Most employers now use electronic timekeeping software for payroll purposes. These programs offer an easy means of accurately tracking employee work hours and breaks. Used appropriately, they can offer significant savings to employers – the American Payroll Association estimates that companies can save 9 percent on payroll by reducing certain timekeeping practices, such as “buddy punching.”
However, as a recent article in the Yale Journal of Law and Technology illustrates, certain features in these software programs may expose employers to costly wage and hour lawsuits and allegations of wage theft. In “When Timekeeping Software Undermines Compliance,” co-authored by University of Oregon law professor Elizabeth Tippett, 13 timekeeping programs were evaluated for their potential effect on compliance with federal and state wage laws. Although written for academic audiences and generally critical of regulatory gaps related to timekeeping software, the article serves as a useful reminder for employers to review how their timekeeping software operates and to implement best practices to avoid wage and hour litigation.
Following is a summary of the authors’ main concerns with certain features in timekeeping software.
The timekeeping programs examined in the article offered a variety of ways for supervisors to review, approve or correct employee timesheets. The authors were primarily concerned with programs that allowed supervisors to edit employee start and end times without any communication to the employee. Some programs allow supervisors to replace the employee’s start times with their scheduled start times.
The authors state, “Software that provides supervisors with unchecked discretion to edit employee time is problematic from a behavioral compliance standpoint because supervisors have a strong incentive to limit payroll costs by shaving employee time.” Ultimately, the authors recommend utilizing timesheet review procedures that require supervisors to note the reasons for editing start and stop times and to notify employees when their hours are changed.
Flagging time entries
A benefit of timekeeping software is the ability to aggregate and analyze payroll data. Most programs allow supervisors to flag and review certain types of time entries, such as overtime hours, which allow them to identify emerging trends in payroll. The authors’ main concern with such “flag and review” features, consistent with their concerns above, is the ability to contemporaneously adjust employee hours while reviewing the data.
For example, some programs would allow a supervisor to review all the overtime hours worked by an employee while also being able to edit the employee’s hours for that pay period. To counteract human nature, the authors recommend that any review of payroll data occur without the ability to edit the data.
Automatic break deductions
Some timekeeping programs allow employers to set up “rules” regarding how work time is calculated. For example, an employer may arrange for the program to automatically deduct time for unpaid meal breaks during a shift. However, under some state’s law, such as Oregon’s, if an employee does not receive an uninterrupted 30-minute meal break, the employer is required to provide compensation for the entire break.
Automatic rules for calculating breaks may not account for such circumstances and, as the authors note, once these rules are in place they are easy to forget. The authors recommend ensuring that any automatic functions in the software are easy to review and void when appropriate. Otherwise, employers may unintentionally miscalculate wages.
Many employers round start and stop times to the nearest five-minute increment in order to make payroll more manageable. For example, if an employee punches in within five minutes of 8 a.m., the timesheet would show a punch-in time of 8 a.m. The U.S. Department of Labor recognizes this practice and states that such policies will not lead to enforcement actions “provided that it is used in such a manner that it will not result, over a period of time, in a failure to compensate the employees properly for all the time they have actually worked.”
Employers should review any default settings in their timekeeping software to ensure that rounding policies do not favor the employer over the employee. For example, a policy that rounds up to a scheduled start time only when the employee punches in early would likely run afoul of many labor s regulations.
In short, the authors’ central premise is that many of the default settings in electronic timekeeping software facilitate and even encourage actions that may not comply with federal and state wage and hour laws. It is important for employers to understand exactly how their software operates, how supervisors and managers are interacting with the software, and what effect the software has on employee wages.
Employers concerned about any timekeeping protocols should contact the software vendor or counsel to discuss.
Andrew Narus is an attorney with Portland, Oregon-based Barran Liebman LLP.