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.