Time & Attendance Warning Signs for Hourly Employees
Time and attendance tracking might seem like a minor administrative task, but inaccuracies can lead to serious legal and financial consequences. In fact, the U.S. Department of Labor’s (DOL) Wage & Hour Division recovered over $273 million in back wages and damages for nearly 152,000 workers in 2024 with healthcare and food service industry employers being the largest violators.
Managing hourly employees presents unique challenges for small businesses in time and attendance tracking. Spotting problematic patterns early can save you from costly penalties, reduced productivity, and legal ramifications. We will discuss who enforces wage and hour laws, the details of the law and some common red flags to watch out for in your small business.
Enforcement
The DOL Wage & Hour Division enforces compliance in labor standards regarding employee wages, federal minimum wage, overtime pay, recordkeeping, child labor requirements, wage garnishments, and much more. As of this writing, 34 states also have their own laws governing overtime and minimum wage and tend to be more aggressive in compliance.
Federal penalties for noncompliance can lead to employee back pay, liquidated damages, civil money penalty of up to $10,000 per violation, and potential criminal penalties in severe cases.
The Law
The Fair Labor Standards (FLSA) requires hourly employees to be compensated at least minimum wage for all work that they perform. The federal minimum wage is $7.25 per hour, but 34 states and municipalities (as of the date of this writing), have their own minimum wages. As of April 5, 2025, Washington, DC has the highest minimum wage at $17.50 per hour. Be sure to check those before determining pay for hourly employees.
Hourly employees who work overtime defined as more than 40 hours per work week, must be compensated for overtime, typically at 1.5 times. They are referred to by law as “non-exempt” workers because they are non-exempt from overtime pay. For example, if the employee’s hourly wage is $12 an hour and works 45 hours in a work week, they should be compensated at $12 x 40 hours for their regular hours. Then, $12 x 1.5 = $18 an hour for the additional 5 hours. Again, many states and municipalities have their own overtime laws, so be sure you know those.
Keeping track of work hours, breaks, and overtime correctly is critical to avoid compliance risks and unnecessary costs. There are many other compliance responsibilities, but these are the basic laws that small business owners tend to not know or overlook. Let’s look at the top red flags that small business owners violate with hourly workers.
Red Flags
1.Misclassifying Hourly Workers
Red Flag: Hiring all workers as independent contractors rather than employees to avoid paying employment taxes such as unemployment or Social Security and avoid offering benefits.
Some small businesses misclassify hourly workers as independent contractors to avoid payroll taxes. This can lead to massive IRS fines. Read our previous blog posts, “Ensuring Compliance for Independent Contractors and Employees in Your Small Business” and “Why the Independent Contractor Shortcut for Temporary Workers Could Cost You Big.”
2. Off-the-Clock Work
Red Flag: Employees sending emails, completing tasks, or preparing for shifts before clocking in or after clocking out.
One of the most significant legal risks for small businesses comes from employees working without recording their time. This is never ok, even if the employee is ok to work “off the clock.” This often happens when:
Employees feel pressured to appear more productive.
Employees volunteer to work without pay.
Managers encourage "quick" tasks such as reviewing documents or taking a brief training before official shifts.
Time clock locations are inconvenient.
The clock in/out software is not user-friendly.
Work while traveling isn't properly accounted for.
Remember that all work performed (to include required training, new employee orientation, travel for work, or completion of paperwork required for work) must be paid, regardless of whether it was authorized or requested. You should never discourage an employee to log overtime work they have in fact worked. That is a lawsuit waiting to happen! If you have an issue with hourly employees working unauthorized overtime or hours, that should be handled through the progressive discipline policy. See our previous blog post, “Mastering Effective Progressive Discipline in a Small Business.”
3. Timecard Rounding Issues
Red Flag: Rounding consistently favors the employer rather than balancing out over time.
The Department of Labor allows rounding only if it averages out fairly. If your system always rounds down, you're cheating employees and violating labor laws. Your system should round time punches up to the nearest 5, 10, or 15 minutes.
4. Missed Breaks
Red Flag: Employees regularly skipping recorded meal breaks or taking less than the required time.
The FLSA does not require employers to provide meal or rest breaks. The FLSA does mandate that if an employee is given a break of up to 20 minutes, it is work time and should be paid. The FLSA mandates that if an employee takes a meal break lasting at least 30 minutes, the meal break is not work time and not paid.
Meal or rest breaks may be legally required for shifts exceeding certain lengths or for minors, depending on your state. This creates both compliance issues and potential burnout problems. Watch for employees who:
Clock out for meals but continue working.
Take significantly shorter breaks than required.
Have irregular meal break patterns.
5. Buddy Punching
Red Flag: Multiple employees clocking in simultaneously or punches occurring when security footage or door access records show the employee wasn't present.
This occurs when one employee clocks in or out for another, falsifying time records which is typically a policy violation. Modern biometric systems, mobile GPS-verified punches, or systems requiring unique passwords can help prevent this issue.
6. Suspicious Overtime Patterns
Red Flag: Consistent overtime that falls just below approval thresholds or significant increases without corresponding productivity gains.
While some overtime is normal, certain patterns warrant investigation. Look for:
Employees regularly clocking exactly 39.5 hours when overtime requires approval at 40.
Spikes in overtime without business justification.
Overtime concentrated among specific employees or shifts.
Managers who consistently have several team members who violate requesting overtime authorization.
7. Precision Punching
Red Flag: Time records showing clock-ins at precisely 9:00 and clock-outs at exactly 5:00 every day.
Few employees naturally arrive and depart at exactly the same minute each day. This often indicates manual time entry rather than actual punch times, which may mask early departures or late arrivals. Limit manual entry through technology or mandate manager approval for manual entries.
8. Schedule Adherence Issues
Red Flag: Regular patterns of early departures, late arrivals, or missed shifts without appropriate notification.
Consistent deviation from scheduled hours creates planning challenges and potential coverage gaps. While occasional variations are normal, persistent schedule deviations signal deeper issues with staffing levels, employee satisfaction, management expectations, disciplinary issues, or employee medical concerns.
Suggested Solutions
Proactive small business owners can address these issues by:
Adopting Modern Time-Tracking Systems – Use a digital timekeeping system rather than spreadsheets and paper timesheets that typically leave room for error. Digital tracking automates and simplifies the process. Mobile apps with geofencing or biometric verification increase accuracy even more.
Creating Clear Policies – Define expectations in an attendance policy for clocking in/out procedures, break and meal expectations, and overtime approval to avoid misunderstandings.
Training Employees – Make sure your team understands how to record hours accurately, why it matters, and the ramifications for not recording hours accurately.
Training Supervisors - Ensure managers understand wage and hour compliance requirements and how to hold employees accountable.
Conducting Regular Audits – Don’t assume your system is flawless. Review time records regularly to identify concerning patterns and catch errors before they become costly issues.
Fostering Open Communication - Create channels for employees to raise concerns about workload and scheduling.
Consult an HR Professional – If you’re unsure, get expert guidance to avoid expensive mistakes.
Final Thoughts
Remember that time tracking isn't just about payroll—it's a legal and financial necessity for small businesses. By understanding these red flags, you’ll protect your business from wage disputes, compliance issues, and lawsuits. Get it right, and you’ll protect your company from fines, disputes, and lost profits.
Contact CPR today to help you get compliant before it’s too late!
Disclaimer: The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information.
