Top 5 Time-Tracking Challenges for SMBs Seeking Labor Compliance

By Keri Brooke

From properly administered benefits to accurate time sheets, small- to medium-sized businesses (SMBs) have their hands full dealing with labor compliance issues. In fact, federal compliance costs SMBs 45 percent more than bigger companies. When it comes to establishing the right processes that ensure compliance, SMBs can leave no stone unturned.

Time tracking is at the core of compliance. If a company does not accurately track the time of its employees, missed or misrecorded wages result. Between October 2007 and June 2011, organizations paid the U.S. Department of Labor more than $680 million in back wages. In many cases, companies misallocated time — an easily avoidable mistake.

To avoid the mess that comes after a compliance problem, SMBs should be well versed in the five challenges below — and how to handle them.

1. Costs

According to the U.S. Department of Labor, 7 in 10 companies are not compliant with wage and hours laws. And compliance violations don’t come cheap. In aggregate, companies paid $2.7 billion to settle wage and hour disputes over the past six years. In 2012 alone, companies paid $4.8 million to resolve such disputes; these steep fines can make or break many SMBs. As many companies face resource and budget restraints, it's become essential that they seek solutions that provide the most safeguards, while on a leaner budget.

2. Processes

Many SMBs with resource constraints haven’t established processes around compliance. Often, these companies manually track employee time on a spreadsheet, putting the company at risk for errors and oversights. Every hour not captured and recorded is an hour that puts an SMB at risk. Companies without systems, should establish processes — for example, cloud-based time tracking solutions — that ensure the most accurate timesheets

3. Visibility

The problem with using manual processes to track time is there is no visibility. Only the designated time tracker — someone in HR, for example — can view and manipulate records. Because data is not transparent or centrally accessible, there is little insight into errors. Another problem is that reporting suffers: you can’t report on what you can’t see. And, depending on the design of the manual process, you may not be able to generate an audit trail. Cloud-based time tracking solutions, however, offer automatic visibility into how time is used in an organization. SMB employees can view and enter time anytime, anywhere, and from any device, and companies can easily inquire, in real time, if they see something that looks off.

4. Earning Power

Most SMBs have low wage earners, which further enhances the risk of compliance issues. Minimum wages and labor laws vary by state and region, and it's easy to make mistakes interpreting and applying labor and wage laws. The Department of Labor knows this and targets industries with a high number of low-wage earners to see if companies are paying correctly. Overtime pay is another complicating factor. It is absolutely essential that companies with minimum-wage earners accurately track time in order to avoid fines that come from frequent enforcement.

5. Contingent Workers

If an SMB’s dependence on contingent or part-time workers is high, then there is an increased risk of non-compliance. Contingent workers often work off-site or outside regular 9-5 hours, and are paid differently than “regular” workers; they often work per ad hoc hourly rates, receive alternate benefits plans, are taxed differently, and are governed by different employment rules. Employers can expose themselves to potentially expensive penalties or litigation if these employees aren't tracked accurately.

SMBs need to address the challenges above so they will be well equipped to protect against compliance issues — not to mention revenue leakage and employee complaints. It is high time for SMBs to get their hours in order.