Your company may not be fully complying with the wage and hour regulations of the U.S. Department of Labor (DOL) and you may not even know it.
In recent years, the DOL has increased its enforcement of these regulations, which has left financial services companies subject to heightened financial and reputational risk. A particular challenge is properly interpreting the White Collar exemption of the Fair Labor Standards Act (FLSA), specifically as it pertains to determining to which workers the exemption applies. How do the exempt/non-exempt classifications apply to stockbrokers, mortgage loan officers and loan underwriters, for example? Administrative employees are a particular source of confusion.
This uncertainty has led to shifts in the ways financial institutions are expected to pay their employees. To make matters worse, many organizations still lack effective ways to consistently apply pay policies, such as overtime and to collect and store the necessary records. As a result, many financial institutions still struggle with management of their overall workforce-related compliance risk.
The total number of companies currently at risk, and the potential financial impact related to defending lawsuits and paying settlements, is staggering. Consider that an estimated 70% or more of employers are out of compliance with the FLSA, according to the DOL. But why is compliance so difficult, and why are so many financial services companies unsure if they’re at risk? We view the challenges as falling into four areas:
Classifying exempt workers. As noted above, there tends to be a lot of confusion around the white collar exemption. Often, it is not clear how to apply the administrative exemption, so banks may classify exempt and nonexempt employees incorrectly or inconsistently, leading to compliance problems later.
Managing salaried nonexempt workers. Banks and financial institutions tend to focus too much effort on the hourly nonexempt workforce and fail to realize that the salaried nonexempt workforce requires significant attention as well. Part of the problem is that salaried nonexempt employees are often seen as “professional” and treated in the same manner as salaried exempt employees. As a result, time and attendance information for these employees tend to be poorly enforced.
Tracking hourly workers’ time. Too often, companies rely on manual, even paper-based methods to collect and process hourly workers’ time and attendance data. Inevitably this wastes time, leads to errors, and subjects the entire organization to compliance risks.
Maintaining audit trails and records. Employers must keep accurate records of the time their nonexempt employees work during each and every workweek.The DOL requires that employers must keep certain records for each nonexempt worker. Payroll records must be kept for three years while records for wages and wage computations, including timecards, schedules, overtime calculations, and more, must be kept for two years.
All of these variables make it very difficult for banks and financial services companies to apply the right policies needed to comply with the DOL’s wage and hour regulations. Yet there is a better way: workforce management technology, which can help minimize compliance risk by automating timekeeping processes, centralizing pay rules, and keeping critical records.
For example, with such technology, wage and hour policies are defined once and applied the same way for all employees, significantly reducing the human error factor. This allows pay polices to be enforced more accurately and consistently and also helps employees know they are being treated fairly – a huge step in minimizing the risk of lawsuits. Workforce management technology also delivers full auditing capabilities that ease compliance efforts with detailed reports and audit tracking.
Workforce management technology eliminates the problems of inconsistent or inaccurate policy interpretation by centralizing pay and work rules in a single database and applying them through automated procedures. Once decisions are made at the corporate level on the best way to comply with federal, state, and local laws that govern things like minimum wage, overtime, and meal and rest breaks, managers don’t have to worry whether their employees are being paid accurately. As a result, financial services companies can be confident that their policies are being applied consistently.
Salaried nonexempt employees tend to be paid from a set schedule, but in doing so, banks may not be tracking their time and potential overtime correctly. As a result, employees may not be paid overtime that they are entitled to, whether or not it was approved. Workforce management technology applies overtime pay rules directly to employees’ time records, so they receive proper credit for overtime hours worked.
Also, banks and financial institutions generally use time and attendance systems that use a default setting to show employees worked between 9 a.m. and 5 p.m. each day, but this is almost never the case. Loose timekeeping like this is a red flag for a DOL investigation or a potential lawsuit. Automating time and attendances processes helps to capture actual time worked, and then easy, real-time reporting lets managers monitor actual time patterns to identify and correct problems before they escalate.
With so much risk associated with non-compliance of the DOL’s wage and hour regulations, banks and other financial services organizations would be wise to invest in technology that can help them minimize their risk.
Ms. O’Connor isdirector of the financial services practice group at Chelmsford, Mass.-based Kronos Inc. She can be reached at [email protected].
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