Time Theft: How SMBs Can Detect and Control it

The Fair Labor Standards Act requires employers to pay hourly workers for every hour worked, yet many employees take advantage of the system — costing companies billions of dollars in lost productivity.

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Time theft goes beyond arriving to work late and leaving early, and it can take many forms

Under the Fair Labor Standards Act, employers must pay employees for every minute they work. But what happens when employees are late for work or leave early, while their time logs — and paychecks — show they worked a full 40-hour week? Employees who get paid for hours they didn’t work are committing “time theft.” And the fallout can amount to billions of dollars a year in lost productivity for small and medium-sized businesses.

Time theft is usually associated with hourly, or nonexempt, employees. These employees must record their hours under FLSA rules, making their time appear easier to track. Since exempt workers, or workers with a salary, receive a flat wage — regardless of the number of hours they work — it’s more difficult to track the amount of time they work. And although nonexempt workers often argue that they work longer hours than their salaries indicate, they can still be engaging in time-theft behaviors.

FLSA’s Wage and Hour Division (WH) mandates that employers track and log precise records of the hours that nonexempt employees work. However, WH allows employers to use any recordkeeping method they choose, including punching a time clock or trusting employees to record their own hours.

Time theft defined

Time theft goes beyond arriving to work late and leaving early; employees also steal time on the job through:

  • Altering time records
  • Buddy-punching (punching a time clock for a coworker)
  • Browsing, shopping, game playing, social media, etc., on the Internet
  • Enlisting a stand-in, or proxy, for meetings and other business gatherings
  • Taking long lunches or breaks
  • Excessive socializing
  • Taking unauthorized overtime
  • Doing personal errands or other activities on company time
  • “Running down the clock” by doing nonwork-related activities
  • Napping on the job
  • Abusing flexible and offsite work schedules — like working from home, business travel, and delivery services
  • Operating a side business on an employer’s time

Attorney Jonathan Sigel, partner and chair of the Labor, Employment and Employee Benefits Group at Mirick O’Connell, told Workest that time theft fundamentally is about whether employees can be trusted to work the hours for which they’re paid. “If you’re not honest as an employee, you can be incentivized to try to inflate, in one way or another, the number of hours that you record or that you submit to the employer,” said Sigel.

There’s no “time theft law,” per se, Sigel said. However, if an employer thinks that the hours a worker logged are exaggerated, and refuses to pay for those excess hours, the worker can sue the employer for twice the amount of wages withheld — plus attorney and court fees, under FLSA rules.

“If you’re not honest as an employee, you can be incentivized to try to inflate, in one way or another, the number of hours that you record or that you submit to the employer.”

The cost to SMBs

One or two employees stealing work time may not seem problematic, but if a dozen or more people are stealing time, the losses in revenue, wages and productivity can add up substantially. Suppose a company has an employee who earns $10 an hour, works 5 days a week and steals 15 minutes per shift. According to Patriot, a payroll and accounting firm, the company will pay out $12.50 a week for unworked hours. Ten identical employees will cost the company $125 per week, for a total of $6,500 a year.

Statistics show that:

  • Time theft amounts to $400 billion dollars in lost productivity a year
  • If half of the nation’s 38 million hourly workers stole 15 minutes a week from their timesheets, businesses would lose $11 billion a year
  • Employees steal an average of 4.5 days a week from their employers, the equivalent of 6 full weeks a year
  • More than half of the hourly employees in a test study admitted to clocking in early or clocking out late to skew work hours in their favor
  • 75% of employers face payroll losses due to buddy punching

These dire statistics can mean hardships for SMBs, or even force some to close.

The causes of time theft

The causes of time theft, or any other form of workplace misconduct, are worth examining before taking disciplinary action. Workers could be stealing time on the job for many reasons other than a desire to commit fraud.

Agency Workforce Management attributes 3 possible causes of time theft to:

  • Paper timesheets, which may encourage workers to round up their time to the nearest hour without being aware that this involves fraud
  • Unengaged employees, whose disinterest in their job and the company makes them work fewer hours and lack concern about the time they receiving payment for
  • Over-scheduling, which can make employees feel overworked, pressed for time between shifts, habitually late and prone to taking extended breaks

MinuteHound, a firm specializing in electronic time-tracking, collected case studies on time theft. The data showed that employees steal time because they:

  1. Feel entitled to the extra, say, 20 or 30 minutes per shift that they steal, because they show up and work hard
  2. Have friends at work who will cover for them, as in the case of buddy-punching
  3. Fear losing their job, so they fudge their time sheets
  4. Need to pay their bills, so they inflate their time for more money in their paychecks
  5. Feel anger or resentment against their employer
  6. Make time-recording mistakes, such as misreading their schedule, mishandling the company’s time keeping system, or writing illegibly

Preventing time theft

“The first thing small business owners should do with employees is [to] be very clear about the expectations.”

Setting a policy on behavioral standards in the workplace is a critical first step in curbing time theft, Daniel McCraine, president at McCraine Associates, Inc., told Workest in an email interview. “The first thing small business owners should do with employees is [to] be very clear about the expectations,” he commented. “This should be in writing in the employee handbook and shared verbally.”

McCraine added that employers should include both the handbooks and verbal communication as part of their training efforts. He believes training should focus on what employees should be do during down-time, as well as expectations around what to do on the job or for the customer.

Sigel said that every employee handbook he prepares for clients has a policy about the consequences for falsifying records and stresses that being dishonest, such as when punching another person’s timecard, is grounds for termination.

How to further minimize time theft

Beyond policy setting, employers can also help minimize time theft by:

  • Talking with workers about time theft and how it hurts their business.
  • Instructing managers and supervisors to review and approve time sheets before employees finalize them
  • Replacing outmoded paper time and attendance (T&A) tracking systems, which technologists say can encourage time theft, with safer, more accurate electronic time card apps
  • Updating time clocks that require security and password settings, such as Social Security numbers, to discourage buddy-punching.
  • Using barcodes and radio-frequency identification (RFID) scanners to track employees’ hours.
  • Switching to biometric-based T&A tracking systems with facial recognition and fingerprint capabilities, which technology experts at Nucleus Research say give managers insight into employees’ locations and work habits, reduce employers’ costs and help them comply with WH rules.
  • Monitoring employees’ arrival and departure times and looking out for job tasks they aren’t completing a possible sign of time theft while avoiding a controlling “Big Brother” approach.
  • Paying employees fair and competitive wages to motivate and engage them so they’ll be less likely to resort to time theft, according to Boomr, an employee time tracking company owned by Justworks.

Remote work policies

The pandemic has turned the rising demand for remote work options into an urgent mode of operating for many businesses. A new Gallup poll found that a third of U.S. workers are doing their jobs remotely due to the coronavirus, and an even greater percentage — 2/3 — said they want to keep working remotely. With these statistics, the American Payroll Association reports that accurate time reporting is more critical than ever.

Remote hourly staff who can’t punch a time clock or forget to record their hours on paper time sheets, won’t get paid for their work. These circumstances can create FLSA compliance issues for employers.

SMBs can draft remote work procedures to coincide with time theft policies to cut their productivity losses and comply with WH laws.

Finally, McCraine advises employers to find ways to measure employees’ productivity. “The small business owner needs to know when the employee is on-task or not, without having to stand over them the whole time,” he commented. “That measurement needs to be inspected on a regular basis: daily during training, maybe weekly thereafter.”

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