“To round or not to round?” That is a question asked by many employers when trying to decide how best to structure their payroll policies and practices. In an attempt to simplify the way time worked is reported and paid, and in the hope of eliminating issues caused by employees who “clock in” a little early or a little late, many employers have elected to institute policies where the employees’ recorded work start and stop times are rounded up or down to the nearest five minutes, one-tenth of an hour or quarter of an hour.
The Division of Labor Standards Enforcement (the “DLSE” or the “California Labor Commissioner”) has recognized this practice for quite some time and has approved of time “rounding” policies provided certain requirements are met. Specifically, in the DLSE’s Enforcement Policies and Interpretations Manual (“Interpretations Manual”) it states “[t]he Division utilizes the practice of the U.S. Department of Labor of ’rounding’ employee’s hours to the nearest five minutes, one-tenth or quarter hour for purposes of calculating the number of hours worked pursuant to certain restrictions.” (Interpretations Manual at section 47.1.) As to the “certain restrictions,” the DLSE adds that “[f]or enforcement purposes this practice of computing time will be accepted by the DLSE, 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.” (Interpretations Manual at section 47.2.) Unfortunately, the DLSE provided little additional guidance on how best to ensure that “rounding” policies are legally compliant. Moreover, prior to 2012, there were no reported legal decisions which directly addressed the issue. That changed with the publication of the Court of Appeals’ decision in See’s Candy Shops, Inc. v. Sup. Ct. (2012) 210 Cal.App.4th 889.
In the See’s Candy Shops case, See’s was sued by a class of current and former employees who questioned the company’s policy of rounding time worked by employees to the nearest one-tenth of an hour. Under that policy, in and out “punches” are rounded (up or down) to the nearest tenth of an hour (every six minutes beginning with the hour mark). For example, if an employee “clocks in” at 7:58 a.m., the system rounds up the start time to 8:00 a.m. However, if an employee “clocks in’” at 8:02 a.m., the system rounds down the start time to 8:00 a.m. The same process applies with respect to employees “clocking out” so that an employee who “clocks out” after seven (7) hours and fifty-eight (58) minutes of work is considered to have worked a total of eight (8) hours while an employee who “clocked out” after eight (8) hours and two (2) minutes of work is also considered to have worked a total of eight (8) hours.
In their civil action, the class members contended that, due to See’s rounding policy, its employees were not getting paid for all hours worked. For instance, employees who actually worked eight (8) hours and two (2) minutes were deprived of two (2) minutes worth of overtime because they were considered to have worked only eight (8) hours under See’s policy. In deciding the matter in favor of See’s, the Court of Appeal recognized that while there was no specific California statute or regulation addressing the long-standing practice of rounding, a federal standard existed under the Fair Labor Standards Act which had previously been adopted by DLSE. As such, the Court concluded that an employer in California is entitled to use a nearest-tenth rounding policy so long as the policy is applied fairly and does not result in the failure to properly compensate employees for all time actually worked. Interestingly, since See’s policy involved rounding to the nearest one-tenth of an hour, the Court’s decision does not specifically address or approve of the practice of rounding to the nearest quarter of an hour. Yet, as mentioned above, such a practice has previously been approved by the DLSE.
While a victory for See’s, and the first appellate decision approving the practice of rounding time in California, the Court’s ruling highlights a very crucial point that California employers must be aware of in the event they choose to adopt a rounding policy. Specifically, such policies are only lawful if they do not result in the failure to fully compensate employees for all time actually worked. Accordingly, rounding policies are still subject to challenge if employees do not feel the practice benefits them on the whole (i.e., employees more often than not have their time rounded down resulting in being paid for less time than actually worked). In the event an employer’s rounding policy is challenged, the See’s Candy Shops decision makes it clear that the employer will need to be prepared to present data demonstrating the actual amount of time worked by the employees so that the necessary analysis can be performed. In the See’s Candy Shops case, See’s relied on an expert who was able to access the specific times each employee “clocked in” and “clocked out” (before any rounding was done) to conclude that over the span of 860,000 shifts, See’s rounding policy resulted in its employees being paid for 2,230 more hours of time than they actually worked. However, had See’s not retained records showing the actual “clock in” and “clock out” times, See’s would likely have been unable to demonstrate to the Court that its rounding policy was applied fairly and, thus, lawful.
Having access to the actual “clock in” and “clock out” times of employees is also important for other purposes, such as verifying that California’s meal period requirements are being satisfied. While not addressed by the See’s Candy Shops case, the practice of automatically rounding up/down time could be problematic in situations where employees contend they did not receive a full one-half hour duty free meal period. For instance, if an employee is compelled to return to work after a meal period of only twenty-eight (28) minutes, and the employer’s timekeeping system automatically rounds up the “clock in” time to the nearest half-hour/hour, the employer may never realize that the employee did not receive a proper meal period. Likewise, if an employee is prevented from leaving for his/her meal period until five (5) hours and two (2) minutes into his/her shift, and the employer’s timekeeping system automatically rounds down the “clock out” time to the end of the fifth (5th) hour of work, the employer may not know that the employee was unable to start his/her meal period by the applicable deadline. Accordingly, it is advisable that employers with rounding policies retain and regularly review the actual “clock in” and “clock out” data for their employees to make sure their rounding policy is being applied fairly and all other time based employment obligations (i.e., provision of meal periods, etc.) are being satisfied.
Based on the decision in the See’s Candy Shops case and the general requirements pertaining to the rounding of time worked, California employers should consider doing the following:
1. If you have a rounding policy in place, make sure your timekeeping system records the actual time employees “clock in” and “clock out” so that you can produce such information if required;
2. If you use a rounding policy, periodically review the records of the actual times employees “clock in” and “clock out” to make sure your policy is not creating a situation where employees are more likely to be adversely impacted by the policy;
3. If using a rounding a policy, evaluate the policy in the context of complying with meal period obligations for your non-exempt employees; and
4. If you are considering adopting a rounding policy, carefully consider the risks and benefits in determining whether such a policy is right for your business.
Please contact your Dowling Aaron attorney or Mark D. Kruthers with questions you have about the rounding up or down of time worked by employees. Mr. Kruthers can be reached at (559) 432-4500 or (661) 716-3000. Additional information about Mr. Kruthers and Dowling Aaron Incorporated is available at www.dowlingaaron.com.
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