Timekeeping and Exempt Employees

The Department of Labor (DOL) has issued an opinion letter clarifying confusion about timekeeping and exempt employees. [DOL: FLSA2005-5.] The opinion is supported by the preamble to the new DOL regulations 29 C.F.R. 541.

Non-Exempt Employee Time Keeping

Under the Fair Labor Standards Act ("FLSA"), employers are required to track and record time for non-exempt employees. The information that employers are required to maintain for each employee is codified in 29 CFR 516.2.

The FLSA does not mandate what type of timekeeping device should be utilized for nonexempt employees as long as accurate records of time are kept. Employers can use a variety of methods, such as time clocks, time cards, or timesheets. The employer is ultimately responsible for the accuracy of the time records, even though it is possible for employees to track or record their own time. As long as the employer is able to correctly pay the employee for all time worked, including overtime, then the employer is in compliance with the statute.

Who is an Exempt Employee?

The FLSA calls for an exemption from minimum wage and overtime pay for executive, administrative, profession, outside sales, and computer employees. To be considered exempt a basic duties test was established that has remain unchanged since 1954. The basic test requires three criteria to be met:

  1. the employee must be paid a predetermined and fixed salary, not an hourly wage;
  2. the amount of the salary must meet minimum specified amounts; and
  3. the employee's job duties must primarily involve managerial, administrative, or professional skills.

Changes to the FLSA exemption rules allow for salary deductions for absences for suspensions for violation of work place conduct rules. Salary deductions are not allowed for short-term business needs, if the employee is ready, willing and able to work. However, deductions can be allowed for employee instigated voluntary time off work. [See DOL Opinion Letter FLSA2009-14 (January 15, 2009).]

Exempt Employee Time Keeping

How does timekeeping relate to exempt employees? According the FLSA, nonexempt employees must be paid a minimum wage, as well as time and one-half their regular rate for all hours worked over 40 in a defined work week. Conversely, exempt employees are paid on a salary basis and based on other qualifying reasons, are exempt from overtime wages even if they work more than the designated 40 hours in a defined work week.

Employers, though, for a myriad of reasons, may still ultimately decide to track the time worked by exempt employees. Some of those reasons include easier payroll administration and benefits management. Even though an employee may be exempt from both minimum and overtime pay requirements, federal regulation still require employers to maintain and preserve employment records. 29 CFR 516.11.

Record Keeping Should be Separate

Employers should track time for nonexempt and exempt employees differently. Nonexempt employees time worked is calculated by the hour. Calculating exempt employees time can be a bit more challenging. This can be done in different ways. Some employers track the days worked by exempt employees, yet do not track hours. Other employers track time worked by applying any vacation or sick leave. In other words, the assumption is made that an exempt employee will be paid a regular salary unless any vacation or sick leave is utilized.

This way, an employer can correctly record the time an exempt employee has worked, calculate any vacation time or sick leave that was used, yet avoid tracking the exempt employee by the hour. As long as the timekeeping method does not conflict with the salary basis test under the FLSA, employers will be in good shape.