Rounding Up: the Best Way to Comply with the Rounding Rules

Cheng, David - 300dpi
David Cheng

Most federal and state wage laws require hourly employees to be paid for all time considered hours worked, and requires the employer to accurately keep track of their time.  A question that often arises is whether employers may continue to round employees’ punch times for payroll purposes, notwithstanding the major advances in software and data collection technology that now permit companies to accurately capture time down to the nanosecond.

As background, a rounding policy is a system of practice that adjusts, for payroll purposes, an employee’s punch times within specific timeframes.  For example, if an employer maintained a rounding policy that rounded punches to the closest quarter hour, the policy will treat employees’ punches at 8:54 a.m., 9:01 a.m. or 9:07 a.m. as if all those punches occurred at 9:00 a.m., for purposes of compensation.

For years—and even now—federal regulations and most (if not all) states permit rounding as a means for setting a balance between the need to keep accurate records and the practical difficulties in tracking insubstantial or insignificant periods of time.  But with advances in technology over the years, maintaining a rounding policy has become increasingly fraught with legal risk as plaintiff’s attorneys seek to bring expensive lawsuits challenging the practice as improper.

An employer considering whether to implement a rounding policy should understand that such practices have been a target of class action plaintiff’s attorneys, and come with the risk of facing a lawsuit. Especially in this day and age when companies now have the aid of computers or timekeeping/payroll software to easily calculate time precisely, rounding policies can come with a risk of litigation. That said, every company’s circumstances are unique, and there are situations and industries in which implementing a rounding policy is an appropriate option.

For those employers that decide that rounding is a viable option, they will need to ensure that their respective policies follow applicable federal regulations.  These requirements are:

  • The policy must round employees’ work time to, at most, the nearest quarter of an hour (although lower intervals are also permissible).
  • The policy is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.

See, 29 C.F.R. § 785.48(b).

The first requirement is rather straightforward—but what about the second requirement?  Many courts interpreting the second requirement have read it to mean that a rounding policy is only valid if, on average for the employees or a specific workgroup as a whole, the policy favors neither overpayment nor underpayment.  Boiled down, to be safe, the rounding policy must—both as a matter of policy and in practice in the long term—be neutral.

Accordingly, to safely ensure compliance, an employer must not only implement a neutral rounding policy, but must also apply the policy neutrally in practice—especially in connection with its other operational policies and practices.  Below are some helpful factors an employer should consider when devising a rounding policy:

  • Maintain neutral policies. At a minimum, the interval used in a rounding policy must round to the nearest quarter of an hour (15 minutes), and without any attempt to benefit either the employer or the employee.
  • Maintain neutral practices. The employer must also ensure that, over time, its policy does not work to its own advantage.  A rounding policy that, when applied, benefits the employer a disproportionate amount of the time may be considered unlawful.  One common pitfall is when a company with a rounding policy fails to account for other policies and procedures that could impact the timing of employees’ punches.  For example, a policy that requires an employee to begin working upon clocking in may not be entirely compatible with a rounding policy.  Additionally, an attendance policy that requires an employee to punch in at or before their scheduled start time, but at the same time, disciplines employees for punching in after their schedule start time could, over time, result in rounding that systematically benefits the employer.
  • Educate employees and managers about the company’s rounding policy. Educating the workforce about the company’s rounding policy will provide more transparency and reduce confusion about the company’s pay practices.
  • Maintain a policy prohibiting off-the-clock work and a procedure for reporting missing/inaccurate hours worked. A rounding policy, alone, will not insulate an employer from liability.  Employers should consider promulgating other timekeeping policies/procedures, such as a policy prohibiting off-the-clock work and procedures on how employees can report missing or inaccurate time in order to accommodate contingencies not covered by the company’s rounding policy.
  • Conduct frequent audits. Frequent audits examining a company’s rounding policy can also help a company decide, early on, whether to consider revising the policy, or discontinuing it altogether.  The audits should evaluate whether the rounding policy has a neutral impact or if it has a negative impact on employees in the aggregate.
  • Check state laws and regulations. Some states may have specific rules on rounding, while others, despite adopting the federal rounding standards, may have additional rules and regulations that complicate use of such policies.  For instance, while California has adopted the federal standards concerning rounding, the state has also promulgated standards for breaks and meal periods that can, in certain circumstances, impact the ability to utilize rounding with respect to the recording of these breaks.

For more advice on rounding, and how it may affect your business, please feel free to reach out to the author, who is an attorney in FordHarrison’s Los Angeles Office, or to any one of the FordHarrison attorneys with whom you are in regular contact.

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