Wage & Hour Self-Audit Checklist

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1 This dcument is nly intended t give the reader an example f types f questins r issues that may arise in an audit by the Department f Labr. All readers are encuraged t speak with a qualified labr law attrney t get advice specific t their situatin. The Texas Restaurant Assciatin shall nt be respnsible fr any actins taken as a result f this dcument. Wage & Hur Self-Audit Checklist The Department f Labr's Wage and Hur Divisin (WHD) is respnsible fr enfrcing the Fair Labr Standards Act (FLSA). In the last few years, the WHD has hired and trained hundreds f additinal investigatrs t carry ut its enfrcement effrts and has increased the number f "directed investigatins," which target certain businesses even thugh there has been n cmplaint filed. Given the WHD's heightened fcus n FLSA cmpliance, it is a best practice fr emplyers t review their pay practices fr adherence t the law. The fllwing is a checklist t help yu review yur practices in fur key areas f the FLSA. Overtime: Under the FLSA, nn-exempt emplyees must be paid vertime whenever they wrk mre than 40 hurs in a wrkweek. The vertime rate is 1.5 times the emplyee's "regular rate f pay." Nte: Sme states have additinal vertime requirements, including a daily vertime rate. Check yur state law t ensure cmpliance. Are yu paying vertime t nn-exempt emplyees whenever they wrk mre than 40 hurs in a wrkweek? If a nn-exempt emplyee has wrked mre than 40 hurs in a wrkweek, he r she must be paid vertime, regardless f whether the vertime was authrized. An emplyee's hurs may nt be averaged ver tw wrkweeks t determine whether vertime is due. In additin, an emplyee may nt waive his r her right t vertime. Des yur timekeeping system accurately recrd all hurs wrked? Emplyers are free t chse any timekeeping system they wish, prvided it accurately and cmpletely keeps track f all hurs wrked. It is a best practice t track time t the minute wrked and have emplyees sign ff n their time recrds fr each pay perid. D yu have cntrls in place t prevent "ff-the-clck wrk?" Emplyees may nt be asked, required, r permitted t wrk "ff-the-clck." It is a best practice t have a written plicy that requires emplyees t recrd all time spent wrking and t specifically prhibit wrking when the emplyee is nt punched in. In additin, it is a best practice t require emplyees t punch ut fr meal perids, expressly prhibit

2 This dcument is nly intended t give the reader an example f types f questins r issues that may arise in an audit by the Department f Labr. All readers are encuraged t speak with a qualified labr law attrney t get advice specific t their situatin. The Texas Restaurant Assciatin shall nt be respnsible fr any actins taken as a result f this dcument. emplyees frm wrking during this time, and t encurage emplyees t eat their lunch away frm their wrk statin. If nn-exempt emplyees d perfrm wrk utside f their nrmal schedule, it is critical t have a means fr the emplyees t prmptly recrd and dcument such time. Are yu including rest breaks in hurs wrked? Rest breaks are cnsidered hurs wrked and therefre must be paid and included when determining vertime. The WHD defines a rest break as any perid lasting 20 minutes r less that the emplyee is allwed t spend away frm wrk. In additin, certain ther activities may als be cnsidered "hurs wrked" and therefre cmpensable under the FLSA (e.g., time spent in training, time spent "dnning and dffing" wrk gear and certain time spent traveling). It's imprtant t ensure all cmpensable time is cnsidered when determining whether vertime is due. Are yu determining an emplyee's "regular rate f pay" in accrdance with the law? An emplyee's regular rate f pay is calculated by dividing the ttal pay fr emplyment (except fr certain statutry exclusins) in any wrkweek by the ttal number f hurs actually wrked. In determining an emplyee's regular rate f pay, the fllwing must be included: Salary r hurly rate f pay; Reasnable cst f emplyer-prvided rm and bard; Tips; Cmmissins; Piece rate; Nndiscretinary bnuses (bnuses prmised t emplyees befre the wrk begins); On-call pay; Cash payments under a cafeteria plan; and Shift differentials. Are yu calculating and paying vertime in accrdance with the law? Under the FLSA, emplyers are prhibited frm paying vertime as a fixed sum fr varying amunts f vertime, even if the amunt f mney paid is equal t r greater than the sum wed n a per-hur basis. In ther wrds, emplyers must actually calculate and pay vertime each time it is wrked. Additinally, private emplyers may nt ffer "cmp time"--paid time ff instead f cash payment--fr wrking vertime hurs. Further, an emplyee's vertime pay may nt be reduced fr any reasn, such as fr deductins fr lss, cash shrtages, etc. Exemptins:

3 This dcument is nly intended t give the reader an example f types f questins r issues that may arise in an audit by the Department f Labr. All readers are encuraged t speak with a qualified labr law attrney t get advice specific t their situatin. The Texas Restaurant Assciatin shall nt be respnsible fr any actins taken as a result f this dcument. The FLSA includes exemptins frm vertime requirements fr certain administrative, prfessinal, executive, highly cmpensated, utside sales, and cmputer prfessinal emplyees. T qualify fr ne f these exemptins, very strict salary and duties tests must be satisfied. Des the emplyee meet all requirements fr exemptin? Each exemptin has its wn salary and duties test. If the emplyee's salary r primary duty fails t meet the exemptin's tests, the emplyee must be classified as nn-exempt. It is imprtant t nte that the emplyee's actual jb duties are the pivtal factr when making this determinatin and nt the emplyee's jb title. The Department f Labr (DOL) has published a number f fact sheets t assist emplyers in making this determinatin. When in dubt, it is a best practice t classify the emplyee as nn-exempt. Is a majrity f the emplyee's wrk "exempt-level"? Emplyees wh spend mre than 50 percent f their time perfrming exempt-level wrk, as defined by the duties test f the exemptin, will generally satisfy an exemptin's primary duty requirements. Nte: Time alne isn't the sle factr; emplyers shuld carefully review the applicable exemptin test when making this determinatin. D yu have accurate jb descriptins? Accurate jb descriptins can be helpful when determining whether an emplyee is exempt r nn-exempt. It is imprtant t review and update jb descriptins n a regular basis. Are yu cmplying with the exemptin's salary-basis requirements? Emplyers must generally pay exempt emplyees n a salary basis. This means exempt emplyees must receive their full, predetermined salary each pay perid regardless f the number f hurs wrked r the quality f the wrk. There are nly a few limited exceptins t this requirement: When an emplyee is absent fr ne r mre full days fr persnal reasns ther than sickness r disability; T ffset jury r witness fees, r fr temprary military duty pay; Fr penalties impsed in gd faith fr infractins f safety rules f majr significance; Fr unpaid disciplinary suspensins f ne r mre full days impsed in gd faith fr wrkplace cnduct infractins; In the emplyee's first r last week f emplyment if the emplyee des nt wrk the full week; r Fr unpaid leave taken by the emplyee under the Family and Medical Leave Act.

4 This dcument is nly intended t give the reader an example f types f questins r issues that may arise in an audit by the Department f Labr. All readers are encuraged t speak with a qualified labr law attrney t get advice specific t their situatin. The Texas Restaurant Assciatin shall nt be respnsible fr any actins taken as a result f this dcument. Deductins frm exempt emplyees' salary fr any ther reasn are nt permitted by the FLSA. Emplyee vs. Independent Cntractr Classificatin: The FLSA des nt apply t bna fide independent cntractrs. Thus, independent cntractrs are nt entitled t the minimum wage r vertime. Hwever, it is imprtant t remember that a wrker is presumed t be an emplyee unless he r she meets specific, narrw criteria fr independent cntractr status. The WHD has made the misclassificatin f emplyees as independent cntractrs a pririty in its enfrcement effrts. The WHD uses an "ecnmic reality" test fr the purpses f determining whether the individual is cnsidered an emplyee, and therefre, cvered by the FLSA. Under this test, an emplyee is smene wh, as a matter f ecnmic reality, is dependent upn the business t which he r she renders service. Cnsider wrking with legal cunsel when making this classificatin. Have yu applied the WHD's "ecnmic reality" test t every individual classified as an independent cntractr? Any individual wh fails t meet this test must be cnsidered an emplyee under the FLSA. When in dubt, the emplyer shuld classify the individual as an emplyee and pay him r her in accrdance with the FLSA. Nte: In additin t the WHD's test, the IRS, Equal Emplyment Opprtunity Cmmissin, and many states have their wn emplyee vs. independent cntractr tests fr determining whether an individual is subject t certain tax requirements, is prtected under nndiscriminatin laws, r is eligible fr wrkers' cmpensatin. Have yu dcumented the factrs used t determine an individual's status? It is a best practice t dcument each factr used when applying independent cntractr tests. D yu review classificatins regularly? Because relatinships can change ver time, it is vital t review classificatins regularly. Recrdkeeping: The FLSA requires emplyers t retain certain payrll and time recrds n each emplyee. Are yu retaining time cards and time sheets fr at least tw years? The FLSA requires that emplyers retain time cards, wrk schedules, and ther recrds n which wage calculatins are based fr at least tw years.

5 This dcument is nly intended t give the reader an example f types f questins r issues that may arise in an audit by the Department f Labr. All readers are encuraged t speak with a qualified labr law attrney t get advice specific t their situatin. The Texas Restaurant Assciatin shall nt be respnsible fr any actins taken as a result f this dcument. Are yu retaining payrll recrds fr at least three years? The FLSA als requires emplyers t retain payrll recrds fr at least three years, including: Ttal hurs wrked each wrk day and each wrkweek; The ttal daily r weekly straight-time earnings; The ttal vertime pay fr the wrkweek; Deductins frm, r additins t, wages; Ttal wages paid each pay perid; and Date f payment and the pay perid cvered by the payment. Nte: Payrll recrds required fr tax purpses shuld be retained fr at least fur years. Cmpliance Recmmendatins: The FLSA's requirements are extensive and g beynd what is summarized abve. It is a best practice t review plicies and practices and cnduct cmprehensive self-audits regularly t assess cmpliance with the FLSA. In additin, emplyers shuld remember that their state may have mre stringent requirements than the FLSA's. Emplyers can find infrmatin n state wage & hur requirements in the Cmpliance Database sectin f HR411, including state by state cmparisn charts n: Minimum Wage, Overtime, Breaks/Rest Perids, Wage Payment, and Emplyee Recrds.

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