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The Ultimate Guide to Employee Time Theft: What It Is and How to Prevent It

by | Mar 27, 2017 | Time Tracking

In business, time is money. This is especially true for small business owners. Whether just starting out or growing an existing business, being able to properly manage your biggest line item expense of human capital is a really big deal.

There may be months or even years that every penny counts. Having unexpected payroll expenses can have a detrimental impact on an employer’s ability to grow and sustain a healthy business.

For this reason, timekeeping systems have become a business necessity in order to manage the comings and goings of a dynamic workforce. However, even the most sophisticated timekeeping system can’t always protect an employer from time theft.

Time theft can be one of those silent profit killers. If an employer doesn’t pay attention to the details, it can cost them dearly. Sometimes the time theft is malicious and intentional and sometimes it’s the result of poor training or unclear policy guidelines. Sometimes, it’s just an honest mistake. Here are some of the most common types and what you should do about them.

Timesheet Fraud

Many employers entrust timekeeping responsibilities to the employee actually working those hours. Most employers have those hours verified and approved by a supervisor or payroll person. The problem with this method is that the supervisor and/or payroll person is not sitting there keeping track of every single employee.

Timesheet fraud occurs when an employee records inaccurate time worked. This most often comes in the form of rounding or padding the clock. This is much easier for employees to do if they are simply writing their time worked on a piece of paper or manually entering their time in an electronic system.

Adding 10-15 minutes here or there doesn’t tend to get noticed very much. This becomes a real issue when those 10-15 minutes get compounded over the course of a year.

Let’s say an employee does this every week. Adding 10-15 minutes to five shifts for 52 weeks equals 43.3-65 hours per year of compensated but unearned time. That multiplied out across 25 employees making an average of $10 per hour equals an annual cost of $10,825-$16,250. Now that 10-15 minutes of timesheet padding becomes a serious issue.

Buddy Punching

This happens when employees sign in or out of work on behalf of another employee.

This happens more often than most employers realize. Someone forgets to clock in or out and they call one of their co-workers to help out by doing it for them.

To employees, this doesn’t seem like a big deal. It’s not like they’re cheating the system. They just forgot to record the time they actually worked. To most, it shouldn’t matter who enters the time in the timekeeping system as long as it is correct.

While it might not seem like a big issue, it can quickly become one. Let’s say the co-worker didn’t record the correct time and the employee didn’t make any necessary changes when submitting their timesheet for payroll processing. Then the employee ends up being paid incorrectly.

It is up to employers to ensure that employees are being paid for all hours worked. So, in this situation, neither the employee nor the employer knows whether the pay is correct. In the absence of accurate timekeeping records, the Department of Labor will tend to side with the employee.

Therefore it will benefit employers to maintain a policy prohibiting “Buddy Punching”. Having a mobile time management app helps as well.

Break Abuse

As in the first example, 10 – 15 minutes here and there can add up to big costs. The same is true with break abuse. The complaint I hear most often regarding break abuse deals with smokers versus non-smokers.

The non-smokers repeatedly complain about the fact that the smokers in the group typically take several five-minute breaks here and there, but they only get one or two 10-15 minutes breaks per day.

Again, we come back to the importance of having a clear policy on the issue. This becomes a productivity and a compensation issue when employees are being compensated for work they are not actually doing.

Personal Business on Company Time

We live in an entrepreneurial society. It seems everyone has some kind of business on the side these days. Whether it’s Avon or Girl Scout cookies, personal business on company time can eat into both payroll and tangible asset budgets.

While there is a difference between putting a catalog in the break room and printing 1,000 advertising fliers for your new business on the company copy machine (yes, this has actually happened), they both eat into time being paid for by the employer.

Again, a clear policy on whether or not personal business is even permitted on-site is advantageous for any employer.

How to Track Employee Time Better

Here are some general policy recommendations for tracking time, according to the Department of Labor (please note that timekeeping and payment of wages may vary by state):

“The federal Fair Labor Standards Act (FLSA) and the laws in most states require that employers keep accurate records of hours worked and wages paid to nonexempt employees. Records of hours worked can be tracked using a variety of methods, including handwritten time cards, time clocks, or Web clocks, or through the use of terminals that can read barcodes on badges, fingerprints and handprints, magnetic strips on badges, or information typed into a keypad. There are even ways to clock in from a mobile phone for employees telecommuting or traveling. Any one of these methods is fine as long as accurate records are kept.”

Accurately recording time worked is the responsibility of every non-exempt/hourly employee.

Federal and state laws require that employers keep an accurate record of time worked in order to calculate employee pay and benefits. Time worked is all the time actually spent on the job performing assigned duties.

Non-exempt/hourly employees must record their time at the beginning of the scheduled workday, time away from work for lunch, and record their time at the end of the scheduled workday.

All non-exempt employees are required to sign his/her time record to certify the accuracy of all time recorded before submitting it for payroll processing. In addition, if corrections or modifications are made to the time record, both the employee and supervisor must verify the accuracy of the change by initialing the time record.

It should be considered a violation of policy for one employee to sign another employee’s time sheet, or alter another employee’s time sheet or alter his/her own time sheet without permission.

Employees should check the amount of time for which they have been paid to verify they have been paid for the full amount of time submitted. If an employee believes there is a discrepancy between the amount of time they submitted and the amount of time for which they were paid, they should immediately notify their supervisor.

Exempt/Salaried employees are not required to keep or submit a regular time sheet.

Exempt/Salaried employees are required to submit exception time only to their immediate supervisor. Exception time is considered time (in full day increments) in which the exempt/salaried employee did not engage in any work on behalf of the employer. This may include vacations, personal days, holidays, sick days and leaves of absence.

Non-exempt employees must record all time actually worked. Time worked includes:

  • Waiting time. This is when an employee is required to report to work at a certain time but is requested or required to wait before beginning work tasks
  • Voluntary work. This is when an employee voluntarily performs work before his or her workday begins, during meal breaks, or after a workday ends
  • Time spent in work-related courses and lectures, unless the time is outside of normal working hours
  • Time spent in meetings with leadership during regular working hours
  • Time spent during the workday traveling from one location to another and overnight travel time that occurs during normal working hours
  • Time spent engaging in work in which the employer benefits from the employees’ efforts.

Non-exempt employees must never work “off the clock.”

An employee is considered to be working, or “on the clock,” when he or she is at the workstation ready to work. All hours worked, whether approved in advance or not, must be reported and will be paid. At the discretion of the employer, employees who fail to obtain approval of overtime in advance of performing the overtime work may be subject to disciplinary action, up to and including termination of employment.

Scheduled overtime work is announced in advance and generally will involve an entire department or operation.

This type of overtime becomes part of the required workweek of the people who are members of the department or operation.

Incidental overtime isn’t scheduled.

It becomes necessary in response to extenuating circumstances. It is extra time needed to complete work normally completed during regular hours. Incidental overtime may become necessary when an illness or emergency keeps co-workers from being at work as anticipated. It may require an employee to return to the workplace for emergency work.

Exempt Pay Docking

As permitted by state and federal wage and hour laws, exempt employees may experience deductions or “docked pay” in the following circumstances:

  • Absences of one or more full days for personal reasons, other than sickness or disability
  • Absences of one or more full days due to sickness or disability, if there is a plan, policy, or practice providing replacement compensation for such absences
  • Absences of one or more full days before eligibility under such a plan, policy, or practice or after replacement compensation for such absences has been exhausted
  • Suspensions for violations of safety rules of major significance
  • Suspensions of one or more full days for violations of workplace conduct rules, such as rules against sexual harassment and workplace violence
  • Payment of actual time worked in the first and last weeks of employment, resulting in a proportional rate of an employee’s full salary
  • Negative paid-time-off balances, in whole-day increments only

Here are a few other timekeeping and payment of wages standards to keep in mind

Meal Breaks and Rest Periods: There are no federal laws requiring a meal or rest break. However, there are numerous state laws that do require meal and/or rest periods. If you do not pay for meal or rest periods, but expect your employees to take these breaks, make sure you are using a timekeeping system that allows your employees to easily clock in and out to avoid mistakes in reporting hours worked.

Extra pay for Saturday or Sunday Work: There are no federal laws requiring extra pay for weekend work. The FLSA only requires that non-exempt employees be paid at one and one-half times their regular rate of pay for all hours worked in excess of 40 in a standard work week.

Consent to Work Overtime: The FLSA does not require notice or consent from employees when scheduling overtime hours. Employers can establish a policy that any overtime worked must be approved in advance. However, if an employee works overtime, they must be compensated appropriately. The employer does, however, have the option to treat repeat offenses of working unapproved overtime as a violation of company policy.

*Wage and Hour laws vary by state. Please check with your state DOL prior to implementing any policy regarding pay, time worked and record keeping. (www.dol.gov)

Over to You

What strategies does your company use to keep employees from stealing time? How do you make sure that your staff fills out their timesheets accurately? Comment below and let us know!

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