FLSA Day Three: Rounding Rule and Hours Worked

A colleague contacted me a couple of days ago regarding an issue he was having at work. One of his clients utilizes time rounding but always in favor of the employer. My colleague knew this was a violation of the Fair Labor Standards Act (FLSA), but was facing opposition from the client and from his supervisor with regard to forcing a change. To my colleague's credit, he has taken all of the appropriate steps to rectify it, notifying the company, providing the client with the pertinent rules and regulations, and documenting his efforts to ensure compliance.

Vicki Lambert wrote a white paper for ADP that outlines the three most common FLSA violations. Number two on the list is time tracking, which includes incorrect rounding practices. (http://tinyurl.com/ADP-FLSA)

The Rule:

The FLSA does allow for time rounding practices, as outlined in DOL 29 CFR Sec. 785.48(b):

“Rounding” practices. It has been found that in some industries, particularly where time clocks are used, there has been the practice for many years of recording the employees' starting time and stopping time to the nearest 5 minutes or to the nearest one-tenth or quarter of an hour. Presumably, this arrangement averages out so that the employees are fully compensated for all the time they actually work. For enforcement purposes this practice of computing working time will be accepted, provided that it 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.

(http://tinyurl.com/FLSA-Regs) Italics added for emphasis.

How to Abide:

The question becomes, if you choose to round, how do you ensure compliance?

Presuming the employer chooses to round to the nearest quarter hour, the Department of Labor (DOL) recommends utilizing the seven (7) minute rule. Using the seven minute rule, employee time from 1 to 7 minutes may be rounded down and thus not counted as hours worked, but employee time from 8 to 14 minutes must be rounded up and counted as a quarter hour of work time.

The DOL believes this method to balance out over time and that it ensures employees are paid for all of their hours worked. Employers can use this method in comfort knowing that the DOL has recommended it.

Other Options:

Employers who utilize timekeeping systems can actually track time to the nearest second. Given this capability, employers should track time to the second. This ensures the employee is only paid for the hours he or she actually work. This is the best option in my opinion.

Another option is to always round in favor of the employee. Personally, I see little value in this option, outside of erring on the side of caution. The benefit of this method is that it is hard to accuse the company of violating the FLSA. The detriment is that the company is always paying for more hours than the employee worked. If the company can afford to do this, then I am all for it. However, for most companies, this is not a viable option.

I do not have practice with the third option, but I am aware that some companies always round starting times in the employee's favor and quitting times in the employer's favor. In theory this would balance out as well, although I am not totally comfortable with the method.

A Note on Automatic Deduction of Meal Times:

While not exactly pertinent to the rounding rule, I want to note that automatically deducting meal times can create liability under the FLSA. In order to be considered a bona fide meal time, the break must be at least 20 minutes. This is based upon DOL 29 CFR Sec. 785.18, which states:

Rest periods of short duration, running from 5 minutes to about 20 minutes, are common in industry. They promote the efficiency of the employee and are customarily paid for as working time. They must be counted as hours worked. Compensable time of rest periods may not be offset against other working time such as compensable waiting time or on-call time.

(http://tinyurl.com/FLSA-Regs)

A bona fide meal break under the FLSA is generally 30 minutes and need not be compensated. However, the employee must be fully relieved of duty for the entire break. An employee eating at his or her desk and answering phones would not be considered to be on a meal break. If the employer automatically deducts 30 minutes for a meal break from his or her time, the employer is technically violating the FLSA.

Take Away:

The goal of the FLSA is to ensure that employees are paid fairly. Employers should revisit all pay policies to ensure that they are aligned with FLSA standards. When in doubt, the rule of thumb is to ensure that employees are at least properly paid for all the hours they worked.

Where there is a rounding rule, the employer must ensure it does not always favor the employer.

The best practice is to pay to the minute. Current timekeeping software has this capability and requires little or no additional work for the employer. When this cannot be done, then utilizing the 7 minute rounding rule (noted above) is the best option.

Works Cited:

http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=48d6ee3b99d3b3a97b1bf189e1757786&rgn=div5&view=text&node=29:3.1.1.2.44&idno=29#29:3.1.1.2.44.3.436.10

http://www.adp.com/workforce-management/docs/whitepaper/FLSA_White_Paper.pdf