Employee Records, Your Business, and the Law
BY: GLENN PHILLIPS ON MONDAY, MARCH 31, 2014
Owning and operating your own business comes with plenty of perks: the chance to define your company, and be your own boss, and the excitement of making your own way in the world. The nitty-gritty can be less glamorous, though – taxes need to be done, finances managed, and accurate, legal records need to be kept. While it’s easy to focus on financial records, employee records – the details of who you employ and how you pay them – are just as important, and there are strict legal requirements that must be met.
The Fair Labor Standards Act (FLSA) sets recordkeeping standards for businesses in the United States. Every non-exempt employee is covered by the FLSA, and while there’s no set form you need to fill out, the Department of Labor suggests the following as a basic record for each employee:
- Full name and social security number
- Address, including zip code
- Birth date, if younger than 19.
- Sex and occupation
- Time and day of week when employee's workweek begins
- Hours worked each day
- Total hours worked each workweek
- Basis on which the employee's wages are paid (e.g., "$9 per hour", "$440 a week", "piecework")
- Regular hourly pay rate
- Total daily or weekly straight-time earnings
- Total overtime earnings for the workweek
- All additions to or deductions from the employee's wages
- Total wages paid each pay period
- Date of payment and the pay period covered by the payment
The most important thing to have is an accurate record of when your employees worked and how much they earned. In the event of a lawsuit, for whatever reason, your business’ best defense is a clear and thorough record of payments, raises, evaluations, etc. Records need to be kept for at least three years, even if the employee leaves either voluntarily or through dismissal. The U.S. Equal Employment Opportunity Commission also requires all personnel and employment records be kept for one year after an employee leaves (and these records will be important should you face any accusations of discrimination). If you pay different employees different amounts, you also need to keep a record explaining your reasons, and how the situation came about, for at least two years.
In essence, you can never have too much information on record, although more personal information such as medical records or insurance information should be kept separately, and not in personnel files.
Now, the Department of Labor does recognize that some workers are exempt from FLSA obligations, including overtime pay and minimum wage requirements, but you still need to keep records for exempt employees (for details on what defines an exempt worker, see the Department of Labor’s guide). Exempt employee records are important because they help to determine that the employee is, in fact, exempt – and since, as a business, you may be relying on that exemption to pay in a way that the FLSA would not normally allow, it’s clearly in your best interest to record all the necessary information. The biggest difference for exempt employee records is that you don’t need to record hours worked. The nature of exempt workers tends to mean that they don’t receive hourly pay – and if you do keep records of pay per hour, the IRS may construe this as a sign you are basing pay on the number of hours worked, which could disqualify the employee from the FLSA exemption, and land you in trouble. The only records you need to keep are:
- Employee name
- Date of birth
- Occupation / title
- Day of the week, and the time, at which workweek begins
- Total pay per pay period
- Payment date and the pay period it covers
As for what keeping records physically entails, federal law requires records to be kept either at your place of business or a central location that can be accessed within 72 hours’ notice from the Wage and Hour Division. Different states may also have different requirements, so it’s always best to check with local authorities to ensure you comply fully with the law. Recordkeeping should be a fairly easy task as long as you have good practices from the very beginning. After all, it’s always better to be over prepared.
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