October 19, 2021

Scary HR Mistakes Part 3: Inaccurate Payroll Records

Welcome to part 3 of our October series: Scary HR mistakes

The Dangers of Inaccurate Payroll Records

This week, the devil is in the details, so to speak, as we talk about the problems that arise when a company maintains inaccurate payroll records. Failure to do so can lead to frustrated employees who are not getting correctly compensated for the hours they give to you. This means some seriously scary legal issues for the company in the future.

Who is Responsible?

Usually, it is the HR department’s duty to develop and maintain a reliable payroll system. I know – HR is responsible for everything, right? But this one is a pretty serious responsibility.

The Fair Labor Standards Act puts the burden of proof on the employer. This means that an employee just says that they worked overtime without proper payment. Unless the employer can show otherwise, the employee will probably win. Keeping accurate records of everything is a lifesaver if you have any disagreements with an employee.

Any Solutions?

To reduce the likelihood of an unavoidable human error occurring, companies should get an automated payroll system. However, these need to be cross-checked by a human. Artificial intelligence, while pretty cool most of the time, is not able to make adjustments for different scenarios. For instance, most systems will not automatically pay overtime for an employer who reports over 40 hours each week without a person implementing this effect.

Inaccurate Time Records

Federal law requires all companies to keep a record of the hours their nonexempt employees are working – this is not optional! There is no requirement as to the method or how to store these records, so companies are basically given freedom in how to run their systems. If the company fails to do this, and an employee makes any payroll allegation, then there is not really any limit to how much money the company can owe regarding the average wage and hours an employee is working, which is seriously scary. Using a time clock is considered to be the gold standard in employment law. So, consider investing in a system that requires employees to clock in and out if they are hourly employees. (If you are confused about exempt and non-exempt employees, stay tuned. Next week, we discuss).

Insufficient Time Records

Sometimes, the biggest mistake occurs when employers get lazy and decide to take shortcuts. Need an example? Lumping together overtime income with straight time, when these payments should be separated. The records should be accurately dated, with all payments accounted for, and with a total amount of wages paid somewhere on the timesheet. Remember the devil?? Not the one with the blue dress – the one who lives in the details.

How to Fix The System

Of course, if companies realize their system has been responsible for mistakes, they want to fix it. However, they do not want their employees to know about their system’s weaknesses. Companies should be strategic in rolling out new payment systems. Employers should think about good times to make changes, like at the end of every quarter, or even at the start of the New Year. If you get a new human resources director, new payroll practices, such as employer-verified time sheets, could be seamlessly implemented without tipping anyone off.

Payroll systems should be accurate and easy to use and understand. Optimum HR can provide advice on the best systems to use, how to create a consistent set of payment records, and ensure the company is in compliance with the law.

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