Recordkeeping for Employee Compensation Purposes: Federal
Author: Nicole M. Amato, Nukk-Freeman & Cerra, P.C.
- The Fair Labor Standards Act (FLSA) requires employers to keep certain records about employees' compensation.
- Employers must maintain and preserve accurate records of basic personal information, wages and hours worked for all nonexempt employees. See Recordkeeping Requirements for Nonexempt Employees.
- Many of the recordkeeping requirements for nonexempt employees also apply to exempt employees. However, employers are excused from keeping certain records for some exempt employees. And there are sometimes additional recordkeeping requirements for certain exempt employees. See Recordkeeping Requirements for Exempt Employees.
- Other recordkeeping requirements come into play when an employer claims a credit toward the minimum wage, when an employee's overtime pay is calculated using certain alternative methods or when a public employee receives compensatory time off. See Other Recordkeeping Requirements.
- The FLSA does not dictate any particular form in which records must be kept. But there are requirements about how long records must be kept, their availability for inspection, the use of time clocks and other issues. In addition, there are many best practices of which employers should be aware. See How to Keep Records.
Recordkeeping Requirements for Nonexempt Employees
The FLSA requires employers to maintain and preserve accurate records containing the following information for every nonexempt employee:
- Full name as used for Social Security recordkeeping purposes and any identification number or symbol if used in place of the employee's name on any time, work or payroll records;
- Home address with ZIP code;
- Date of birth if the employee is under 19 years of age;
- Sex (which may be identified by a gender-specific prefix such as Mr., Mrs., Miss or Ms.) and occupation;
- The time of day and day of the week on which the employee's workweek begins;
- The regular rate of pay (see Employee Compensation > Overtime > The Regular Rate) for any workweek in which overtime is due, including an explanation of the basis of pay and any exclusions from the regular rate;
- The hours worked each workday and the total hours worked each workweek (see Employee Compensation > Overtime > Defining the Workweek);
- The total straight-time earnings;
- The total overtime earnings;
- The total additions to, or deductions from, wages each pay period, with the dates, amounts and nature of the items making up the additions and deductions;
- The total wages paid each pay period; and
- The date of payment and the workweek or work period covered by that payment.
Employers do not need to keep records on the hours worked each workday and the total hours worked each workweek (requirement number seven) for any employee who works on a fixed schedule. Instead, the employer may maintain records that indicate the schedule of daily and weekly hours the employee normally works. During weeks in which the employee actually worked the scheduled amount of hours, the employee must indicate with a check mark, statement or other method that he or she in fact worked those hours. In weeks during which the employee's hours differed from the normal scheduled hours, the employer must go back to recording the hours worked each workday and the total hours worked each workweek.
All employers of nonexempt employees must post and maintain a notice explaining the FLSA.
The poster must be kept in a conspicuous place, such as a kitchen or break room, where employees can readily observe it.
Any employer that employs employees who, as a whole, are exempt from the minimum wage requirements of the FLSA may alter the notice to reflect that the overtime provisions do not apply to the employees. For example, a taxi cab company employing taxi cab drivers who are statutorily exempt from the minimum wage requirements of the FLSA can add a notation to that effect.
Recordkeeping Requirements for Exempt Employees
Employers are excused from keeping certain records for some exempt employees. There are sometimes additional recordkeeping requirements for certain exempt employees, as detailed below.
Although employers do not need to track the hours worked by most exempt employees, an employer may require exempt employees to record and track hours. +69 FR 22122. This can help an employer limit damages in the event of a misclassification lawsuit. If an employer takes this approach, however, it should take care to accurately track each exempt employee's hours; a time sheet on which an exempt employee reports working eight hours a day from 9 am to 5 pm, Monday to Friday, will not be given much credibility, and a court can instead rely on the misclassified employee's credible, sworn testimony.
Executives, Administrators, Professionals and Outside Sales Employees
Employers do not need to keep records six through 10 (the regular rate of pay, hours worked, straight-time pay, overtime pay, and additions or deductions) for employees who qualify as exempt executives, administrators, professionals or outside sales employees. See Employee Compensation > Employee Classification.
However, employers must keep a detailed description of the basis on which such employees' wages are paid. The description must be detailed enough to allow for a calculation for each pay period of an employee's total remuneration including fringe benefits and prerequisites. This may be shown as the dollar amount of earnings with appropriate additions or supplements for fringe benefits - for example, "plus hospitalization and insurance plan A," "benefit package B," "two weeks' paid vacation."
Employers do not have to keep records six, eight, nine and 11 (the regular rate of pay, total straight-time earnings, total overtime earnings and total wages paid each pay period) for employees who qualify as commissioned salespersons. See Employee Compensation > Employee Classification > Commissioned Salespersons.
Employers need to keep the following additional records for commissioned salespersons:
- A symbol, letter or notation contained in the payroll records identifying the employee is paid as a commissioned salesperson;
- A copy of any agreement or understanding reflecting the agreement to pay the employee as a commissioned salesperson; and
- The total compensation paid to the employee for each pay period, showing separately the amount of earnings paid by commission and the amount of non-commission straight-time earnings.
Other Exempt Employees
There are some additional recordkeeping requirements, and also some exemptions from the basic recordkeeping requirements, for other exempt employees as follows.
Minimum Wage and Overtime Exemptions
Employers need to keep only records one through four (name, address, date of birth, sex and occupation) for employees who qualify for the following exemptions from the FLSA's minimum wage and overtime requirements:
- Employees of "seasonal and recreational establishments" such as amusement parks, carnivals, summer camps and circuses (+29 U.S.C. § 213 (a)(3));
- Certain fishing employees (+29 U.S.C. § 213 (a)(5));
- Certain employees of small newspapers (+29 U.S.C. § 213 (a)(8));
- Certain switchboard operators (+29 U.S.C. § 213 (a)(10));
- Seamen employed on foreign vessels (+29 U.S.C. § 213 (a)(12)); and
- Employees engaged in newspaper delivery or wreathmaking (+29 U.S.C. § 213 (d)).
Employers are excused from keeping records six through nine (the regular rate of pay, hours worked, straight-time pay and overtime pay) for employees who qualify for the following exemptions from the overtime, but not the minimum wage, requirements of the FLSA:
- Motor carriers, air carriers and rail carriers (+29 U.S.C. § 213(b); see Employee Compensation > Employee Classification > Transportation Employees);
- Live-in domestic help (+29 U.S.C. § 213(b)(21); see Employee Compensation > Employee Classification > Live-in Domestic Help);
- Certain outside buyers of poultry or dairy products (+29 U.S.C. § 213(b) (5));
- Certain employees of a radio or television station (+29 U.S.C. § 213(b) (9));
- Certain salesmen, partsmen or mechanics working with certain types of vehicles (+29 U.S.C. § 213(b) (10));
- Employees who process maple sap into sugar (+29 U.S.C. § 213(b) (15));
- Employees involved in the transport of fruits and vegetables (+29 U.S.C. § 213(b) (16));
- Taxi cab drivers (+29 U.S.C. § 213(b) (17));
- Certain firefighters and police officers (+29 U.S.C. § 213(b) (20));
- Certain married people employed together by a nonprofit educational institution housing children (+29 U.S.C. § 213(b) (24)); and
- Motion picture theater employees (+29 U.S.C. § 213(b) (27)).
For these employees, employers must also keep track of the basis on which the wages are paid. +29 C.F.R. § 516.12.
There are some recordkeeping requirements that apply only to employees who qualify for the following specific exemptions:
- Learners, apprentices, messengers, students or handicapped workers employed under special certificates (+29 C.F.R. § 516.30; see Employee Compensation > Employee Compensation > Minimum Wage > Subminimum Wages);
- Certain employees employed in agriculture (+29 C.F.R. § 516.33; see Employee Compensation > Employee Classification > Farmers and Other Agricultural Workers);
- Livestock auction employees (+29 C.F.R. § 516.13);
- Country elevator employees (+29 C.F.R. § 516.14);
- Local delivery employees (+29 C.F.R. § 516.15);
- Seamen (+29 C.F.R. § 516.17);
- Employees employed in certain tobacco, cotton, sugar cane or sugar beet services (+29 C.F.R. § 516.18);
- Railway, trolley or motorbus employees (+29 C.F.R. § 516.22);
- Employees of amusement parks or recreational establishments located in a national park, national forest, in land in a wildlife refuge system (+29 C.F.R. § 516.29);
- Industrial homeworkers (+29 C.F.R. § 516.31); and
- Employees receiving certain remedial education (+29 C.F.R. § 516.34).
Live-In Domestic Help
In determining the number of hours worked by domestic service employees who reside in the household where they are employed (see Employee Compensation > Employee Classification > Live-in Domestic Help), the employee and the employer may reach a reasonable agreement to exclude sleeping time, meal time and other periods of complete freedom from all duties when the employee may either leave the premises or stay on the premises for purely personal pursuits. See Hours Worked > 'Reasonable Agreements' for Employees Who Work at Home or Reside at Their Employer's Premises.
Prior to January 1, 2015, an employer could use such agreements to establish the employee's hours of work instead of maintaining precise records of the hours actually worked. This exception is now expired. +29 C.F.R. § 552.102.
Other Recordkeeping Requirements
There are additional FLSA recordkeeping requirements that come into play when:
- An employer claims a credit toward the minimum wage for tipped employees or for board, lodging and other facilities (see Credit for Tipped Employees; Board, Lodging and Other Facilities);
- An employee's overtime pay is calculated using certain alternative methods (see Eight and 80 Overtime; Guaranteed Compensation; Piece Rates; Established Basic Rates; Unionized Employees); or
- A public employee receives compensatory time off (see Compensatory Time).
Credit for Tipped Employees
Employers that claim the minimum wage credit for tipped employees must keep the following additional records:
- A symbol, letter or notation used on the pay records to identify each employee whose wages include tips;
- The weekly or monthly amount of tips received that the employee reports to the employer (which can consist of an IRS Form 4070);
- The amount the employer has determined that the employee's wage has been increased by tips (which need not exceed the difference between $2.13 and the applicable minimum wage);
- The hours worked each workday by the employee in any occupation for which the employee does not receive tips, including the total daily or weekly straight-time payment made for those hours; and
- The hours worked each workday by the employee in any occupation for which the employee does receive tips including total daily or weekly straight-time earnings for those hours.
Additionally, each time the hourly amount the employer claims as a tip credit differs from the previous week, the employer must provide the employee a written report with the new amount.
Board, Lodging and Other Facilities
Employers that claim a minimum wage credit for providing board, lodging and other facilities (see Employee Compensation > Minimum Wage > Board, Lodging and Other Facilities) must keep records that establish the cost of each type of facility furnished.
Separate records regarding the cost of each item furnished as part of facilities need not be maintained. An employer may keep combined records regarding the cost of furnishing each class of facility for items such as housing, fuel or merchandise furnished through a company store or commissary. For example, separate records regarding the cost of furnished housing need not be kept for each house furnished.
The costs of maintenance, utilities and repairs for all houses furnished may be demonstrated together. The original cost and records reflecting depreciation may be kept together for groups of houses which were acquired at the same time. The costs of furnishing similar or closely related facilities may be kept in combined records.
If records are kept for a class of facility as opposed to with a breakdown of each item furnished to the employee, the record must contain the gross income received from each such class of facility - for example, gross rental costs for houses, the total number of sales from the company store or commissary, or all receipts from sales of fuel.
Records must include itemized accounts of the nature and amount of any expenses that are used to compute the reasonable cost according to +29 C.F.R. § 531.3 and +29 C.F.R. § 531.4. The records must include the data used to compute the depreciation of assets used in the furnishing of the facilities, including:
- The date the assets were acquired or constructed by the employer;
- The original cost of the assets;
- The rate of depreciation of the assets; and
- The total amount of the accumulated depreciation of the assets.
If the assets include items held for sale to employees, the employer must include data that demonstrate the average net investment in inventory of the assets.
Records must be "consistent with good accounting practices" and detailed enough to allow the US Department of Labor to verify the nature and amount of the expenditure merely by referring to the basic records.
Records are not required for any workweek in which the employee is paid at least the minimum wage and does not receive overtime.
Eight and 80 Overtime
Nurses and other nonexempt medical care providers working at hospitals, medical care facilities or nursing care facilities may be paid overtime for all hours worked over eight in any workday and 80 hours in a 14-day work period. See Employee Compensation > Overtime > Eight and 80 Overtime.
Employers must keep the following additional records for these employees:
- The time of day and day of week on which the employee's 14-day work period begins;
- The hours worked each workday and the total hours worked each 14-day work period;
- The total straight-time wages paid for hours worked during the 14-day period;
- The total overtime paid for hours worked in excess of eight in a workday and 80 in the work period; and
- A copy of the agreement or understanding with respect to using the 14-day period for overtime pay computations or, if such agreement or understanding is not in writing, a memorandum summarizing its terms and showing the date it was entered into and how long it remains in effect.
Employers are excused from keeping records five, seven, eight and nine (the time of day and day of the week on which the workweek begins, the hours worked each workday and the total hours worked each workweek, the total straight-time earnings and the total overtime earnings) for these employees.
Employers that enter into an agreement with employees to offer guaranteed compensation in lieu of overtime based on the regular rate under a "Belo Plan" (see Employee Compensation > Overtime > The Regular Rate > Exceptions to the Regular Rate Principle) are excused from keeping records eight and nine (total straight-time earnings and total overtime earnings).
However, they must keep the following additional records:
- Total weekly guaranteed earnings;
- Total weekly compensation in excess of the weekly guaranty; and
- A copy of the Belo Plan contract or agreement.
Employers do not need to keep records six and nine (the regular rate of pay and overtime pay) for employees who are paid piece rates - in other words, paid a fixed wage for each unit they produce or each action they perform.
However, employers must keep the following additional records for piece rate employees:
- A record of each hourly or piece rate at which the employee is employed, including the basis on which the wages are paid and the amount and nature of each payment that has been excluded from the regular rate;
- The number of overtime hours worked at each corresponding hourly rate or the number of units worked during overtime hours at the corresponding piece rate in the workweek;
- The total weekly overtime compensation earned over straight-time earnings or wages at each rate earned during the overtime worked; and
- The date of the execution of the agreement or understanding by which the employer and the employee agreed to use piece rates, and the period for which the agreement is effective (if the employer's entire workforce works under such an agreement, a single notation of the date of the agreement or understanding and its effective period is sufficient).
Established Basic Rates
Employers that have reached an agreement with an employee to calculate overtime by an established basic rate rather than the regular rate of pay (see Employee Compensation > Overtime > The Regular Rate > Exceptions to the Regular Rate Principle) must keep the following additional records:
- The hourly rate, piece rate or commission rate applicable to each type of work the employee performs;
- The computation that establishes the basic rate at which the employee is paid for overtime;
- The amount and nature of each payment that is excluded from the "regular rate" (see Employee Compensation > Overtime > Compensation That May Be Excluded);
- A representative period demonstrating the computation of the agreed-upon basic rate;
- The period for which the basic rate will be used for computing overtime compensation for the employee;
- A detailed explanation/demonstration as to how the chosen representative period is an appropriate one, demonstrating that the pertinent terms, conditions and circumstances of employment represented in the representative period are an accurate depiction of the period for which the basic rate is used and do not present any significant differences; and
- A copy of the written agreement regarding the pay terms or a written summarization of the terms and applicable dates covered by the agreement between the parties.
Employers do not need to keep track of the regular rate of pay for these employees because there is no regular rate of pay.
Employers that take advantage of the partial overtime exemption for unionized employees (see Employee Compensation > Overtime > Defining the Workweek > Alternative Work Periods) must keep the following additional records:
- The daily and weekly overtime compensation for each employee;
- Copies of the collective bargaining agreement and National Labor Relations Board certification along with any amendments or addendums;
- A listing of each employee employed under the CBA;
- A record of the periods during which each employee has been employed under a 1040 or 2080 plan; and
- A showing of the total hours the employee worked during any period of 26 consecutive weeks (if the employee is paid under a 1040 plan) or during the specific 52 consecutive weeks (if the employee is paid under a 2080 plan).
Bulk Petroleum Employees
Employers must keep the following records for employees who qualify for the partial overtime exemption as bulk petroleum employees (see Employee Compensation > Employee Classification > Unionized Employees):
- The daily and weekly overtime compensation paid; and
- The rate per hour and the total amount paid to the employee for the time he or she worked between the 40th and the 56th hour of the workweek.
Public employers that compensate employees for overtime work with time off instead of cash (see Employee Compensation > Overtime > Compensatory Time) must keep the following additional records:
- The number of hours of compensatory time off the employees earn each workweek or work period (calculated at one and one-half hour for each overtime hour worked);
- The number of compensatory hours the employees use during each workweek or work period;
- The number of hours of compensatory time off that were compensated in cash, with the total amount paid and the dates of any such payment;
- Any collective bargaining agreement or other written understanding or agreement about the use of compensatory time off.
How to Keep Records
Employers must be mindful at all times regarding recordkeeping obligations, being sure to keep up with amendments and updates in the law as they arise. Recordkeeping requirements are complex and plentiful, and the penalties for noncompliance can be significant. What seems like an overwhelming task for employers can be streamlined if, with the help of legal professionals, employers establish a recordkeeping system. With a strictly followed, comprehensive recordkeeping system in place, this overwhelming task becomes nothing more than simply updating.
Consult State Requirements
When instituting a recordkeeping system, employers must also consult the recordkeeping laws and requirements of the state or states where they do business. Many states may have additional requirements and may mandate a longer preservation period for the applicable records. Also, employers should fashion some form of checks and balances and back-up to be sure that normal, and at times, expected human error does not prevent the employer from complying with the law at all times.
In constructing and implementing a system, employers should also view their recordkeeping practices as a way to protect themselves against claims of noncompliance by current or former employees. Strict adherence to the FLSA recordkeeping mandates in the form of comprehensive, organized and complete records places the employer in a better position to disprove any erroneous claims and to avoid such claims altogether.
The Effect of Technology
Employers must keep up to date with not only changes in applicable laws but also with the advances in technology that surround the workplace and its employees. Employers must keep abreast with advances in technology specifically as they relate to wage and hour laws and their corresponding recordkeeping requirements.
Technological advances have a double-edged effect on the workplace. Although technology can help an employer keep track of its records and aid in its organization and accessibility, the onset of portable communication and devices such as email and smartphones has raised, and continues to raise, new areas of wage and hour recordkeeping compliance challenges for employers. It is well settled that employers must pay employees for work performed. The ability of employees to be accessible and be performing work beyond their normal work hours has taken a new turn due to these new devices. Employers must be mindful that the same recordkeeping requirements apply to work performed during these new broadened hours, which are not confined to the employer's actual place of business.
The Pros and Cons of Outsourcing
A popular practice among companies, both large and small, is to outsource payroll and recordkeeping functions to a third-party service provider. These third-party providers can alleviate much of the manpower and hassle expended by an employer's staff in completing payroll obligations. In outsourcing, however, an employer is in no way alleviated from the responsibility or risk associated with its recordkeeping obligations. By choosing to outsource, the employer should not blindly rely on the accuracy and dependability of the service provider. Keeping in mind that the employer remains ultimately responsible for any deficiencies in the payroll and recordkeeping relating to proper payment of employees, recordkeeping obligations under the FLSA and obligations to the Internal Revenue Service (IRS), it must ascertain that the methods utilized by the provider ensure security and accuracy. In highlighting the need for such awareness, the IRS suggests that employers should make certain that their provider is using Electronic Federal Tax Payment System (EFTPS) and register themselves with EFTPS so that they can log in and verify the occurrence and accuracy of the payments being made.
Form of Records
No particular order or format is required for keeping records. Employers may store the information in various ways, whether in print or in electronic memory, as long as the information can be protected and viewed and the employer has the requisite equipment to allow for such viewing. The records must be clearly accessible and identifiable by either date or pay period. Extensions or transcriptions must be made available on request.
The FLSA recordkeeping requirements do not preclude or interfere with any other recordkeeping requirements of any other federal, state or local law, ordinance, regulation or rule.
Computations and Reports
Employers must be prepared to expand upon, recompute or transcribe any of their FLSA records on request from DOL.
Petitions for Exemptions
Employers may submit a written request to DOL to either maintain records in a different manner than required by the FLSA or to be relieved of preserving certain files for the time periods prescribed by the FLSA. Employers seeking a recordkeeping exemption must demonstrate that they must operate their businesses under peculiar conditions that necessitate an exemption.
DOL is required to respond to all petitions as soon as possible. While waiting for their petition to be granted, employers must continue to comply with the recordkeeping requirements.
DOL may grant an employer's petition if it finds that the relief that the employer requests will not hinder enforcement of the FLSA. Any petitions DOL accepts are subject to limitations and subject to revocation for noncompliance.
The following types of records must be preserved for at least three years from their last date of entry or last effective date:
- Payroll records;
- Certificates, agreements, plans and notices, including collective bargaining agreements, individual contracts and other memoranda involving recordkeeping requirements; and
- Sales and purchase records, including the total dollar volume of sales or business and the total volume of goods purchased or received during the applicable periods.
The following types of records must be kept for at least two years from their last date of entry or last effective date:
- Time cards or time sheets that record employees' daily start and stop times or otherwise record the amount of work performed by individual employees;
- Wage rate tables that provide the piece rates or other rates used to compute straight-time earnings, wages, salary or overtime (these tables must be kept for at least two years from their last effective date);
- Order, shipping and billing records; and
- Records of additions to or deductions from wages paid to individual employees.
Place for Keeping Records and Their Availability for Inspection
Employers must keep all FLSA records a safe and accessible place at either the place or places of employment, or at a central recordkeeping office.
All records must be available for inspection and available to be transcribed by DOL. If kept at a central recordkeeping office that is separate from the locations of employment, records must be made available within 72 hours following a notice from DOL.
Use of Time Clocks and Rounding
Time clocks are not required for recordkeeping purposes.
When they are used, it is likely that discrepancies between the time clock records and the actual hours worked may occur. The regulations recognize that minor discrepancies may not be avoidable but caution that major discrepancies "should be discouraged" because they may call into question the general accuracy of the records regarding hours actually worked by employees. +29 C.F.R. § 785.48(a).
Employees who voluntarily arrive at work before their assigned start time or stay after closing time and are "not performing work during those time periods" do not have to be compensated for that time and their early and late clock time records may be disregarded accordingly. +29 C.F.R. § 785.48(a).
Employers that use time clocks may round employees' start or stop times to the nearest five-minute, six-minute or 15-minute increment. The theory behind this practice is that, in the end, the employee's time averages out and the employee is fully compensated for the total time worked. Rounding will be acceptable for recordkeeping purposes unless it is demonstrated that the practice, over time, has the effect of failing to fully compensate employees for all the time actually worked. +29 C.F.R. § 785.48(b).
The Importance of Good Recordkeeping
In general, employees who bring lawsuits for unpaid wages and overtime have the burden of proving they performed work for which they were not properly compensated. However, an employer has the duty to keep proper records and is in the position to know and to produce the most probative facts concerning the nature and the amount of work performed. In the absence of proper records, employees will have carried out their burden of proof if they can prove that they have in fact performed work for which they were not properly compensated and produce "sufficient evidence to show the amount and extent of that work as a matter of just and reasonable inference." The burden then shifts to the employer to come forward with evidence of the precise amount of work performed or with evidence to negate the reasonableness of the inference from the employee's evidence. Anderson v. Mt. Clemens Pottery Co., +328 U.S. 680 (U.S. 1946).
The bottom line remains that employers must be aware and diligent regarding their obligations under both federal and state wage and hour laws and the corresponding recordkeeping obligations that govern their workplace. If an employer has a well-established recordkeeping system in place, whether performed in-house or outsourced, it stands in a better position. Such a practice will help to further workplace morale by sending the important and appropriate impression that its employees' wage and hour rights are important to the employer and its business while serving to ensure the protection of the viability, integrity and reputation of the business at the same time.
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