Do you remember this indie, middling box office success starring Matt Damon and Edward Norton about high-stakes poker? In short, Matt Damon’s character loses all of his money, goes to law school (where, in a plot twist no law student would find believable, he pays for school as a part-time delivery driver), and eventually returns to the world of underground poker games to bail out his friend and get revenge against the Russian mobster (ably played by John Malkovich) who took his bankroll the first time.
If you are an employer that rounds time entries, I hope that you won’t encounter any Russian mobsters, but you are playing your own version of high stakes, FLSA poker with your payroll practices. Last week, we outlined automatic meal and break deductions, which is one way that employers have typically rounded employee time punches. Rounding happens even more commonly at the beginning and ending of shifts. If your employees punch in for work at 7:57, 8:01, and 8:02, and you treat all three punches as occurring at 8:00 a.m. for payroll purposes, then you take a risk that you could end up in litigation.
The Fair Labor Standards Act (FLSA) regulations do not outlaw rounding, but at the same time, they do not require employers to do it. The FLSA was written in 1938 when tracking time to the exact minute was a bit more difficult than in today’s age of Excel, payroll providers, and payroll systems. If you are rounding employee time punches, the first question is to ask why. Is it because you have always done it that way? The best general tip that I can give employers in this situation is to seriously consider not doing it! If you can track employees’ work time from the exact minute they start until the exact minute they stop, do it.
However, if you are an employer with a specific operational reason that makes rounding attractive or that just cannot track time actually worked to the exact minute, you are not out of luck. Section 785.48 of the FLSA regulations provides that employers may utilize time clocks that round up or down in increments of up to a quarter hour so long as the clock rounds both ways, occasionally to the benefit of the employer and occasionally benefiting employees. 29 C.F.R. §785.48(b). Thus, for example, an employee who works a total of 8 hours and 5 minutes would be paid for 8.1 hours, and an employee who works 8 hours and 2 minutes would be paid for 8.0 hours. In other systems, an employee’s starting and ending times are rounded to the nearest 1/10th of an hour. Under this approach, an employee who clocks in at 7:58 would have the start time rounded up to 8:00, and an employee who starts at 8:02 would have the start time rounded back to 8:00.
One of the reasons why you might choose to round is what happens after employees clock in. In some situations, employees cannot begin to work until a production line starts up or phone lines open. I have encountered other situations where employees have to travel some distance from the time clock to the work area. Of course, employees might just voluntarily hang around chatting or drinking coffee, too. As long as they do not actually engage in any work, Section 785.48(a) of the FLSA regulations says that you do not have to pay employees for those extra periods. Unless you can document exactly when work began (such as the exact time a production line started), this extra time quickly becomes a fact issue in litigation. In most situations, the best approach is to counsel employees on the proper timekeeping procedures.
Upshot for Employers
Four points to remember:
- Rounding is not a synonym for permissible inaccuracy. Even though they permit you to round, the FLSA regulations still require employers to accurately record employees’ hours worked. Rounding should never obscure your duties under the FLSA to accurately record the hours your employees work. Yes, this might mean an extra calculation step or an investment in an updated timekeeping system, or even a change in a longtime company policy. Inaccuracy is never your friend under the FLSA. Avoiding even one class action or collective action will pay for the added system.
- Account for all work activities. This point goes hand-in-hand with #1 above. Remember that “hours worked” might include certain preliminary and postliminary activities, like shutting down machines or computers or putting away materials and tools. Whatever time recording system you elect to use must be capable of capturing all time that employees work, including any compensable start-up and shut-down activities.
- Audit your records (and rounding). If you do round time entries, your periodic internal and external wage and hour audits (you do those, right?) should include at least a sampling of time records to ascertain what you think happens with time entries (and rounding) actually does. Observe workers to see what they do at the beginning and end of shifts or breaks. Determine whether rounding does occasionally benefit both your company and your employees.
- Verify that the algorithm used by any automated time system complies with federal and state law. Just because a time system is capable of rounding appropriately does not mean that it was programmed to do so.
- If your internal review leads you to conclude that your time tracking system is weird, difficult, or inaccurate, get some help! You can’t avoid all lawsuits, but you can avoid them turning into bet-the-company litigation.