run accurate overtime reports."

Applying Rules Uniformly

At Mitsubishi Motors North America in Normal, Ill., an automated Kronos time-tracking system has brought consistency to manufacturing plant managers' interpretations of wage and hour issues, says Andy Whaley, a finance manager who oversees timekeeping technology.

Under a manual system using paper timecards, department managers sometimes applied work or pay rules differently, meaning employees' punch times could be rounded inconsistently.

"Two people in the plant with similar jobs who worked the exact same amount of time could potentially get paid slightly differently," Whaley says. "The automated system and software have helped us follow more-uniform rules."

The system also captures overtime more accurately. "If someone is asked to stay over after a shift, they might have 18 minutes of overtime, which is now logged more accurately with a swipe of their badge through a reader," he says. "With those swipes captured in the system, we can easily go back and show an auditor or anyone else exact records."

If the automated system requires manual overrides—for example, if an employee forgets to swipe in or out and a supervisor has to log onto the system to record times—the software captures who made the changes and when.

Schreter cautions that automated systems allowing managers to edit time records have legal vulnerability. In some court cases, plaintiffs' attorneys have accused managers of nefarious motives, such as falsifying employee records. Systems that allow managers to note why time records were changed help protect against those claims.

Culture and Training

While "compliance-intelligent" timekeeping software can shield against lawsuits, technology is only as effective as those who use it. Legal protection can be established by creating an organizational culture of compliance and regularly training managers and employees in wage and hour policies, experts say.

"I have worked with some large organizations who were implementing automated time and attendance systems, and I found that line managers didn't always understand what the wage and hour compliance laws were," Koniuk says. When managers understand overtime, meal and rest break requirements, minimum wage, and other components of wage and hour laws, "they can start to better manage related processes instead of having those processes manage them."

The author is a freelance writer and editor based in Minneapolis.

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