Why Payroll and Timesheets Are Important

The question has a legal answer, not just a business one

Search this topic and you will find the same list everywhere: timesheets improve productivity, help you bill clients, give visibility over budgets. All true, and all beside the point for a small employer deciding how much effort this deserves.

Here is the point. Under the Fair Labor Standards Act, keeping time records for non-exempt employees is not a best practice. It is a requirement written into federal regulation, with a list of what must be recorded and how long it must be kept.

And there is a consequence attached to failing, which most articles on this subject skip. In 1946 the Supreme Court decided Anderson v. Mt. Clemens Pottery Co. The rule it set out still governs wage cases under the FLSA.

“The burden then shifts to the employer to come forward with evidence of the precise amount of work performed.”

Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946), after the employee has shown the work and its amount and extent “as a matter of just and reasonable inference”

The Court added that the employer may instead produce evidence to negate the reasonableness of the employee’s inference, and that if the employer produces neither, the court may award damages even though the result is only approximate. Read that as a small employer. If your records are good, the dispute is about what your records say. If they are missing, incomplete or unreliable, the dispute is about what your employee remembers, and the court may accept an approximation.

That asymmetry is the reason this matters. Timesheets do not merely help you pay correctly. They decide who has to prove what.

What actually happens in a dispute

Two employers, the same claim: an employee says they worked nine hours of unpaid overtime a week for the past two years. The only difference is the state of their records. This is an illustration of the rule, not a prediction of any case.

The 14 records federal law requires

The Department of Labor lists them in Fact Sheet #21 (the regulation, 29 CFR § 516.2, groups the same information into fewer items). For every non-exempt employee, these must exist. Two of them are the timesheet.

Two things about this list are worth dwelling on.

There is no required format. The Department of Labor does not prescribe a form, a system or a time clock. Paper is acceptable. A spreadsheet is acceptable. What is required is that the records be complete and accurate. You choose the method; you do not choose whether the information exists.

Daily hours are required, with one exception. A payroll system that stores 44 hours for the week satisfies item 7 and not item 6. The exception is a fixed schedule: if an employee normally works the same daily and weekly hours, you may record that schedule and note that the employee worked it. In any week the hours differ, you must record the exact hours for each day and the week. Outside that exception, a weekly total proves very little about which days were worked.

How long you have to keep them

Two different clocks, which is the part people get wrong. Payroll records and time records are not kept for the same length of time.

What it costs when the records fail

A wage claim is not simply a bill for the hours you missed. Two statutory features sit on top.

There is a second cost that does not fit in a table, and for a small employer it is often larger: the time spent reconstructing two years of hours from memory, emails, rotas and bank records while the claim is live. Clean records turn that into an afternoon of pulling files. Missing ones turn it into weeks.

Paper, spreadsheet or software: an honest comparison

Pages on this topic usually list these three options and recommend the author’s own product. This comparison is judged only on what the law asks for. (This site offers free browser tools for checking time data, and none of the three methods below is one we sell.)

If you are choosing, the question is not which is best. It is which one will still be accurate in eighteen months, in your busiest week, when nobody is thinking about compliance. A spreadsheet filled in honestly every Friday beats expensive software nobody completes.

What a defensible week looks like

Abstract advice is easy to agree with and hard to act on. This is one employee’s week as the record should hold it.

Five gaps that quietly break good records

These are common failures, and none of them looks like a failure at the time.

1. The workweek was never fixed

Item 5 on the Department of Labor’s list is the time and day your workweek begins. Many small employers have never set one formally, which makes every overnight shift and every weekend arguable. A shift starting Saturday at 9 p.m. and ending Sunday at 5 a.m. falls across a workweek boundary if the week starts at midnight on Sunday, and which side the hours land on decides whether they count toward overtime. The guide to overtime when a workweek crosses two pay periods works through it.

2. Weekly totals without daily hours

Payroll holds 43 hours; nothing holds the five days behind it. Unless the fixed-schedule exception applies, this satisfies item 7 and not item 6, and in a dispute about particular days it proves almost nothing.

3. Duplicate and overlapping entries

A punch recorded twice, or two shifts overlapping on the same day, inflates hours quietly. Nobody notices in a single week. Over a quarter it distorts both your payroll cost and the reliability of the record itself, and a party who finds one duplicate has a reason to question the rest.

4. Rounding that only ever goes one way

Rounding to the nearest quarter hour or similar is allowed, but 29 CFR § 785.48 requires that it average out so that employees are fully compensated over time. A policy that always rounds in the employer’s favour is not a rounding policy; it is a deduction, and it shows the moment anyone totals a quarter of punches.

5. Hours that were worked but never recorded

Answering messages after hours. Arriving early to set up. Staying late to finish. If the employer knows or has reason to know the work happened, it generally counts, and it will not be in the timesheet because nobody clocked in for it. This is a frequent source of claims, and the only defence is a culture where recording it is normal.