Employee Time Tracking – Why Is It Necessary and Even Required By Law?

Mike Kulakov, February 12, 2019
Employee time tracking is required by law - Everhour blog cover

Employee time tracking is vital for every employer. There must be a medium (such as timesheets or time tracking software) to track the number of hours worked by each hourly employee so that each of them is paid accurately for the hours they have logged in.   

Is employee time tracking required by any law?

Yes, employee time tracking is a part of recordkeeping requirements under FLSA (Fair Labor Standards Act) and many states’ law.

As per FLSA – a federal law, employers must have an accurate records of each hourly employee with detail of their number of hours worked per day and per workweek, date and time when the workweek began, hourly pay rate, regular earnings, overtime hours worked and overtime earnings. It is also required for the employers to keep three years record of each employee’s working hour as per the same law.  

Why employee time tracking is necessary for an employer?

Under federal law, hourly employees who work beyond 40 hours per workweek must receive an overtime pay for the extended working hours. Many state laws calculate the overtime pay as one and half times of their regular hourly pay rate.

Whenever employees claim for their overtime pay, employers can easily scan through their records and analyze whether or not that employee has worked overtime. If employers lack the complete and accurate record, then they cannot prove if the employee have actually overworked for the hours claimed. In such scenario, employers can be liable for the overtime pay and additional penalties by the court.  

Hence, recordkeeping of employee time tracking protects the employer against any overtime pay claims.  

Types of Employees

There are two types of employees – exempt employees and nonexempt employees. The key difference between them is the pay for working overtime.

Exempt, as the term suggests, is not liable for being paid overtime while nonexempt is liable for being paid extra hours they worked beyond their working hours. So, what makes an employee an exempt or nonexempt? Let’s find out!

Exempt Employees

Employees who are paid on a salary basis (for any week they work) or who are paid at least $445 per week are considered as exempt employees.

Exempt employees are not authorized for overtime pay as enforced provisions of FLSA. Employees who fall under executive, administrative and professional (including STEM – Science, Technology, Engineering and Math) categories are exempt employees who are paid minimum wages per week.

In order to to become qualified exempt, employees must undergo certain employment test. If they meet the requirements in the test, they’ll be entitled as exempt employees and shall not be eligible to extra payment for the work they perform over normal workweek.

However, in some states where employee is subject to both federal and state laws, overtime pay is considered according to the standard. Some employers may consider paying exempt employees an additional compensation in the form of bonuses or straight pay for extra hours they work, but all these should remain compliant with related laws.  

Though exempt employees are not eligible for overtime pay, employer should not stop tracking their time. Employee time tracking is vital for all businesses to analyze their growth and determine which employee is working their best to impact the company’s ROI. Overall, it’s a healthy habit to incorporate better working environment.  

Nonexempt Employees

Employees who work on hourly basis and are paid minimum hourly rate with eligibility to overtime pay for extra hours beyond their normal working hour (which is 40 hours per week) in any workweek are characterized as nonexempt employees. According to the state and federal law, the overtime pay is calculated as one and half times of their regular hourly rate.

DCAA compliance and time tracking

Time tracking is highly concerned with DCAA (Defense Contract Audit Agency) compliance. It applies when working with government organizations (contracts), you need to make sure you and your employees are following DCAA requirements.

For every company, the DCAA expects to follow the given guidelines for time tracking:

  • Every employee must track his/her own time on daily basis. Daily time entries are vital for this.
  • Every employee must record all the working hours whether they worked overtime, paid or unpaid.
  • There should be a proper time sheets with allocated hours and person for each project.
  • There should be an evidence that all employees know the rules of time tracking. DCAA recommends staff meetings, orientations and signage for this.

It is essential to keep all the records because DCAA has the power to do floor checks where the government can examine if your employees are actually at work and if they know the overall procedure and if there is proper tracking of their time and work.

Conclusion

One of the easiest ways to keep up with all the laws and requirements is by using an accurate time tracking software like Everhour. Everhour will help you provide an accurate audit log of all your records including employee time data so that you can easily determine the overtime hours and pay your employees to avoid any penalties or claims.

If you haven’t been tracking your employees’ time yet, then it’s high time to proceed!

Disclaimer: This article has no legal force and all materials are taken from public sources.

Mike Kulakov

IT entrepreneur, executive and a former engineer. Responsible for company growth as well as the team’s motivation. Big fan of playing tennis, snowboarding, traveling, reading books, and (of course) I live and breathe our product.