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As Time Goes by…Pay Practices Which May Be a Surprising Risk for Employers—Part 2



In Part 2 of our blog series highlighting some of the risks for employers when pay and time practices don’t comport with wage and hour laws, the case details and key takeaways below should provide West Coast employers cautionary insights into timecard rounding practices. Read Part 1 of our series here.

Are Timecard Rounding Practices Still Lawful Given Current Timekeeping Technology?

Many industries and employers have a long-standing practice of rounding time clock entries to the nearest 15-minute mark. Federal and most state laws officially allow this, provided that practice is neutral on its face and over the course of employment the time rounded down and the time rounded up generally balance out.

But this practice started when employers primarily used mechanical time clocks or paper timecards, with paychecks being calculated by hand. In today’s world, most employers use electronic or digital time clocks that can easily record time and calculate pay to the minute. That technology may make the use of time clock rounding a more risky proposition now.

In the recent case of Delmer Camp v. Home Depot U.S.A., Inc., H049033, 2022 WL 13874360, at *2 (Cal. Ct. App. Oct. 24, 2022), the Sixth Appellate District of California (covering Santa Cruz, Santa Clara, San Benito, and Monterey Counties) cast doubt on employer time clock rounding policies, particularly when those policies are applied to minute-accurate time systems. Given that federal and other states’ laws are premised on the same principles, all employers should take note.

In this case, Home Depot required employees to accurately clock in and out for each work period for every minute worked, but then applied a quarter-hour time-clock rounding policy:

“A time increment of seven minutes or less is rounded down to the nearest quarter hour, while a time increment of eight minutes or more is rounded up to the next quarter hour.” For example, if the total shift time was recorded as six hours and three minutes, the time was rounded down to 6.00 hours. If the total shift time was six hours and eight minutes, the shift time was rounded up to 6.25 hours.

Two employees brought a putative class action lawsuit, claiming that the rounding practices violated California wage and hour laws because employees were not being paid for all time worked. Home Depot argued that state and federal law generally approved of neutral rounding policies, and that the employees had been “paid for all time worked” as required by CA Wage Order No. 7.

The Appellate Court discussed at length the history of wage-rounding in the state, including the general adoption of neutral wage policies in alignment with the federal Fair Labor Standards Act (FLSA). The Court also acknowledged that neutral policies may result in underpayment when examined during a specific time period, or for an individual employee, provided the overall practice is neutral and does not result in an underpayment in the aggregate.

Unfortunately for Home Depot, Home Depot’s own evidence for one of the named plaintiffs revealed a net underpayment of approximately seven hours over a five year period, despite the neutral policy. (The other named plaintiff was paid all wages owed, and likely more, due to rounding.) Home Depot argued that such an underpayment over five years was de minimis, relying on a defense under the FLSA which excuses underpayment “for small amounts of otherwise compensable time upon a showing that the bits of time are administratively difficult to record.” But the Court rejected Home Depot’s de minimis defense as both inapplicable under California wage and hour law, which is more protective than federal law, and not factually applicable here because the state has not adopted the de minimis defense.

Further, the Court found that Home Depot could not meet the de minimis rule’s premise: “the practical administrative difficulty of recording small amounts of time.” To the contrary, Home Depot’s payroll rounding was a continuous, regularly occurring situation, and resulted in down-to-the-minute records it would round after the fact. The Court concluded that it would not be administratively difficult for Home Depot to pay all clocked time, and also that seven hours in the aggregate over five years was not viewed as a de minimis amount. While permissible neutral policies can result in underpayment during discrete, short periods, and while the policy itself was neutral, the Court found this to be too great an underpayment to balance the employer’s interests.

Finally in its analysis, the Court considered the rationale in favor of rounding policies: ease of administrative burden and efficiency of calculating hours owed, particularly when those hours may not be accurate down to the minute in the first place. It found that rationale was not applicable when Home Depot had accurate records it then effectively made less accurate.

Ultimately, the Court found that a question of fact existed as to whether this payroll rounding policy aligned with California law preventing dismissal. The key factors were the seven hour underpayment and that Home Depot had minute-accurate time records prior to rounding—making any underpayment entirely avoidable. The Court specifically asked the California Supreme Court to take up the issue, and reexamine the propriety of time clock rounding to the quarter hour when precise time records existed.

Key Takeaways

West Coast employers who employ time clock rounding should examine whether the practice is necessary or merely a matter of convenience. If the latter, be warned that Washington frequently follows California in wage and hour matters, and Oregon and Alaska do not fall far behind.

Like California, Washington has adopted the same FLSA-based rule for time clock rounding, and has not adopted a de minimis rule for wage and hour underpayment. While Washington guidance officially approves of the quarter-hour method of time clock rounding provided it is neutral and does not result in underpayment over time, the guidance is based on the same assumptions held inapplicable to the situation in Delmer Camp. See WA DLI Administrative Policy ES.D.1 at Section 13. Washington employers with minute-accurate time recording systems should carefully consider whether to use time clock rounding in calculating pay.

Oregon and Alaska have not established state regulations or guidance explicitly adopting rounding practices, but instead follow the FLSA, and therefore neutral rounding policies would typically be permissible under the same analysis. The reality of minute-accurate timekeeping systems, however, could still make rounding in Oregon and Alaska susceptible to the same vulnerabilities shown in Delmer Camp.

NOTE: REGARDLESS OF WHEN IT MAY STILL BE USED IN OTHER INSTANCES, TIME CLOCK ROUNDING CAN NEVER BE USED FOR MEAL AND REST BREAKS. Hourly employees must always get at least 30 full minutes for their meal periods, and the requisite 10 minutes of their mandatory rest breaks.

Finally, regardless of whether an employer uses a minute-accurate timekeeping system or a different timekeeping system, as demonstrated in Delmer Camp, a neutral rounding policy can inadvertently result in an underpayment in the aggregate. Employers who use rounding should consider auditing their payroll to determine if rounding down is occurring more frequently than rounding up. Further, employers should avoid policies and practices that arguably encourage a rounding imbalance, such as disciplining employees who clock in five minutes late while not disciplining employees who clock in five minutes early, or telling employees they cannot leave their work station until the exact scheduled end of their shift, when it will take the employee some amount of time to walk to the time clock, which time will probably get rounded down.

The legal issues impacting workplaces are ever changing (Employment Law in Motion!) and since publication, new or additional information not referenced in this blog post may be available.

This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.

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