How to Comply with Payroll Record-Keeping Requirements

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This is the first in a three-part series of articles on wage and hour compliance. Today's article examines federal and state record-keeping requirements for nonexempt employees. Read the second part here and the third part here. 

Complex wage and hour laws are the source of both many headaches for HR and many class-action lawsuits from employees. Even when nonexempt employees are properly paid, businesses can still find themselves in hot water if they don't keep proper payroll records. Here are some tips for complying with federal and state record-keeping requirements.

First and foremost, it's imperative that an employer comply with the federal Fair Labor Standards Act (FLSA), said Joel Rice, an attorney with Fisher Phillips in Chicago. Once this is assured, employers should thoroughly research the state-specific requirements for each location in which they operate, he said.

"Generally, the requirements that are more restrictive—i.e., more employee-friendly—are applied," noted Cheryl Orr, an attorney with Drinker Biddle & Reath in San Francisco. "Multistate or national employers should work with their counsel for guidance on what they need to store, for how long and where."

[SHRM members-only toolkit: Complying with Workplace Records and Reporting Requirements]

Federal Rules

The FLSA's record-keeping requirements are straightforward and focused on the information contained in the records rather than method, order or form of those records, said Dena Sokolow, an attorney with Baker Donelson in Tallahassee, Fla. Employers must record and maintain specific information to demonstrate compliance with the FLSA provisions relating to minimum wage, overtime, equal pay and child labor.

The records must be kept in a safe and accessible location either at the worksite or at a central record-keeping office. Either way, the information must be made available to U.S. Department of Labor (DOL) representatives within 72 hours of a request.

The DOL's Fact Sheet #21 lists the detailed information employers are required to maintain. Among other data, records must include:

• The employee's full name and Social Security number.
  
• Total hours worked each week.
  
• The basis on which an employee's wages are paid.
  
• The employee's regular hourly pay rate.
  
• Total daily or weekly straight-time earnings.
  
• Total overtime earnings for the workweek.
  

"The FLSA mandates that payroll records, among other things, be kept by the employer for at least three years," Rice said. "Other records, such as time cards, are required to be maintained for two years."

There are additional rules for tracking tipped employees' hours and earnings. Sokolow said the payroll records must identify the employee as a tipped employee and employers must keep:

• A record of the employee's reported tips on a weekly or monthly basis.
  
• A record that reflects the tip credit applied.
  
• A record showing that any changes in the tip credit were given to the employee in writing in each week where a change occurred.
  

"If an employee performs both tipped and non-tipped work, the employer must keep separate records for the hours worked in each classification," Sokolow added.

The FLSA doesn't dictate what specific time-keeping method employers must use—such as a time clock or written records. "The important thing to remember is that time should be recorded contemporaneously with the work being performed to ensure the accuracy of the records," Sokolow said.

State Laws

State laws may differ from federal record-keeping requirements. For instance, the scope and length of record-keeping requirements may vary, Rice said. Some documents that may be subject to the two-year requirement under the FLSA may be subject to a three-year—or lengthier—requirement under applicable state law.

While federal law does not require the employer to provide employees with pay stubs, many states do—whether the pay stub is printed or electronic, Sokolow noted.

In California, employers must maintain accurate information for each employee in English in ink or another unalterable form, Orr said. The information must be dated and kept on file for at least three years at the place of employment or a central location within the state. Employers must record additional information for California nonexempt employees, such as meal periods and split-shift intervals.

When applicable, piece rates or an explanation of an incentive plan formula must be recorded and provided to California employees.

Points for Employers

Employers should work with counsel to ensure compliance with the state-specific requirements for each location in which they operate—to the extent that such laws impose more stringent requirements than the FLSA, Rice said.

Orr noted that most attorneys maintain charts on the various jurisdictions' record-retention requirements to determine how long government agencies and various laws require specific payroll records to be retained. 

Employers of all sizes should develop a records-management program that addresses who has access to the records and the form in which they are kept—including guidance on both paper and electronic documentation, she added. "It is also important that the utmost is done to protect the confidentiality of employee records and the privacy of information contained in them."

This was the first in a three-part series of articles on wage and hour compliance. The next installment will examine the differences between federal and state overtime requirements. The final segment will discuss federal and state laws that apply to tipped employees. 

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