One particularly difficult challenge in complying with the strict minimum wage and overtime requirements of the Fair Labor Standards Act is an employer’s computerized timekeeping, payroll and/or accounting systems. For the vast majority of public sector employers, timekeeping is automated, as is payroll and the computation of wages owed; hard-copy timecards for employees and manual overtime calculations are a thing of the past. Despite their benefits, computerized payroll systems may be difficult to update or change, and appear inscrutable to non-IT employees. In addition, many public agencies have set up automated systems of accountability to track overtime and other costs, which add additional layers to running payroll.
Unfortunately, payroll system vendors rarely offer products that are easily and affordably tailored to the needs of public agency employers – particularly those employers with lengthy labor agreements that include myriad special pays and premiums specific to each bargaining unit, as well as covering numerous types of employees with various alternative work schedules, including safety. Nor do payroll companies offer easily-accessible updates or ways to keep up with the ever-evolving law on how employers must compensate employees under the FLSA. However, are deficient payroll systems or inefficient accounting procedures defenses to FLSA violations? Generally speaking, no. Employers must correctly and timely pay their employees per the requirements of the FLSA, regardless of the challenges posed by payroll and/or timekeeping software.
It is important to remember that late-paid wages are a violation of the FLSA. (Biggs v. Wilson (9th Cir. 1993) 1 F.3d 1537, 1541.) An employee’s wages must be paid on the regular payday for the period in which those wages were earned. Although an exception exists where it is not practicable to determine overtime compensation owed until sometime after the regular pay day, payment must be made as soon as possible and in no event may payment be delayed beyond the next payday. (29 C.F.R. sec. 778.106.) This exception is narrowly construed. Indeed, the Department of Labor has taken the position that this exception only applies when it is not possible to ascertain the number of overtime hours worked prior to preparing payroll. (DOL Opinion Letter, Oct. 8, 2004.) Generally speaking, an employer’s inefficient or non-FLSA compliant payroll system will not qualify for this exception.
For example, in Dominici v. Board of Education of the City of Chicago, custodial workers sued their public employer for liquidated damages after repeated delays in their overtime payments. Although the custodians had been paid all wages due to them, some of their overtime wages were paid up to one year late. In their defense, the Defendant Board of Education explained the reason for the late payment was not something voluntary on the part of management, but was due to a new, complicated accounting procedure put into place that required charging the overtime payment to a valid “bucket number.” If the custodial employees’ supervisor failed to charge their overtime to a valid bucket number, or if the correct bucket number had not yet been created, payment was delayed. Since the delay was involuntary, argued the Defendant Board of Education, no liquidated damages should be assessed. The Court disagreed, awarding the custodians liquidated damages for the late-paid wages and writing that “bureaucratic inertia in setting up its own timely payment of wages due to its own incompetence” was not a defense. (Dominici v. Bd. of Ed. (N.D. Ill. 1995) 881 F. Supp. 315, 320.)
In an unreported case from Pennsylvania, the Defendant County tried to defend against an overtime claim by claiming no knowledge of plaintiff’s alleged overtime hours because the County’s computerized payroll system did not recognize the hours as overtime. In ruling against the County, the Court wrote “the computer payroll system’s deficiencies [and] the County’s failure to acquire and utilize a payroll system that would recognize overtime [do] not excuse the County from paying its employees overtime wages as required under the FLSA.” (Souryavong v. Lackawanna Cty. (M.D. Pa. 2015) 2015 WL 3409472, *7.)
These cases highlight the important role payroll systems can play in complying with the FLSA. To ensure FLSA compliance, every employer must have comprehensive understanding of exactly how its payroll system calculated overtime rates and pays overtime wages. Moreover, building payroll systems that are FLSA-compliant and devoting resources to maintaining compliant systems may be the best way to prevent FLSA claims.
 Note that this letter was not authored by the Wage and Hour Division Administrator and thus may not be relied on in defense of an FLSA claim. However, in this specific example, the opinion letter is still instructive as to the Department of Labor’s interpretation of the FLSA.