Top 10 payroll mistakes

Published
  • September 20 2017, 12:10am EDT
Although the fate of the DOL’s overtime rule currently sits in limbo, there are still a number of compliance red flags related to employee payrolls that can end up in some costly legislation.

Speaking at the Society for Human Resource Management’s annual conference in New Orleans, Tammy McCutchen, a principal at Littler Mendelson, offers some best practice tips for employers on a number of payroll policies, like timekeeping practices and payroll deductions.

Top 10 payroll mistakes

Although the fate of the DOL’s overtime rule currently sits in limbo, there are still a number of compliance red flags related to employee payrolls that can end up in some costly legislation.

Speaking at the Society for Human Resource Management’s annual conference in New Orleans, Tammy McCutchen, a principal at Littler Mendelson, offers some best practice tips for employers on a number of payroll policies, like timekeeping practices and payroll deductions.

10. 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.

“Workers could say they worked through lunch,” McCutchen warns. “How can employers prove that? You don’t have the proof against their claims.”

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9. 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.

If employers do need to deduct for tools or equipment, McCutchen advises not to do it all in one paycheck. Instead, go in and take a small amount spread out over multiple pay periods, she says. Adding with regard to any employers in California, just don’t make deductions at all.

8. 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 practices: 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,” she says.

7. Bonuses and commissions

Risky practice: Not paying the additional overtime due on bonuses on commissions.

Best practice: Audit payroll systems to ensure:
· Bonus and commission pay codes are flagged as included
· Tied to the workweeks over which it was earned

“A review of your company’s earnings codes is often the best and quickest way to identify compensation being improperly excluded from the regular rate,” she says.

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6. 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 form the parking lot to the work station
· Waiting to punch a time clock

5. Travel time – FLSA

What is considered compensable travel:
· Travel time between job sites
· Travel to another city for a 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).

4. 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

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3. Timekeeping

Risky practice: Paying employees based on their scheduled shift.

Best practice: Use electronic timekeeping. Require workers punch in and punch out when they being or stop working, as well as have them certify their hours worked.

In addition, McCutchen advises employers pay to the punch without rounding to avoid any possible compliance faults.

Some time record red flags she warns employers to look out for include:
· Same in and out times almost every day
· Same out/in time for meal period every day
· No out/in times for meal periods
· Time punches are always the exact time that the shift beings
· Time punches for all or most employees are at almost the same exact time

2. Independent contractors

Risky practice: Misclassifying an employee as an independent contractor.

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

McCutchen points to some red flags where employers could be misclassifying employees as independent contractors. Being former employee, performing the same type of work as an employee or being paid by the hour are all possible causes for concern.

1. 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

And McCutchen emphasizes exempt employees must be paid a full salary for any week if work is performed, even if only for a few minutes.