August 4, 2016

Tracking Time for the Exempt Employee

Weekly HR News – FLSA

Tracking Time for the Exempt Employee

According to the Federal Labor Standards Act (FLSA), nonexempt (hourly) employees must be paid a minimum wage, as well as time and one-half their regular rate for all hours worked over 40 in a defined work week. Whereas, exempt employees are paid on a salary basis and based on other qualifying reasons, are exempt from overtime wages even if they work more than the designated 40 hours in a defined work week.

Hopefully your city has determined, or is working on determining, who is and who is not exempt from overtime under the new FLSA laws come December 1st.  If you need assistance review the previous article on this subject and plan to attend the KLC Conference session on the new FLSA changes this October.   

One question that always comes up in regards to exempt employees is whether or not the employer can actually track the time worked by exempt employees?  The answer to that is a confusing yes and no. 

So, let’s look at what an employer can and can’t do.  First, there is nothing that prevents an employer from gathering in and out times, even if the employee is exempt. The problem would come up if the employer actually uses it to determine hours worked for payroll purposes, as exempt employees are not paid based on hours worked. And if tracking is used it must be for a legitimate reason other than calculating pay and the employee cannot be disciplined for failing to use the tracking method. 

Some legitimate reasons include the allowance of comp time for exempt employees; when an employer is trying to determine the need for an additional employee; or the ability to make certain that all employees are following the schedule as set out in the personnel policy.  One other important reason is in regards to the avoidance of the issues that may come from the misclassification of employees as exempt.  If a mistake is made in classification (stating that an employee is exempt when really they should be non-exempt) and the employer has records of all hours worked the calculation of any overtime will not be as complex.  No matter what the reason NEVER use tracking to calculate the exempt employees pay.

Also important to note is that employers should track time for nonexempt and exempt employees differently. Nonexempt employees’ time worked is calculated by the hour. Calculating exempt employees’ time can be a bit more challenging. This can be done in different ways. Some employers track the days worked by exempt employees, yet do not track hours. Other employers track time worked by applying any vacation or sick leave for any hours not worked. In other words, the assumption is made that an exempt employee will be paid a regular salary unless any vacation or sick leave is utilized. This way, an employer can correctly record the time an exempt employee has worked, calculate any vacation time or sick leave that was used, while still avoiding tracking the exempt employee by the hour.

There are many Department of Labor Opinion Letters as well as court cases that give examples of what is and is not acceptable.  In Douglas v. Argo-Tech Corp., (6th Cir. 1997) the fact that an employee used a time clock did not make him a non-exempt employee.  The exempt status was legally based on the administrative exemption.  The need for tracking was based on the fact that the employer was required as a government contractor to keep records of the hours of all the employees no matter if they were exempt or non-exempt.  Unlike the non-exempt employees his salary was not based upon the time clock hours, he was not forced to use the time clock and there was no discipline for failing to use it. 

In a second case Talbert v. American Risk Ins. Co., Inc. the courts examined the ability to track time for compensatory leave.  They stated that the FLSA provision that authorized governmental employers to provide compensatory time off in lieu of payment of overtime compensation to non-exempt employees did not prohibit private employers from using compensatory time for exempt, salaried employees, as long as employer's use of compensatory time did not result in any improper deductions from employees' salary.  

As you can see from the information above, that although it can be done, tracking of an exempt employee’s time is a complex matter that requires serious thought and planning before implementation.  If an employer is going to track, the best practice is to have a written policy to notify employees of any established requirements. The written policy would state the requirement, (i.e. to record and track hours for compensatory time) as well as the method used for recording hours and to specifically state that this information will not be used to calculate payroll.

For questions on wage and hour issues or other personnel matters, contact Andrea Shindlebower Main with the KLC Legal Department.