Despite federal regulations authorizing the use of “rounding” for purposes of capturing employee time, if not closely monitored, such practices can attract unnecessary legal risk and expensive lawsuits challenging the practice as improper.
The Fair Labor Standards Act (“FLSA”) requires employers to pay employees for all time worked. As a result, it is imperative for employees to accurately keep track of employee time. Due to the long-standing difficulty in tracking insubstantial periods of time, such as when an employee clocks in for work a minute or two before or after a scheduled shift, the FLSA has permitted the process of “rounding.” The practice of “rounding” adjusts, for payroll purposes, an employee’s punch times to the nearest five, ten or fifteen minute increment. For example, if your rounding rules round to the nearest five minute increment and your employees punch in for work at 7:57 a.m., 7:58 a.m., and 8:02 a.m., your rounding rules may consider all of those punches as occurring at 8:00 a.m. Similarly, if your employees punch out for work at 4:57 p.m., 4:59 p.m. and 5:02 p.m., your rules may consider those punches as occurring at 5:00 p.m. In interpreting the FLSA, the Department of Labor regulations describes “rounding” as follows:
“Rounding” practices. It has been found that in some industries, particularly where time clocks are used, there has been the practice for many years of recording the employees’ starting time and stopping time to the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour. Presumably, this arrangement averages out so that the employees are fully compensated for all the time they actually work. For enforcement purposes this practice of computing working time will be accepted, provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.
29 C.F.R. § 785.48(b).
For many employers who utilize rounding, the practice began due to the operational difficulty in accurately tracking employee time. However, with advances in technology, software now exists which allows employers to accurately capture time down to the second, calling into question whether it makes sense for employers to round time entries at all. For employers that do utilize rounding, it is important to keep in mind that the quarter hour (15 minutes) increment is the largest rounding increment permitted, and the rounding must be used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all time actually worked. Therefore, rounding must not result in an underpayment to employees over time. It should also be noted that utilizing a fifteen minute increment creates more risk of an overall underpayment to employees, as opposed to a five or ten minute increment.
A recent case brought against a California employer illustrates the need for employers to be able to concretely prove that their use of rounding does not work to the detriment of its employees. In AHMC Healthcare, Inc. v. Superior Court of Los Angeles County, No. B285655 (June 25, 2018), a group of healthcare employees filed suit against their employer on the grounds that its rounding policy, which rounded employee hours up or down to the nearest quarter hour (15 minutes), collectively worked to the detriment of its workers. In order to defend itself against the claims, the employer had to present the testimony of an economic and statistics expert. Upon review of the data collected over a four-year period, it was determined that the rounding policy added time to the pay of 49.3% of the workforce, took time from 49.5% of the workforce, and left 1.2% of the workforce unaffected. Upon review, the Court found the policy not only to be neutral on its face, but also neutral in practice, with the majority of employees either gaining time or being left unaffected by the policy. While the employer prevailed in AHMC Healthcare, it bore the cost of litigation, including expert testimony.
The AHMC Healthcare case is an important reminder that it is not enough that a rounding policy is neutral on its face. In addition, the policy must be neutral in practice. The only way for employers to ensure that rounding is neutral in practice, is to conduct frequent audits. The audits should examine the collective data to determine if the policy is neutral in practice. If the data shows a larger percentage of employees losing time due to “rounding,” the audit will allow an employer to determine whether changes to the policy need to be made, or whether the policy should be discontinued altogether in favor of technology that captures the precise start and stop times of employees. Without such audits, an employer risks defending against a wage and hour claim, without any assurance that its’ rounding policy, in practice, is neutral.