New state laws require employers to stop this practice.
Past Common Practice of Rounding Hours
For years, many employers have used the practice of time clock rounding employees’ work hours to the nearest five-minute, six-minute, or up to a 15-minute interval. This practice is lawful under the Federal Fair Labor Standards Act [FLSA] as long as it is applied neutrally and in a fashion that does not tend to underpay employees. Generally, employers have practiced rounding up and rounding down as needed. Rounding simplified payroll when done in a neutral manner, and any advantage for the employer and employee was averaged out over time.
OREGON AND CALIFORNIA LAW UPDATED ON ROUNDING:
For years, Oregon and California allowed rounding, deferring to FLSA rules. However, recent decisions from the California Court of Appeals and the U.S. District Court for the District of Oregon have ended this flexibility, requiring employers to pay for actual time worked.
The U.S. District Court for Oregon ruled that Oregon’s law about tracking and rounding work hours differed from federal law. While the US DOL allows a more permissive “rounding” approach under the Fair Labor Standards Act, Oregon requires that employees be paid for all hours worked. While employers may apply a rounding system when employees clock in and out, employers also need to implement precautions to ensure employees are paid for all work time each pay period.
The federal judge ruled that, although Oregon statutes are silent concerning rounding (they neither allow nor prohibit it explicitly), the Oregon statutes require payment of wages for “all hours worked,” which is in direct conflict with rounding principles (since sometimes employees would not be paid for all hours worked when the time was rounded down), particularly where, as was the case in this matter, the employer tracked every single minute worked prior to the rounding.
For example, employers could use a rounding system and adjust hours at the end of each pay period to capture hours worked that the rounding system may have excluded. Alternatively, employers could adopt a rounding system that always rounds hours in the employee’s favor.
The California Court of Appeal, Sixth Appellate District, recently concluded that while neutral time rounding is lawful under California law, an issue of material fact exists when a company can capture and has captured the exact amount of time an employee has worked during a shift but has not paid the employee for “all the time” worked. Employers may not simply change calculations and billing methods based on the alleged ease for the employer and employee. Employers must look to the California Labor Code to determine whether a practice of calculating an employee’s hours is appropriate. The key takeaway is that employees must be compensated for all hours worked. There is no ruling or statute allowing an employer to continue to use rounding practices that will result in a failure to pay an employee less than the hours they have worked. The court ruled that if the employer is capable of tracking employee hours down to the minute, it is not acceptable to round the employees’ time or deviate from an accurate time-keeping protocol.
REVISE YOUR TIME-RECORDING PRACTICES NOW!
With the potential for class action lawsuit exposure (claimant attorneys like to sign up many employees at once for a larger potential payout) due to these recent court decisions, employers who currently use rounding should rethink their timekeeping and pay practices to ensure compliance with these changing standards. The safest option for employers is to avoid any rounding of work time.
- Work with Cardinal to accurately track an employee’s actual work time, with no rounding. There are many time and attendance software companies out there that offer automated systems. Better yet, use Cardinal’s time and attendance software to calculate time worked. We offer options like clocking in/out at a computer, a cell phone app, or a tablet.
If you are interested in this service, contact Cardinal for details.
If you co-employ with Cardinal, this basic service is at no cost to you.
- Use a spreadsheet or computer program to automatically calculate actual hours worked to the minute. Cardinal has spreadsheets you can enter time into to calculate hours worked, and we can import that spreadsheet into our payroll system.
- In production environments, use a time and attendance system that quickly allows multiple employees to clock in and out. For example, Cardinal has an option with facial recognition technology to quickly clock people in/out when they walk by a camera.
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