Most Time and Attendance Systems Put You at Significant Risk of Paying Back Wages and Fines
There are a number of time and attendance systems in use around the world, with only a handful of major players. Every one of the major players is capable of ensuring companies comply with the provisions of the Fair Labor Standards Act (FLSA). So why are so many software packages implemented in such a way that companies continually violate the work week provision of the FLSA?
When employees are not paid correctly (the way outlined in the FLSA), the employer may be required to make up the difference between what the employee was paid and the amount he or she should have been paid (back pay). The FLSA provides for recovering unpaid minimum and/or overtime wages by various methods:
The Wage and Hour Division may supervise payment of back wages.
The Secretary of Labor may bring suit for back wages and an equal amount as liquidated damages.
An employee may file a private suit for back pay and an equal amount as liquidated damages, plus attorney's fees and court costs.
The Secretary of Labor may obtain an injunction to restrain any person from violating the FLSA, including the unlawful withholding of proper minimum wage and overtime pay.
Generally, a two-year statute of limitations applies to the recovery of back pay. In the case of willful violations, a three-year statute of limitations applies.
In the last two years, 100 percent of the clients I have consulted are at risk of back pay – and they had no idea. In some cases up to millions of dollars. None of these companies, in my opinion, are willfully violating labor laws. I’m of the opinion that neither the payroll staff nor the software companies really understand the FLSA. The fix may be easy or it may be difficult. Not doing it right could cause the companies millions more in future pay and not eliminate any risk of back pay. Or worse, doing it wrong may result in further loss of pay to employees.
The fix is simple. Time and attendance software installed for any significant period of time should be audited periodically. Take a look at one year’s worth of payroll records to search for pay errors. The system setup should be compared to FLSA language, employee pay policy, and union language where applicable. You may find that employees are being overpaid because a new pay rule was never updated in the software. I am stunned at how many companies do not take this simple action. I guarantee you that employees will point out when they are underpaid but never when they are overpaid. If they understood the Fair Labor Standards Act, there would be billions of dollars of back wages owed by companies across the U.S.