As finance & accounting professionals, one of our primary roles is to safeguard the financial resources of the company for which we work. This is accomplished through the controls we have within finance & accounting processes, and the analysis we do to identify anomalies in financial results. Safeguarding financial resources also means understanding the potential risks that exist within the company’s operations that would have a financial impact, and mitigating those risks where possible. It is important for a good financial leader to have a grasp of the entire company’s workings in every department because of this very reason. Human resources is one area that needs to be on the radar screen when understanding potential risks. Even in this day and age of automation, salaries & wages still comprise a large expenditure for the majority of businesses.
The U.S. Department of Labor has been taking a more active role in investigating companies with potential violations in employment practices. The DOL has been increasing the number of investigators on staff to support these efforts. It is imperative for companies to ensure they are in compliance with labor laws to avoid hefty fines or lawsuits. Although there are a multitude of laws surrounding labor practices, I would like to address two areas in particular in today’s post: classification of employees as exempt or non-exempt and proper timekeeping.
Exempt vs. Non-Exempt Employees
Just to make sure we’re on the same page, because I know people who get this mixed up, exempt employees are not paid overtime. The determination of exempt vs. non-exempt lies in how an employee performs their job. It is NOT dependent on their title so don’t think every person you call a “manager” is automatically an exempt employee. This is why there should be a written job description for every position and modified job descriptions for each individual in a particular position if there are significant differences from the base position. Exempt employees usually have autonomy in determining how their job is done and work whatever hours are necessary to accomplish the deliverables of their position. These are usually employees that are paid a salary and have managerial, administrative or supervisory roles, or are professionals. However, sometimes there can be a gray area in classifying employees. Whenever there is a doubt about which way a position should be classified, seek the advice of an employment law attorney. It may cost a little but it will help you decide what side of the line to walk on and determine what risks you are taking.
Timekeeping
Disputes over time paid, especially if an employee is contesting their exempt status, can be a huge headache for a business. This is why having good timekeeping systems and procedures are essential. When these cases are brought to the DOL or the courts, the assumption is the employee is right. After all, who would know better how many hours they worked than the employee themselves. These are usually civil cases so there is no “presumption of innocence” — it is based upon the preponderance of evidence. This simply means that if the evidence was stacked up side-by-side, what side does it favor? Any ambiguity will usually favor the weaker party, in this case the employee, because it is accepted that the company had greater control to write and implement the terms of employment. Because of this, a lax timekeeping system will sink you every time. When considering your timekeeping, there are so many situations you need to consider like “buddy punching” and how missed punches are handled. Another consideration is cost — not every business will be able to afford the gold standard of a biometric system. The important thing is to have a system and to make it the best system it can be to mitigate risk.
Now some of you might be saying these are issues for the Human Resources department to handle and I agree the legwork to ensure these issues are addressed lies with them. However, if the company’s practices are found to violate legislation, and it faces large fines and payouts because of it, I can guarantee senior management will call both HR and Finance onto the carpet for an explanation. After all, we’re supposed to be safeguarding the financial resources of the company. And whether we like it or not, if we turn a blind eye to what is happening around us and stay strictly focused on “getting the books right” and reporting the numbers, we aren’t doing the job we were hired to do. If you do nothing else, at least ask the questions to make sure the issues are being looked at and addressed.