Payroll is an essential part of HR; your employees work for you because they want to get paid. But payroll is also an area where mistakes can cause more than employee frustration, they can result in penalties and lawsuits. 

Recently, construction workers aligned with the Michigan Regional Council of Carpenters and Millwrights (MRCC) flooded the state’s capitol to bring attention to payroll fraud. The MRCC said illegal practices include misclassifying workers, paying less than legally required minimum wages or failing to pay for all hours worked, adding to $1 billion a year in unpaid wages. 

 And while some of these practices could be attributed to shady business dealings, others might simply be the result of bad recordkeeping.  

Maintaining accurate employee records can not only keep you compliant but help protect your company from potential fines and lawsuits resulting from misclassifying your workers, paying less than minimum wage and failing to pay for all hours worked. 

Misclassifying Workers 

Construction companies often rely on independent or 1099 contractors to complete work on projects. Because these workers aren’t employees, there is no need to pay social security, Medicare, unemployment or workers’ compensation and health benefits. The ease and cost-efficiency of hiring a contractor is why the misclassification of employees is such a big issue. Some companies misclassify workers on purpose to save on paperwork, taxes and paying overtime but others misclassify by mistake. 

The biggest deciding factor between employees and contractors, according to the IRS, is the amount of control the worker has. An independent contractor has complete control over how and when the work gets done. An independent contractor typically negotiates work before it begins, noting when and where he or she will be able to complete the work. 

ExakTime’s Payroll Syncing can help make sure once you accurately classify an employee, the classification doesn’t change between your workforce management system and your payroll package.  

Paying Less than Minimum Wage 

Federal minimum wage provisions are contained in the Fair Labor Standards Act (FLSA). The federal minimum wage is $7.25 per hour effective July 24, 2009. Many states also have minimum wage laws. It’s also important to note that deductions made from wages for such items as cash or merchandise shortages, employer-required uniforms and tools of the trade, are not legal to the extent that they reduce the wages of employees below the minimum rate required by the FLSA or reduce the amount of overtime pay due under the FLSA. 

Some of the minimum wage violations come from misclassifying employees, making them exempt from minimum wage laws. For example, as mentioned above, independent contractors aren’t entitled to the same FLSA protections as a regular, full-time employee. Employers may also manipulate time sheets to under report hours.  

Digital time tracking software protects both workers and employers. Not only do time tracking apps, like ExakTime, accurately log every hour but workers can sign off on their timesheets, making sure both employee and company approved the amount of time worked.  

Failing to Pay for All Hours Worked 

The Fair Labor Standards Act (FLSA) protects US workers by ensuring they are paid for all hours worked, including overtime. Complying with the FLSA is a big part of construction payroll. Failure to comply can result in severe consequences in terms of fines and even criminal prosecution. According to the Department of Labor, employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to a civil money penalty of up to $1,000 for each such violation. Willful violations of the FLSA may result in criminal prosecution and the violator fined up to $10,000. A second conviction may result in imprisonment. 

Digital time tracking can provide some security when it comes to paying employees for all hours worked. Using a digital time tracking system eliminates the mistakes that can occur with paper time sheets like misremembering times, indecipherable handwriting and fudging numbers. But it also gives managers insight into hours logged per site and/or per worker, so they’re not surprised if overtime is required. Plus, a digital record is far more secure than a stack of paper time cards. The data is always available should a discrepancy arise. 

Tracking all hours worked for properly classified employees via digital time tracking not only makes your payroll process more accurate but more efficient. Companies that have switched to digital time tracking have reportedly saved hours on payroll tasks. And using a company like ExakTime, with our game-changing integrations, streamlines the entire process, giving HR teams valuable time back in their day and the confidence knowing everything is done like it should be. 

 Contact us to learn more.