Is Unpaid Overtime the Next Ticking Time Bomb?
Understanding Work Rest Breaks
Rest breaks are short breaks (usually 5, 10, or 15 minutes) that are provided to employees working long shifts. The provision of rest breaks is regulated in many industries and jurisdictions to increase employee safety.
Over the last five years, we've seen numerous high profile payroll compliance cases where employees were not provided their rest break entitlements. In some cases, supervisors and/or employees were not aware of the entitlements and breaks were therefore never provided. In other cases, employees have been responding to requests from supervisors to skip their breaks, either because of an unusually high work load or staff shortages (eg: "We're busy today, can you work through your break?").
In response, employee groups have claimed and been awarded compensation for these missed breaks, resulting in:
- Back Payments: Even if rest breaks are only 10 minutes, for businesses with large numbers of employees, these back payments can grow quickly over time.
- Negative Press: Gaining a reputation as an employer who doesn't look after their employees is never a good thing.
- Penalties: In many jurisdictions (eg: Australia, California), government agencies can issue infringement notices and fines for non-compliance with payroll regulations.
While there is no doubt that employees should be either provided their rest breaks or compensated for working through them, we also need to acknowledge the importance of record keeping in these cases. If employees did take their rest breaks but they were not recorded, in a subsequent review or investigation, it is likely to be determined that the breaks were not taken.
In most workplaces, hourly paid workers employees either work:
- Fixed hours each workday (eg: 8 a.m. - 4 p.m. Monday to Friday).
- Rostered shifts that vary by day.
This allows employers to control their labour costs and it allows employees to allocate their overall time and to expect known payments. Of course, it is often the case that employers need flexibility due to varying workloads, and employees may be happy to be flexible.
Enter the concept of overtime, which is any work done that is:
- beyond their ordinary hours of work,
- outside the agreed number of hours, or
- outside the spread of ordinary hours.
In many jurisdictions and industries, overtime hours must be paid at at overtime rates that are higher than regular hourly rates, to compensate employees for the flexibility.
We are now starting to see payroll compliance cases emerging related to unpaid overtime. These cases are taking several forms, including:
- Breaks that fall during overtime hours that are being paid at normal rates, but industry rules require them to be paid at overtime rates.
- Employers requiring staff to arrive 10 minutes prior to their rostered shifts to prepare, while only paying employees for their rostered hours.
- Employers requesting staff to stay back to finish work, clean up, or close up after their shift, while only paying employees for their rostered hours.
In each of these cases employees are being underpaid - and given overtime rates the cumulative under payments can grow astronomically.
We believe that unpaid overtime is a ticking time bomb - at risk of exploding at some point in the future if it is not defused.
Defusing the Time Bomb: 5 Steps to Ensure Payroll Compliance
We recommend the following five-step plan to help protect your business:
Make sure you understand the break and overtime rules that apply to your industry and employees. Things can quickly get complicated - if your business spans multiple industries or jurisdictions, you may have employees that operate under different rules. A great resource in Australia is the Fair Work Web site.
Communicate these rules to your managers, supervisors, and employees so that everyone has a clear understanding of entitlements. Payroll compliance is in everyone's interest - not just so that employees are paid their entitlements, but to increase employee safety, morale, and retention, to protect your business reputation, and ultimately to drive business profitability.
3. Time Capture
To be compliant you must accurately capture the time employees actually start and end work - you cannot rely on their rostered shift times. If you have complex rules around breaks and overtime, this time capture becomes all the more important.
At the end of each shift, you should consider asking employees to confirm that they:
- Took their allocated rest breaks.
- Worked only their scheduled hours and were not asked to work extra time.
These types of attestations provide clear evidence in the event of a future review or investigation.
5. Record Retention
Record retention is critically important to be able to avoid disputes. You should consider that:
- Payroll compliance issues can emerge many years later.
- You may be legally required to keep time records for up to 7 years. For example, see the Fair Work Record Keeping Requirements in Australia.
Given the need for long retention periods, you should also consider keeping your detailed time records and attestations independently from your payroll platform, particularly if you have plans to change your payroll platform over time.
If you have questions about payroll compliance related to breaks or unpaid overtime, or you'd like to see a demo of how NoahFace can help, please Contact Us today.