Why Employers Must Keep Accurate Payroll Records
Under the Fair Labor Standards Act (FLSA), covered employees must be paid at least the minimum wage and not less than one and one-half times their regular rates of pay for overtime hours worked.
What records are required by the FLSA?
The FLSA requires covered employers to maintain certain records for each non-exempt worker. The important takeaway from the records requirement is that employers must record, among other information, the time and day of the week when each employee’s workweek begins, hours worked each day, total hours worked each workweek, basis on which the employee’s wages are paid, regular hourly pay rate, total daily or weekly straight-time earnings, total overtime earnings, all additions to or deductions from the employee’s wages, total wages paid each pay period, and date of payment and the pay period covered by the payment.
The full list of the basic records required is available here.
What happens if an employer fails to properly keep records?
The Fifth Circuit Court of Appeals recently addressed this question in a case involving the Department of Labor’s investigation of a fire-sprinkler installation and service company based in El Paso, Texas.
A DOL investigation found that employees were working without compensation before and after their recorded shifts, in violation of the FLSA. The district court found that the company required employees to arrive at its workplace no later than fifteen minutes before their scheduled start time but did not compensate these employees for this 15-minute gap.
The district court awarded 53 employees $121,687.37 in back wages based on the testimony of 6 employees.
How can six employees show damages for forty-seven other employees?
The Court noted that when an employer’s records are inaccurate or inadequate and the employee cannot offer convincing substitutes, an employee can attempt to fill the evidentiary gap.The employee carries out his burden if he proves that he has in fact performed work for which he was improperly compensated and if he produces sufficient evidence to show the amount and extent of that work as a matter of just and reasonable inference.
At this point, the burden shifts to the employer to come forward with evidence of the precise amount of work performed, or with evidence to negate the reasonableness of the inference. When an action involves a group of employees, a reliable “representative sample,” can shift the burden to the employer.
In Five Star Automatic Fire Protection, the DOL called six former employees to testify at trial, and the testimony essentially established that the company was not compensating its employees for the gap between their reporting time and their start time, and the time they left the jobsite and drove back to the company’s headquarters. This was a violation of the FLSA.
Despite the company arguing to the contrary, the Court held that while the sample size of testifying employees was small (6 of 53 employees, or 11%), it was sufficient for the purpose of extrapolating underpaid compensation. The company could not negate the inferences raised by the testimony of this critical 11%.
What should employers take away from the Fifth Circuit’s recent ruling on accurate payroll records?
Simply put, keep accurate payroll records and ensure that you are compensating employees for all worktime. If you do not, your company runs the risk of being held liable under the FLSA. The Fifth Circuit takes no issue with awarding damages on an approximated number when FLSA-required time records are incomplete.
 United States Dep’t of Labor v. Five Star Automatic Fire Prot., L.L.C., 19-51119, 2021 WL 457790 (5th Cir. Feb. 9, 2021).
 Id at *3.
 Id (emphasis added).