Most employers know they must maintain accurate records showing the specific time when nonexempt employees begin and end each work period. This requirement includes ensuring that the in and out times for meal periods and split shifts are also accurately kept. Although many employers still use handwritten timecards or punch machines to meet the recordkeeping requirements, an increasingly large number have moved to electronic timekeeping systems such as a card swipe, keypad entry or computer login. In addition to simplifying the act of timekeeping and the calculation of the hours worked for payroll, more sophisticated systems produce state-of-the-art reports and can be extremely helpful in defending against wage claims.
Regardless of the timekeeping system used, a large number of employers round employees' actual recorded time up or down to determine the hours to be paid. Unfortunately, many engage in the practice without a full understanding of the legal ramifications.
Under a 50-year-old federal regulation, employers have been permitted to round the recorded starting and stopping times of nonexempt employees to the nearest 5 minutes, or to the nearest one-tenth or one-quarter of an hour as long as the rounding does not result over time in the failure to compensate employees properly for all the time they work. The California labor commissioner has long followed this same rule in interpreting state law. Until recently, however, the California courts had not ruled on the practice of rounding.
In a recent decision, the California Court of Appeal confirmed that employers can lawfully use time rounding practices. The court's decision highlights, however, the fact that not all rounding practices are lawful, and that employers should use extreme caution in adopting and utilizing rounding policies. While a rounding policy may be presumed valid on its face if it rounds up and down in a neutral fashion, it can still be challenged by an individual employee or class of employees. The challenge could prove successful if it is shown that, over time, the amount employees would have been paid based on actual recorded time is less than they were paid under the "rounding" policy.
Moreover, the proof in this kind of litigation can be very costly because it involves extensive statistical analysis by expert witnesses. A successful challenge will expose the employer to liability for unpaid wages, potential overtime wages, penalties, attorneys' fees, costs and interest. Even with tiny amounts of time involved each day, the total exposure could be huge.
Rounding is not required. In the absence of strong practical and operational reasons for time rounding, employers with modern electronic timekeeping and payroll systems should avoid rounding and pay employees based on the actual time entries recorded. If a rounding policy is used, the following important points should be considered:
- Statistics will play a large role in any litigation concerning rounding. Make sure your timekeeping system rounds up and down, so that both the employer and employee get approximately equal benefit from rounding over time. Rounding techniques that only round time down (to the employee's detriment) will on their face be invalid.
- Educate your staff to know the capabilities of your electronic timekeeping system. Many organizations are using the software without knowing its full capability and restrictions and do not understand what the reports actually mean.
- Utilize your organization's IT resources to analyze the electronic timekeeping system's accuracy and integration with the payroll system. Make sure that you do not end up with two separate databases (timekeeping system and payroll system) with conflicting records.
- Make an informed decision about the purpose of adopting a rounding policy. Understand the risks associated with rounding and make sure that the policy adopted accomplishes a legitimate purpose.
- Run reports and conduct analyses periodically to confirm that over time your system is not underreporting employees' actual hours worked.
- If you are using an electronic system, get a clear understanding of what manual changes are allowed in the system and how those changes are electronically tracked. This could be crucial evidence in wage and hour litigation. Likewise, the failure to retain such tracked evidence may also be used against an employer.
- Develop and publish appropriate personnel policies.
In addition to rounding policies, some employers use electronic systems to set up grace periods for clocking in, automatic 30-minute meal period deductions and other devices. These are all extremely risky in today's environment and should be carefully evaluated to ensure legality.
