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. However, the risks of time rounding can be significant, and many employers have faced expensive lawsuits based on improper time rounding practices.
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, the next day, he works seven hours and fifty-eight minutes, they will round his time down to 7.75 hours. This employer has broken the law.
A time rounding system must work equally in favor of both parties, and is only legal under the FLSA if it “averages out so that the employees are fully compensated for all the time they actually work.” If the rounding system only works in one direction, there can be no averaging out and the employee will be underpaid.
Companies may think that no employee would bother suing over a few minutes of lost time. This is a dangerous bet. In fact, numerous federal lawsuits have been filed based on rounding systems that reduced relatively small amounts of time from employee paychecks. Although the time lost on any given day may be miniscule, those minutes can add up over several months or years, and employees may join together in a collective action to aggregate their claims into a single lawsuit. Employment attorneys are also willing to take on relatively small-dollar FLSA claims because that statute allows for payment of attorneys’ fees to a successful plaintiff. In some cases, the amount of attorneys’ fees awarded can dwarf the amount of lost wages at issue – in one recent case, a court awarded attorneys’ fees of “more than ten times” the plaintiff’s total damages. The defendant therefore had to pay the plaintiff’s attorney over $170,000, in addition to whatever amounts it paid to own attorneys to defend against the suit.
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.” The nearest half-hour is not “insubstantial or insignificant.”
I generally recommend against using even quarter-hour rounding systems and prefer that employers who round use the nearest five minutes or tenth of an hour. These systems will, at most, add or shave 2 or 3 minutes per employee, per shift. Under a quarter-hour rounding system, up to seven minutes could be gained or lost, thus creating too much uncertainty and increasing the employer’s potential liability.
3. Is Rounding Really Necessary?
Finally, employers should ask what they hope to gain from time 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 as heavily.
I often ask employers – why are you rounding time punches in the first place? Often the answer is something like “that’s the way we’ve always done it.” Companies should think hard about whether a time rounding policy makes sense from a business perspective. If properly implemented, rounding neither increases nor decreases payroll costs. Given the widespread use of computerized pay systems, rounding does not significantly ease the administrative burden on payroll. On the other hand, there are potential downsides to rounding — clever employees can game the system by strategically punching in a way to maximize their rounding time, and improperly implementing a rounding system may lead to an expensive lawsuit. Employers may find that it makes more sense to pay strictly to the clock, rather than rounding time entries at all.
If you have any questions about time rounding under the Fair Labor Standards Act, or wage and hour law in general, call New Orleans overtime attorney Charles Stiegler at (504) 267-0777 or email here. The initial consultation is always free, and our call is confidential and privileged.