What’s remarkable about records is that it seems as though you never know how much one is worth until you don’t have it. As a small business owner, this is especially true about the records you’re required to keep for your employees. In the wage and hour world, both the Fair Labor Standards Act (FLSA) and the Maryland Wage and Hour Law (MWHL) require that you maintain information related to how many hours your non-exempt employees work and how much you pay them.[1] Failure to keep the required records can turn into a really bad day for a business owner, specifically if facing a Department of Labor audit or if facing a wage and hour lawsuit.
What does a really bad day look like?
Picture opening your mail box to find a demand letter from a former employee, let’s call him Benedict. The letter goes like this: under the FLSA, the MWHL, and Maryland Wage Payment and Collection Law (MPCL) you owe Benedict three years of overtime plus three times damages and attorney’s fees. You call your office manager, Arnold, and say: “Didn’t we pay extra money to Benedict whenever he worked extra time?” Arnold says: “Yeah, Benedict worked all kinds of extra hours, but I never kept track of what hours Benedict worked and if I actually paid him extra. If I did pay him, it was in cash.” In this moment you may feel like Benedict and Arnold have betrayed you.
If you don’t have records and an employee sues you for a wage issue you’ll be at a potentially costly disadvantage. One part of this disadvantage comes in the way the employee-plaintiff proves his case. In a wage and hour lawsuit, the employee-plaintiff has to show that he was improperly compensated for work performed. The primary method of proof is showing the records of hours worked. However, it’s not the employee’s obligation to keep those records. When an employer-defendant fails to maintain accurate employee records the law allows an employee-plaintiff to make out his prima facie case on his word alone, so long as it creates a “just an reasonable inference” of the hours he worked. At that point the employer-defendant is left to “come forward with evidence of the precise amount of work performed or with evidence to negative the reasonableness of the inference.”[2] If the employer-defendant fails to defeat the inference created in favor of the employee-plaintiff, the court can award damages to the employee even if the employee’s word reflects only approximations of the hours he worked. Hence the bad day for the employer-defendant.
So what do you have to do to avoid this kerfuffle?
Fact Sheet #21: Recordkeeping Requirements under the Fair Labor Standards Act (FLSA), is a great resource to make sure you’re keeping up and complying with the FLSA’s recordkeeping requirements. Also, Maryland Code, Labor & Employment § 3-424 requires that an employer keep records of the following for at least three years: (i) name, address, and occupation of each employee; (ii) the rate of pay of each employee; (iii) the amount that is paid each pay period to each employee; and (iv)The hours that each employee works each day and workweek. The employment attorneys at Council Baradel can review and advise you on simple ways to comply with these requirements.
Recommendation
While it is not impossible to overcome the litigation problems that arise from failing to keep accurate records, it is far cheaper to put a compliant record keeping system in place than it is to defend a wage and hour lawsuit without records. Keep accurate records of the time your employees work and how much you pay them. It is a small price to pay for the protection and peace of mind it provides.
[1] For quick reference on wage and hour requirements in Maryland see the following: https://www.dllr.state.md.us/labor/wagepay/ (General requirements); https://www.dllr.state.md.us/labor/wagepay/wprecordkeeping.shtml (Records-specific requirements).
[2] Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946).
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