FLSA Compliance and Overtime Pay; Is Kronos getting it right but your payroll system wrong?

There is an old joke about a salesperson, an engineer, and a factory worker all showing up at a photocopier at the same time. Each argues that since their job is the most important that they should be allowed to go first. The salesperson argues "Nothing happens until someone sells something and no one gets paid if there are no sales". The factory worker responds with his own argument "But you would have nothing to sell if I didn't build it so no one gets paid unless I can get my work done". The engineer then jumps in "But you would have nothing to build unless I designed it so I should go first". At this point, a clerk from payroll walks up to the copier and says "Excuse me... I need to make copies so you all can get paid" and the three immediately step aside and clear a path to the copier.

Regardless of one's business model or employee type, it seems everyone maintains a healthy respect for the machinery and people that actually turn hours logged into paychecks (Okay, direct deposits). When employees earn shift and other premium pay it can take a lot of people or a lot of complex machinery (or both) to get everyone paid on time and correctly. Nowhere is this more evident as when a shop with FLSA, State, local and union pay rules goes from manual time keeping and payroll preparation to a completely automated system.

Although many people talk about their timekeeping and payroll systems as being ‘FLSA and multi-state compliant' what software vendors like Kronos or PeopleSoft really claim to do is help you "minimize the risks... and the administrative overhead associated with regulatory compliance".[i] It can be quite impressive to sit down with payroll staff whilst they go thru time cards and watch them apply all the rules that can possibly apply for a non-exempt, union employee during a pay week/pay period... with PTO... and Detail Pay... and Call-In... on a weekend. It is always equally impressive to me to see one of our configuration gurus develop a combination of shift periods, pay codes and rules in Kronos TimeKeeper that consistently duplicate all this human thinking. Quite often, the attempt at doing all this via a rule based electronic system exposes errors or at least inconsistencies in the existing manual process. More noteworthy, however, is the fact that cleaning up and automating your timekeeping processes more often than not can still leave you exposed to FLSA overtime pay rule violations. This is the classic ‘regular rate' vs ‘base rate' definition that every labor attorney loves to cash in on and most time keeping systems love to ignore as ‘not my problem'.

Manually or electronically-if you are merely sending hours and pay codes over to your payroll system you are relying on THEM to calculate the emps regular rate for FLSA mandated overtime pay (1.5x and 2x the FLSA definition of ‘regular rate'). Didn't know there was a difference between FLSA ‘regular rate' and what we typically call ‘base rate'? In simple cases without many pay rate differentials there isn't any effective difference but in the multi-shift, multi-rate, union and public service world it can take an army of people to figure out what rate should be used in overtime calculations. (The army, of course, as with all military personnel have no provision under law for overtime.)

If you are in the process of automating or updating your time keeping and payroll processes I urge you to find out how and where ‘regular rate' is being calculated for FLSA overtime purposes.  Quite often I see people on the time keeping side simply throw the hours and the ‘time and a half' pay code over the fence and hope payroll gets it right.  It may be, however, more advantageous if not downright necessary to do this rate calculation as part of the time keeping solution and/or the interface depending on payroll's capability.  Yes-you very well may find that they have not been calculating overtime properly...for years.  You, me, and Hilda both know that doesn't make it right.[ii]   It may be painful to fix-requiring a lot more HR and legal involvement-- but I guarantee you will always have a clear path to the photocopier if you make it right!

[i] http://www.kronos.com/AssetInfo.aspx?id=1482

[ii]Hilda Solis is the current Labor Secretary