The Fair Labor Standards Act (FLSA) requires that employees be paid for all “hours worked.” But what about minutes, or seconds? Many employers track time using some type of time rounding system, either manual or computerized. Time rounding is permitted under the FLSA, provided that a few basic rules are followed.
1. The Time Rounding System Must Be Fair
The first, and perhaps most important, rule is that time rounding must be fairly applied in both directions. Some employers treat time rounding as a one-way ratchet – they always round hours down, in favor of the employer. For instance, if an employee works 8 hours and one minute they will round his time down to 8.0 hours. If he then works seven hours and fifty-eight minutes, they will round down to 7.75 hours. This employer has broken the law.
A time rounding system must work in both parties favor, and is only legal if it “averages out so that the employees are fully compensated for all the time they actually work.” In other words, if the employee gains some time on Monday, but loses some time on Tuesday, there is no injury. If the rounding only moves in one direction, there can be no averaging out and the employee will be underpaid.
2. The Rounding Should Be To The Nearest Fifteen Minutes At The Most
The FLSA regulations state that rounding is permissible “to the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour.” Some employers round to higher increments, such as the nearest half-hour. This is a bad idea and violates the law. Federal regulations set a balance between the need to keep accurate time records and the “practical administrative” difficulties of tracking “insubstantial or insignificant periods of time.” No one could argue that it is not administratively feasible to track time in increments of less than a half-hour.
In fact, I generally recommend against using even quarter-hour rounding systems. Employers who round to the nearest five minutes or tenth of an hour, will at most add or shave 2 or 3 minutes per shift. Under a quarter-hour rounding system, this is more than doubled. I believe this possible seven-minute swing creates too much uncertainty and may lead to potential liability.
3. Is Rounding Really Necessary?
Finally, employers should ask what they hope to gain out of rounding, and whether it is really necessary. Modern computerized time clocks can track time to the minute, and computerized payroll systems have no difficulty in calculating pay for unusual time increments. Given these technological advances, the “practical administrative” difficulties that were a concern in past decades no longer weigh heavily.
So I ask employers – why are you round time punches in the first place? There is no real gain to be had. If properly implemented, rounding neither increases nor decreases payroll. Given the ease of computer pay systems, it does not really ease any administrative burden. Clever employees can game the system by strategically punching in a way to maximize their rounding time. Employers may find that it makes more sense to pay strictly to the clock, rather than apply any rounding system.
If you have any questions about time rounding under the Fair Labor Standards Act, or wage and hour law in general, call me at (504) 267-0777 or email me here. The initial consultation is always free, and our call is confidential and privileged