Publications > C & A News Alert - August 2011

Now There's an App for That: Payroll Recordkeeping in the Age of Smart Phones

In May of this year, in an effort to assist employees in tracking their own work hours, separate from their employer’s company time records, the federal Department of Labor (“Department”) launched its free smart phone application, “DOL-Timesheet”. The application (“app”) is described by the Department as “a timesheet to record the hours that you work and calculate the amount you may be owed by your employer. It also includes overtime pay calculations at a rate of one and one-half times (1.5) the regular rate of pay for all hours you work over 40 in a workweek.” The smart phone app does not handle items such as tips, commissions, bonuses, deductions, holiday pay, pay for weekends, shift differentials, or pay for regular days of rest.

By describing these separate, personal time records as potentially “invaluable”, whether intentional or not, the Department implies that employers cannot, or at minimum should not, be trusted to maintain accurate records of the hours worked and wages earned by their employees. With the Department actively encouraging employees to maintain their own records, it has never been more important for employers to comply with all the recordkeeping and minimum wage obligations under the Fair Labor Standards Act (“FLSA”), as well as all similar state statutes, such as the Illinois Minimum Wage Law (“IMWL”).

Here is a reminder of what your recordkeeping obligations are under the FLSA and the IMWL.

Recordkeeping Requirements

Both the FLSA and the IMWL require covered employers to maintain basic payroll and other records for each employee. Neither statute requires any particular form for the records but both require that the records include specific identifying information about the employee and the hours worked and wages earned and paid.

The following is a list of the basic payroll records that an employer must maintain:

1. Employee’s full name and social security number. If an employee has a separate “employee identification number” for payroll purposes, this information must be maintained.
2. Employee’s complete home address, including zip code.
3. Date of birth for employee under the age of 19.
4. Employee’s sex and occupation.
5. Time and day of the week when the employee’s workweek begins.
6. Hours worked each day.
7. Total hours worked each week.
8. Basis on which employee’s wages are paid, i.e., “$9.00 per hour”, “$500.00 per week”, or “piecework”.
9. Regular hourly pay rate.
10. Total daily or weekly straight time earnings.
11. Total overtime earnings for the workweek.
12. Total additions to, or deductions from, the employee’s wages. For all deductions, employers must maintain the appropriate document, signed by the employee, authorizing same.
13. Total wages paid each period.
14. Date of payment and the pay period covered by the payment.

The records required in numbers 6 through 11 are usually combined into one document, commonly referred to as a time sheet. Whether the time sheet is handwritten, computer generated, or “punched” (e.g., a time clock) doesn’t matter, as long as the employee’s daily start time(s) and end time(s) are recorded.

FLSA and IMWL require that these basic payroll records, as well as any collective bargaining agreements, employment contracts, and sales and purchase records for employees who are subject to minimum wage requirements, be maintained for a minimum of three years. Illinois employers should maintain payroll records through the employee’s employment plus an additional five years (ten years if the wages were paid per a written employment contract) to ensure that they are available if a wage claim is filed, as the Illinois Wage Payment and Collection Act has a five year statute of limitations for filing such a claim¹.

Statutory Penalties and Personal Liability

While employers often intuitively understand that business best practices require proper recordkeeping, some fail to appreciate the ramifications of not embracing these best practices. For example, in one recent case, a Maryland district court determined that a nonprofit that operated community living facilities owed over $525,000 to almost 400 employees in back wages and penalties. The court found that the organization failed to keep proper timesheets for employees and did not pay the proper wages and overtime owed.

In January, 2011, the Department settled a case with a couple of employers who provided intelligence and information technology services to the U.S. Army, after having found that the companies violated FLSA by not properly compensating workers for all on-call time, resulting in overtime violations. The employers violated the FLSA recordkeeping requirements for failing to maintain proper records of the number of hours worked by employees and their related compensation. The companies paid a combined total of $1,060,554 in back wages to settle the claims.

More recently, in July, 2011 a district court in Puerto Rico approved a consent judgment ordering a nursing home facility, and one of the company’s officers to pay nearly $19,588 in back wages and interest to ten workers employed as caretakers and kitchen staff. The case again involved willful and repeat violations of FLSA minimum wage, overtime and record-keeping provisions. Separately, the department has assessed the defendants $1,540 in civil money penalties for these willful and repeat violations.

Perhaps more importantly for purposes of this article, and specifically in light of the “DOL-Timesheet” smart phone app, in Brown v. Family Dollar Stores of Indiana, the Seventh Circuit Court of Appeals (which includes Illinois in its jurisdiction) held that when an employer fails to keep accurate records of work performed, the employer must bear the consequence of that failure. Specifically, that court stated: “where an employer failed to keep the proper and accurate records required by the FLSA, the employer rather than the employee should bear the consequences of that failure. To place the burden on the employee of proving damages with specificity would defeat the purpose of the FLSA where the employer’s own actions in keeping inadequate or inaccurate records had made the best evidence of such damages unavailable.”

According to the Department’s press release announcing the new app, “[t]his new technology is significant because, instead of relying on their employers’ records, workers now can keep their own records.” If you are asking why your employees would need or would want to keep their own, separate time records, the Department’s press release helpfully informs: “[t]his information could prove invaluable during a Wage and Hour Division investigation when an employer has failed to maintain accurate employment records.” U.S. Secretary of Labor Hilda L. Solis added this praise for the new technology: “This app will help empower workers to understand and stand up for their rights when employers have denied their hard-earned pay."

As the employers learned in the above cases, if they do not keep proper records of work hours, the Department and the courts will rely on employee testimony (and their smart phone records) to establish the number of hours worked – and that reliance is not likely to be favorable to the employer. Further, even if only one employee is alleging a single FLSA violation, it is important to remember that the Department can – and often will – investigate all of the employer’s relevant records to search for other possible violations.

The Employer’s Bottom Line

The bottom line for employers: if you can’t defend against an employee’s wage claim because you failed to maintain adequate records, it is likely that you will be found to have violated the FLSA. Violations will certainly result in an award of back wage payments to the impacted employees, but more importantly, could result in additional civil monetary penalties. Additionally, both the FLSA and the Illinois Wage Payment and Collection Act provide for personal liability for the business decision-makers (owners, officers, and even management personnel) found responsible for the violations, including additional fines and in extreme cases, imprisonment.

If you need assistance in determining whether your current recordkeeping policies and procedures properly protect you from potential FLSA and IMWL wage and hour claims, please contact Coman & Anderson, P.C.

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¹The statute of limitations under the FLSA is three (3) years for willful violations. The statute of limitations under the Illinois Minimum Wage Law is also three (3) years.

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