Your $250,000 problem

I met with a colleague this week who told me about this situation he encountered at a former employer. This colleague was an HR Manager at a reputable company. Reputable in the standpoint that its vendors and customers recognized them as a leader in the industry.

Their employees, however, didn’t view the company as being reputable.

When this colleague of mine joined the company as an HR Manager he had a cold reception from the supervisors and employees. This isn’t all that uncommon for an HR Manager, let’s be honest. But his reception was even colder than usual. No one seemed comfortable to talk about business practices. So he started digging into the data. When he looked at payroll data he sensed that there was an unusually low overtime cost than what he saw with a parking lot full of employees’ cars 6 days a week. He also noticed that the vacation accrual compared to payout was off-balance.

This company had a $250,000 problem. And you might have this problem too.

Very quickly my colleague encountered why people didn’t want to open up to him and why the company had some lingering issues. The industry this business operated in was tough. Thin margins. Global competition. Dying technology. The finance and operations leaders asked the employees to “pick up the tab”, so to speak, with some of the margin numbers they needed to make up after the business lost a major contract. They cut corners with overtime pay and didn’t grant paid time off.

These are the things my colleague looked for. And it’s what every Department of Labor auditor will look for as well. The issues are easy to find, but here’s a list in case you want to do a self audit.

1) Do you use paper time sheets? If you’re still using paper to track worked hours there are risks to this process. Hours can be forged. Payroll processing takes longer. And supervisors can pressure employees to cut their hours to prevent overtime pay. Consider using an electronic method. There are apps on phones that can be used at a much lower cost than full-blown time keeping and HRIS. Find the best system for you, but here are a few ideas: TSheets.com, Toggl.com, Capterra.com, Timekamp.

Above is a view of the Toggl dashboard.

2) Does your time clock round-up or down? It’s hard to calculate payroll in real time minutes and fractions of dollars. Many companies will establish a rule that time is rounded up or down depending on when someone clocks in or out. This is the $250,000 problem my colleague encountered. His employer at the time set up the time clock to round down to the closest :15 if the person clocked in or out late. So if someone worked until 4:12 and clocked out at 4:14, the clock was set to show 4:00 as the clocked out time, docking the employee 14 minutes of pay. This type of thing happened for the 260 hourly employees working at the company.

This is the $250,000 problem.

3) Do your employees and supervisors sign time sheets before payroll is processed? Most states differ on the exact language but most agree that employees and supervisors BOTH should confirm the hours worked each week and sign off as approval before payroll is processed. This is a good practice to implement if you’re not doing so already.

Timekeeping and payroll are complex processes for any business. Your company’s practices may need to be different from another company’s. But think about some of the aforementioned pitfalls my colleague ran into. Understand that every company has some issues with its timekeeping and payroll practices. But there are ways you can fix them. Take the right steps now before you are hit with an audit from the Department of Labor or other government agency!

PS – you might imagine it was an employee who notified the state Wage and Hour office about the company’s mismanagement of timekeeping and payroll practices. This company has only 40 people working for it now. Don’t let this happen to you!