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  • As the saying goes, “To make money, you have to spend money.” While spending money is an inevitable part of running a successful business, keeping track of all your expenses without a proper process can be difficult.  

    While some companies choose to track their expenses manually, there is a quicker and safer approach: using an expense report tracking system. 

    What Are Expense Reports and What Do They Do? 

    Expense reports are special forms that outline and track business-related purchases and are submitted by employees for tracking and reimbursement purposes.  While they may be tedious to complete, these reports help streamline budgets, confirm purchases, ensure compliance through documentation, and track tax deductions.  

    Common expense report categories include the following: 

    • Travel 
    • Parking 
    • Hotels and other lodgings 
    • Gas 
    • Office expenses such as rent, utilities, office supplies, etc.  
    • Repairs and maintenance 

    The most common expense on a report is when an employee uses their own money to buy something on behalf of the business. The employee provides details on the purchase, attaches proof of payment such as an invoice or a receipt, and submits it to their employer, who then decides whether to approve or deny reimbursement. 

    What’s Included in an Expense Report? 

    While there isn’t one expense report format, there are common fields and information needed to submit a report. These fields include: 

    • Name of the employee who made the purchase 
    • The date of the purchase 
    • How the purchase was paid for (i.e., credit card, cash, etc.) 
    • Type of expense (Travel, parking, etc.) 
    • Description of the purchase 
    • Proof of payment 
    • Reimbursement total 
    • Any additional notes or information regarding the purchase 
    • Signature or approval from a supervisor 

    Top Benefits of an Expense Report Tracking System 

    Manually reviewing a long list of business expenses can be daunting, but an expense tracking system can simplify the entire process and offer several other benefits. 

    Enhanced compliance 

    An expense reporting system enables businesses to categorize expenses and produce documentation for tax returns, ensuring compliance with federal, state, and local tax laws. In the event that there is miscommunication among a team or a miscalculation, having an expense reporting system allows you to quickly review the expense in question and go over any details, making it easier to correct any mistakes made during the reimbursement process. Fixing potential expense mistakes before it’s too late can help reduce the potential for a non-compliance fine or monetary penalty.  

    Budget management 

    Expense reporting software plays a crucial role in effective budget management. It allows businesses to track and categorize expenses accurately, ensuring that cost amounts are correct and accounted for. By automating the expense reporting process, the software reduces the risk of errors and fraud while streamlining expense approval and reimbursement. This software enables businesses to make informed financial decisions and identify areas to improve and maintain compliance.  

    Saves time 

    As a business owner, your time is valuable. By automating expense reporting, you remove the need for manual processing. This not only increases efficiency but also saves you time, allowing you to concentrate on higher-value tasks, such as strategic planning and business development. Reporting software can also flag various issues and fix them in real time, reducing potential delays with reimbursement.  

    Simplify Administrative Tasks with GMS 

    Managing expense reporting alongside other responsibilities can make it challenging for business owners to concentrate on growth. That’s where a professional employer organization (PEO) like Group Management Services (GMS) can be a beneficial ally.  

    GMS’ knowledgeable experts can assist business owners with administrative functions like human resources, benefits administration, payroll, and more. GMS provides insight, assistance, and resources to help business owners effectively manage their business and employees. Our human resources information system (HRIS) allows business owners to easily manage everything from payroll to paid time off (PTO) requests to expense reporting.   

    Contact GMS to learn how we can help save you time and money with our services. 

  • As the year comes to an end, most corporations want to spread some cheer and figure out ways to ensure that their employees know just how much they appreciate them and their continued hard work over the past year. There are many ways of doing this, but some companies complete holiday or year-end bonuses as a generous way to show their gratitude.  

    Many large organizations find that their employees are more motivated, positive, and tend to do their job better when they receive a bonus. According to Wagepoint, 40% of employees wouldn’t be inspired to put in extra effort if there’s no tangible reward. Employees can rejoice, knowing that twice as many employers are offering year-end bonuses this year, compared to 2020.  

    While determining bonuses, there’s no one size fits all method to calculating. You’ll first need to determine, is your bonus a holiday-related one or is it year-end related? Many don’t realize that there is a difference; holiday bonuses are typically spread out equally among employees, whereas a year-end bonus is decided by looking at one’s tenure and performance. Use that logic to decide which route is best for your company. It goes without saying that the company’s success over the year will lend a hand in how generous your bonuses are.  

    Remember, it’s highly important that whichever one you decide to give out, you communicate this when delivering news of the bonus to ensure your employees are not surprised at what they receive.  

    Performance-based bonuses can include individual sales incentives or sales commissions, department-wide incentives, and annual or quarterly performance compensation. Department goals are another way to determine who gets what. For example, did a specific department reach their goals or other KPIs? This could be an easy way to figure out how much they should receive.  

    If you are unable to give your employees a bonus this year but still want to show them you care, consider one of the options below: 

    1. Thanking them and giving them a nice note 
    1. Flexible schedules  
    1. Host a holiday get-together for all employees 
    1. Extra time off 
    1. Achievement awards 
    1. Appreciation and recognition 

    Not every company can offer money as a thank you but offering some form of appreciation is still extremely important. Now more than ever, workplaces with generous flexibility and understanding can be even more important than more money. If you show some form of admiration to your team, you are sure to see their happiness through their hard work.  

  • The IRS recently released guidance for employers on the early termination of employee retention credit (ERC) if an employer received an advance payment or reduced deposits in anticipation of the credit. The Infrastructure Investment and Jobs Act, which was enacted on November 15th, 2021, amended the law so that the ERC applies only to wages paid before October 1st, 2021, unless the employer is a recovery startup business.  

    Notice 2021-65 applies to employers that paid wages after September 30th, 2021, and received an advance payment of the ERC for those wages or reduced employment tax deposits in anticipation of the credit for the fourth quarter of this year but are not ineligible for the credit due to this legislation change.  

    If an employer received advance payments for fourth-quarter wages, they will avoid failure to pay penalties so long as they repay those amounts by the due date of their applicable employment tax returns.   

    Employers that reduced deposits on or before December 20th, 2021, for wages paid during the fourth quarter 2021 in anticipation of the ERC, will not be subject to a failure to deposit penalty if: 

    1. The employer reduced deposed in anticipation of the ERC, consistent with the rules in Notice 2021-24 
    2. The employer deposits the amounts initially retained in anticipation of the ERC on or before the relevant due date for wages paid on December 31st, 2021 – regardless of whether the employer actually pays wages on said date. Deposit due dates will vary based on the deposit schedule or the employer.  
    3. The employer reports the tax liability resulting from the termination of the employer’s ERC on the applicable employment tax return or schedule that includes the period from October 1st, 2021, through December 31, 2021.  

    Penalties for failing to deposit will not be waived for employers if they reduce deposits after December 20th, 2021. If your business needs assistance on how to manage these new IRS guidelines, GMS can help you with a plan that fits your business model. 

  • Recently, the IRS issued a proposed regulation that would permanently and automatically allow a 30-day extension for furnishing Affordable Care Act (ACA) reporting forms to individuals – eliminating transitional good-faith relief for inaccurate and incomplete Forms 1094 and 1095.  

    These forms clarify that minimum essential coverage (MEC) does not include Medicaid coverage that is limited to COVID-19 testing and diagnostic services provided under the 2020’s Family First Coronavirus Response Act (FFCRA). While these regulations would apply and be effective at the beginning of 2022, entities should rely on the current regulations for 2021 reporting submissions. 

    The ACA requires applicable large employers (ALEs) – employers that during the prior year had 50 or more full-time employees or the equivalent when part-time employees’ hours are combined. Deadlines to these forms are as follows: 

    ACA Requirement 

    Deadline 
    • 1095 forms delivered to employees 
    • Jan. 31st, 2022 
      (proposed automatic extension to March 2nd  
    • Paper filing with IRS* 
    • Feb. 28th, 2022 
    • Electronic filing with IRS 
    • March 31st, 2022 

    The proposed regulation includes the following aspects:  

    1. A permanent and automatic extension of time for providing statements to individuals to no more than 30 days after January 31st, or the next business day if this day falls on a weekend or a holiday. Note, however, the proposed regulation has not changed the deadline for filing with the IRS (February 28th if on paper and March 31st if electronically). 
    2. The IRS will no longer accommodate employers filing incomplete or inaccurate information on Forms 1094 and 1095 (as previously permitted under Notice 2020-76). 
    3. As long as the ACA individual mandate (otherwise known as “shared responsibility”) penalty remains zero, a small, self-insured employer may simply post a clear and conspicuous notice on the entity’s website stating that responsible individuals may receive a copy of their Form 1095-B upon request, an alternative from mailing out individual forms to each enrolled individual.  

    Of particular note, five states (California, Massachusetts, New Jersey, Rhode Island, and Vermont – along with Washington D.C.) have enacted individual health coverage mandates that mirror the former federal requirement that individuals obtain ACA-compliant health coverage or pay a penalty tax. These states could require taxpayers to show proof of coverage or face fines.  

    GMS is devoted to helping businesses stay up to date on deadlines and regulations. If you are looking to spend more time focusing on the core of your business and minimize your administrative burden, contact us today.  

  • In a recent tax alert, the Ohio Department of Taxation announced the threshold for electronic filing of W-2 and 1099-R information for 2021 (submitting in 2022) to be lowered. Under this new change, all employers and retirement system payers that issue 10 or more W-2/1099-Rs will be required to upload the information electronically.  Before this, the threshold was 250 or more forms, as listed in a previous Department notice.

    When uploading these, Forms W-2 may be uploaded via the Ohio Business Gateway (OBG) – employers should note that magnetic media is not accepted. Also new this year, the deadline to submit has been extended to March 2nd, 2022, rather than January 31st, 2022, to help employers comply with the new threshold that was put into place.

    Previously, the IRS proposed regulations amending the rules for filing electronically that reduced the threshold for filing information returns (e.g., Forms W-2, 1099). The proposed amendments reflect changes made by the Taxpayer First Act of 2019 (TFA).

    Currently, the threshold to return electronic filings is 250. The TFA has authorized that they should gradually reduce this to 10 returns – which would lower the threshold to 100 returns for the year 2022 (returns for 2021 filed in 2022) and 10 returns beginning January 1, 2023. 

    Will Hart, Director of Payroll Tax at GMS, explained this in more detail, “This change will have its largest impact on small employers that are currently running in-house payroll. In the past, a small employer could get W2s from their payroll system and simply mail a copy to the state.” Hart continued, “Now, they’ll either need to generate a file in the proper format, or type all of those W2s into the Ohio Business Gateway. Programming for a file will be costly and typing the W2s into the OBG will be time consuming. Being with GMS eliminates both of those problems because we’re already filing electronically; and have been for many, many years.”

    If you’re looking to relieve your payroll headaches, we can help you! Contact us today to get started.

  • The Employee Retention Tax Credit (ERTC) is set to expire at the end of 2021, but that doesn’t mean that businesses are out of time to take advantage of the credit. The exact details of the ERTC have changed since it was created by the Coronavirus Aid, Relief and Economic Security (CARES) Act in March of 2020. After multiple extensions, it’s likely that the ERTC won’t be around after Dec. 31, 2021.

    Fortunately for businesses, the most recent updates have made it easier to benefit from the ERTC. Between the Consolidated Appropriations Act and American Rescue Plan, the IRS has loosened its criteria for which businesses qualify and increased how much businesses affected by COVID-19 can claim. Here’s a breakdown of what has changed for the ERTC and how businesses can claim tax credit before it’s too late.

    Key Updates To The ERTC

    Relaxed standards for eligible businesses

    Businesses of all sizes can qualify for the ERTC. There are a variety of factors that the IRS uses to determine if a private-sector business or tax-exempt organization is eligible for the tax credit. These factors have changed over time since the ERTC was introduced in 2020. As of now, the following criteria are used for eligibility:

    • A full or partial suspension of trade or business operations during 2020 or 2021 due to governmental orders stemming from COVID-19.
    • A decline in gross receipts of more than 20% (previously 50%) during a calendar quarter in 2020 or 2021 when compared to the same quarter from the 2019 year.
    • New businesses – called “recovery startup” businesses – created after Feb. 15, 2020, and have average annual gross receipts that are $1 million or less.

    Originally, the CARES act excluded Paycheck Protection Program (PPP) loan recipients from qualifying for the ERTC. That exclusion has changed and businesses that received PPP loans can also qualify for the ERTC retroactive to March 12, 2020.

    Changes to how much businesses can claim

    The credit is based on an eligible business’ “qualified wages.” In the past, businesses with 100 or more employees would only count wages paid while the employer could not provide services due to COVID-19. The CAA changed it so that any eligible business with fewer than 500 employees can consider all employee wages as qualified for the credit whether they are subject to a shutdown order or open for business. In addition, businesses can consider any employer-paid health benefits as part of employees’ qualified wages.

    The exact amount of the credit has also changed since the ERTC was first introduced. The credit was increased from 50% of qualified wages paid during the calendar quarter to 70% thanks to the Taxpayer Certainty and Disaster Tax Relief Act of 2020. That rate was kept when the ERTC was extended through Dec. 31, 2021.

    Eligible employers can apply that 70% to their qualified wages up to a limit of $10,000 per quarter. As a result, employers can receive a maximum quarterly credit of up to $7,000 per employee, or $28,000 combined for all four quarters. However, businesses that received PPP loans will still receive a maximum credit of only $5,000 per employee.

    New exceptions for “severely distressed” employers

    Another change that the American Rescue Plan Act made to the ERTC involved loosening up some of the restrictions placed on what the IRS considered “severely financially distressed employers.” The Act allows employers to claim tax credit for all employee wages up to the limit as long as they can demonstrate reductions in gross receipts of at least 90% compared to the same calendar quarter in 2019.

    How To Claim The ERTC For Your Business

    Any eligible employers must report their total qualified wages and the related health insurance costs on their quarterly employment tax returns to claim credit. For most employers, this will require filling out Form 941 and including relevant information for each quarter. The final date to claim the ERTC is now Dec. 31, 2021.

    Businesses that may have previously missed opportunities to claim the ERTC are also in luck. Eligible businesses can retroactively claim an ERTC refund on qualified wages paid for past quarters within the ERTC timeline. Employers would need to file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, in order to make up for that lost opportunity.

    While the deadline is Dec. 31, 2021, it’s best to collect all the required documentation and submit it to the IRS earlier than that date. The quicker a business files this information, the sooner it will receive ERTC funds, as turnaround times are roughly 30 to 60 days. This need for prompt filing is especially true for Form 941-X. The estimated turnaround time for retroactive claims is roughly 90 to 120 days, and there could be significant delays as the IRS addresses its current backlog of 941-X returns.

    Prepare Your Business For The ERTC And More

    While it’s easier to qualify for the ERTC in 2021 than in the past, it’s still not a simple process. Employers still need to parse through a lot of payroll data to even determine if they’re eligible – and then they’ll have to collect and complete even more documentation to claim those important funds.

    If that sounds like a lot of complicated, tedious work, it is. That’s why so many businesses partner with GMS to manage their payroll administration and stay on top of ongoing legislative changes. While our experts take on time-consuming tasks in payroll processing and tax management, you can focus on your own business and make the most out of opportunities like the ERTC.

    Ready to simplify your business? Contact GMS now about how we can help you stay on top of tax credits and more.

  • The Unanticipated Telecommuting Tax  

    Throughout the progression of COVID-19, over half of full-time employees were encouraged to work from home. As a result, some major corporations have permanently implemented the option to telecommute. The drastic change brings along an unexpected tax consequence.  

    Within most states, there is state income tax withholding which is required by the state where employees perform. The state can tax employees’ earnings if they work or live within the state. When it comes to neighboring states, commuters often have reciprocity agreements. These agreements allow withholding to be required within the employee’s home state. However, the tax or withholding is not always enforced to the work state.  

    When an employee works in a different state from their employer, it often creates another complication – Nexus.  Although varying by state, it holds the potential to trigger state income, sales tax, and corporate taxes for the employer. Employees will not be the only ones who are impacted. With an increasing number of employees teleworking from various locations, how to manage where they are to pay income tax has become vastly complicated.   

    Telecommuting is proposed to be the new norm, even after the end of the pandemic. If this occurs, employers must be made aware of the potential tax impacts and how to properly manage their teleworkers.  

    How GMS Can Help:  

    Working with a PEO like GMS will allow you to stay up to date with all the changing regulations. Along with ensuring that as an employer you are covered throughout the complete employee life cycle. Allowing business owners to have additional access to counsel for any questions that may arise.   

    Interested in learning more about all GMS has to offer? Contact us today! 

  • Social Security Benefits Increase For 2022 

    Just this month, the Social Security Administration announced that the 2022 Social Security wage base will increase $4,200 from $142,800 to $147,000. This cost-of-living adjustment (COLA) equates to a 5.9 percent increase to monthly checks in 2022. The adjustment will be considered the largest boost in decades. The Washington Post stated, “The adjustment will be made for 64 million Social Security beneficiaries as well as eight million Supplemental Security Income recipients. Some Americans receive both benefits.” The adjustment is calculated based on the Labor Department’s measure of inflation faced by blue-collar workers.  

    Because of the wage base increase, higher-earning individuals will then be taxed a larger amount. “The maximum Social Security tax per worker will be $18,228 or a maximum $9,114 withheld from a highly paid employee’s 2022 paycheck.” Social Security tax is one of two taxes all employers are required to withhold under the Federal Insurance Contributions Act (FICA), with the other being Medicare Tax. Because FICA tax rates are statutorily set, they can only be changed through new tax law.  

    Social Security is the biggest program funded by payroll taxes paid by both workers and employers, along with being the largest source of retirement income for most older Americans. Some think that this could be tied with increases in healthcare and housing costs. The price of prescription drugs has also gone up exponentially.  

    Ensuring that you have the most up-to-date legislation for your payroll can be a heavy burden that requires significant time and effort. As your trusted payroll partner, GMS can automate the process and help ensure you are compliant with all federal, state, and local regulations.  

     Visit our website to learn more, or contact us here: https://www.groupmgmt.com/contact/ 

  • When you own a business, salaries are a big deal. According to the Society for Human Resource Management, employees’ wages can account for 18% to 52% of your operating budget. Your employees play a key role in the success of your business and an efficient employee compensation plan is important for ensuring the pay structure of your business is working properly. A formal compensation structure can help your business manage salary expenditures and retain top talent that will help your company grow.

    What Is A Compensation Structure (And How Can It Help My Business)?

    A compensation structure, also known as a salary structure, is a framework that a business uses to determine compensation. A good structure sets pre-existing guidelines to delegate these pay increases in a fair, unbiased manner, as opposed to using inconsistent factors like negotiation or previous salary history. A formal structure typically includes standards for the following forms of compensation:

    • Starting salaries for various positions.
    • Managing when and how raises are addressed and awarded.
    • Distributing bonuses and commissions.

    Formalizing how you compensate your workers achieves a couple of goals for your business. To start, it creates a structure where you can create accurate staffing projections going into the hiring process, while allowing you to map out how future raises and bonuses will impact your total salary expenditures.

    A formal salary structure also gives employees more insight on how pay decisions are made. This information allows you to justify decisions with existing data and make the criteria for salary adjustments clear to everyone.

    Types Of Compensation Structures

    The good news about creating salary structures is that you don’t have to invent the wheel. There are some established compensation structures out there that you can adopt and adapt as needed. These include the following structures:

    • Broadband
    • Grade and range
    • Step
    • Market-based

    Broadband structures

    A broadband approach is a more traditional structure that was common for older companies. This type of structure creates “bands” of earnings that are based on seniority and position levels. As employees move up the hierarchy and stay with the company longer, they can move up to new bands.

    Broadband structures were very popular when people tended to stay in one job for most or all of their career. These structures typically have fewer bands, but each band has a broad salary range and multiple positions within each band.

    This type of system is good for rewarding employees who acquire new skills to advance from one band to another, or for companies who want extra flexibility in determining pay and promotions within a single band. However, the length of time it can take to move from one band to another may not appeal to ambitious young workers who want to be recognized for their achievements.

    Grade and range structures

    Grade and range structures are similar to broadband structures, but the “bands” are usually much smaller and are not tied to length of tenure. Every grade allows a company to group similar jobs together within and base that grade’s range on market rates, overall responsibilities, and organizational value. As employees advance to new higher grades, businesses can increase the salary range and earning potential to accommodate that level of value.

    The added bands allow for more flexibility to jump from one pay grade to another, rewarding employees that perform well. A series of grade levels allows business owners to visualize each level of responsibility and communicate them to employees. These qualities make grade and range structures a natural fit for larger businesses, companies with extended management hierarchies, and organizations with diverse roles who want more flexibility to promote employees earlier without as much of a commitment as broadband.

    Step structures

    While broadband and grade structures take increased skill or responsibility into account for promotions and hiring, step structures are much more focused on length of service. “Stepping” sets up a structure where employees receive fixed pay rate increases based on a pre-set schedule. For example, an employee with four years of experience would make more than one with two, depending on your stepping schedule.

    Step structures offer a couple of key advantages for both employers and employees: they’re easy understand and simple to manage. This type of compensation structure usually involves smaller increases per step, but employees will advance predictably up the ranks. Employees can very quickly understand what it takes to increase compensation, while employees can easily automate salary adjustment and forecast future expenditures based on set dates.

    These advantages make step structures a natural fit for businesses with smaller compensation budgets or those that want to ensure steady increases to company spending. Organizations that prefer to tie their compensation philosophy to tenure instead of individual performance will also find step structures appealing.

    Market-based structures

    Market-based salary structures are less about what is happening inside your company and more about external factors. Businesses with this type of philosophy will base salaries and proposed pay increases on data gathered from outside sources.

    This approach allows employers to benchmark starting salaries and promotions around what the market pays for similar positions. Businesses can then evaluate other external factors – cost of living, average compensation by location, etc. – to adjust their structure to their needs. For example, a business in a smaller market may offer slightly lower salaries than big cities because the cost of living is lower. By benchmarking salaries, businesses can be flexible enough to compete with the market for top talent.

    How To Create Your Salary Structure

    Now that you know the various salary structures, it’s time to create one that‘s best suited for your business. This process depends requires a few key steps to not only identify which type of structure is right, but also put that plan in motion.

    Identify the value of each position in your company

    Even though there may be salary data available for specific roles, they aren’t specific to your business. Take some time to evaluate just how essential each role is to the operations of your company. If a job is critical to your success, you may want to put that role in a higher pay grade or adjust your structure accordingly. This process will help you cater your structure to your exact needs so that you can attract and retain talent for pivotal positions while balancing your expenditures.

    Consider how your company stands compared to your market

    Your place in the market can dictate a lot about how you approach your employee compensation structure. This process involves asking yourself a lot of questions. For example, do you need to pay employees more than market-level wages to retain key talent? Do you need to adopt a lower-than-market strategy to stay within budget? Are employees in your market more likely to stay with your company for a long time?

    Each answer will help dictate which approach is right for your company. Identifying opportunities in your region and industry can help you balance what’s most valuable to your business with what you need to pay to compete with competitors.

    Formalize your compensation structure and align current employees with your strategy

    Once you have the answers you need, you can build a compensation strategy tailored to your needs. This compensation plan should include a detailed breakdown of each salary range, pay grade, or steps so that nothing is left unanswered. Document everything from minimum and maximum salaries for each position, timelines, and other details that pertain to your structure of choice.

    It’s also important to remember that this new structure applies to not only future hires, but also current employees. Take some time to evaluate your current employees’ salary rates and see how they compare to your new structure. You may find that some workers are behind – or ahead – of where they would be in the new system.

    Create a plan to have these outliers align with your new structure. For people behind schedule, that may call for greater increases to help them hit their expected minimum rate. Meanwhile, employees that are well ahead of schedule may call for a pay freeze or smaller increases until they match the compensation you identified as appropriate for your structure.

    Build a Compensation Structure That’s Right for Your Small Business

    Creating a new employee compensation plan is a daunting task for small businesses. It’s not just about money – these decisions also need to factor in the costs of hiring and training employees, navigating payroll, and the ever-present need for compliance. That’s why it’s helpful to go through these processes with the right partner.

    GMS works with small businesses to give them the tools and support they need to grow. Our experts can work with your company to implement salary structures that not only help you attract and retain key employees, but also work with your bottom line.

    Are your ready to make your business simpler, safer, and stronger? Contact GMS today to about how we can help you save time and money through payroll administration and other HR strategies.

  • You don’t need to run a big business to be a target for litigation. Small businesses across the country are targets for potential lawsuits, especially when it comes to wage and overtime compliance.

    Wage and hour litigation has grown into a major hazard for employers. Employees can pursue litigation if they feel that they weren’t paid for their work. These types of claims can stem from a variety of factors – an employee worked overtime that wasn’t approved, someone clocked in early when they weren’t supposed to, etc. These claims can wreak havoc on your business, so it’s essential to protect your business from these disputes.

    Why is Wage and Hour Litigation a Growing Trend?

    While wage and hour lawsuits have been around for decades, they’ve become more prominent in the past few decades. Fair Labor Standards Act (FLSA) lawsuits increased by a staggering 417% between 1997 and 2017, and the stakes have grown even higher in recent years due to complicated labor regulations and the impact of COVID-19.

    The Department of Labor’s Wage and Hour Division (WHD) has dedicated more time in recent years to achieve compliance with labor standards. The WHD conducted more outreach events in 2020 than any other year in history, capping off a three-year stretch of increased efforts. More employees also reached out to the WHD, as evidenced by the following numbers.

    • The WHD received more than 9,000 phone calls per day, an 350% increase from their previous average.
    • The WHD website received more than 45 million views since the passage of the Families First Coronavirus Response Act (FFCRA).
    • The WHD collected an average of $706,000 in back wages for workers per day in 2020.
    • WHD investigations in 2020 found that employees were owed an average of $1,120 in back wages.

    COVID-19 also created some new challenges for wage and hour compliance. More businesses were forced to have employees work from home, making it difficult for some employers to diligently track hours and account for overtime as they would have before.

    How to Protect Your Business from Wage and Hour Litigation

    Simply put, employers need to be increasingly careful about wage and hour violations. Even a small timekeeping error or miscommunication can turn into a lengthy, costly dispute. 

    Here are some ways that you can protect your business against these lawsuits.

    Keep accurate employee payroll records

    Clean, accurate payroll documentation is a critical aspect of running a compliant business. The (FLSA) requires businesses to keep accurate payroll records for non-exempt employees, many of which can help you make your case if you ever face a wage and hour lawsuit. Some of those records include:

    • Time and day of week when employee’s workweek begins
    • Hours worked each day
    • Total hours worked each workweek
    • Basis on which employee’s wages are paid (e.g., “$9 per hour,” “$440 a week,” “piecework”)
    • Regular hourly pay rate
    • Total daily or weekly straight-time earnings
    • Total overtime earnings for the workweek

    It’s also important to maintain these records for extended periods of time. Payroll data should generally be stored for at least three years in case of future litigation or if the Department of Labor (DOL) ever wants to review your business.

    Audit your timekeeping practices and adjust policies as necessary

    One of the simplest ways to protect your business is to review your timekeeping practices. Maintaining outdated or poorly defined practices can lead to unpleasant surprises when it comes to wage and hour law. As such, you’ll want to audit your practices and make the necessary changes to help your business avoid any issues.

    A good place to start is to review the Society for Human Resource Management’s (SHRM) checklist for various timekeeping practices. This checklist highlights a few different issues that can clean up your practices and establish more definitive methods for timekeeping. Of course, there are some notable risk areas that you’ll need to address as well.

    Establish a timekeeping policy and communicate it to employees

    It’s essential to set some ground rules to makes sure everyone is on the same page about your timekeeping policy. Employees should have a clear understanding of how your timekeeping policy works and what they should do when it comes to recording time. For example, you may want to highlight the following policies.

    • Require employees to record and verify all time worked.
    • Break down what counts as hours worked (such as training and travel time).
    • Put controls in place to prevent employees from clocking in early without prior approval.
    • Prohibit off-the-clock work.
    • Clearly state that overtime must be pre-approved by a supervisor.

    You’ll also want to have your employees review and sign documentation that they acknowledge your practices. This measure will not only educate employees on your policies, but also serve as a key compliance document to defend your business against some off-the-clock claims.

    Avoid rounding for timekeeping if possible

    It’s not uncommon for employers to round hours during payroll, but that doesn’t mean it’s the safest approach. According to the DOL, “employee time from 1 to 7 minutes may be rounded down, and thus not counted as hours worked.” The problem with this approach is that it can still open your business up to legal grey areas. SHRM found that “courts have ruled in favor of employees where the employer’s rounding policy worked only to the employer’s advantage or failed to average out over time.” Some states also have their own rules for rounding time, adding an extra dimension of complexity to the issue. 

    This grey area is why pay to the punch is the gold standard for timekeeping. This approach will not only help your company identify exactly how long your employees worked, but also avoid these potential complications that can lead to wage and hour lawsuits.

    Invest in payroll technology

    These days, a manual timekeeping system is just going to hold you and your company back. Whether you use paper records or some other form of offline time tracking, these methods are inconsistent and time consuming. That combination is only going to make matters worse if your company is ever hit with a dispute.

    Payroll technology is designed to simplify timekeeping and keep your business compliant with wage and hour regulations. Cloud-based timekeeping tools like GMS Connect offer a variety of key advantages for small business owners. 

    For example, timekeeping software makes it easier to track exactly when employees clock in and out for work and avoid issues with rounding. Technology also helps you streamline payroll management, giving you real-time calculations of employees’ pay and allowing both you and your employees to access schedules, hours, and other details from anywhere with a secure connection.

    Work with payroll experts

    It’s not easy to manage payroll for a small business. A simple timekeeping mistake can lead to a serious compliance issue that turns into a lawsuit. That need for payroll expertise is exactly why small businesses shouldn’t face these threats alone.

    GMS partners with small businesses to help them take control of their payroll administration. We can provide your company with a comprehensive web-based payroll solution to not only keep your business compliant, but also save you both time and money. You’ll also have access to a dedicated GMS payroll processor and other experts who can answer your questions and help you stay on top of new regulations, state laws, and timekeeping trends.

    As a Professional Employer Organization, GMS is here to make your business simpler, safer, and stronger. Contact GMS today about how we can help you with payroll administration and other critical HR functions.