Question: We use a timekeeping system that rounds employees’ punches in and out to the nearest quarter of an hour. I recently heard this may be risky, but I thought federal law allows it?
Answer: Both points are true: This practice may be risky under state wage and hour law, even though the regulations in the federal Fair Labor Standards Act (FLSA) allow rounding to the nearest one-tenth or quarter of an hour, so long as the payments average out to eventually compensate employees for all hours worked (29 CFR 785.48(b)). Employers in California and Oregon are especially at risk in rounding nonexempt (overtime-eligible) employees’ punch times and not paying for the exact time worked, down to the minute, in every paycheck.
A 2021 California Supreme Court decision, which we reported here, said rounding isn’t permitted when tracking meal periods (Donohue v. AMN Services, LLC, Cal, Feb. 2021). We believe it’s only a matter of time (no pun intended) before a California court rules that rounding is also prohibited in tracking the beginning and end of a shift. Meanwhile, a 2022 decision by an Oregon federal district court, which we reported here, concluded the FLSA regulation is in direct conflict with Oregon law (Eisele v. Home Depot U.S.A., Inc., D Or, Nov. 2022). The Oregon federal district court said there is no binding authority for underpaying an employee for all time worked in any regular paycheck or final paycheck.
Particularly in California and Oregon, we recommend working with your payroll provider or other vendor to accurately track employees’ actual work time, with no rounding. If this isn’t practical, employers in these states should explore alternative ways to ensure that workers receive full pay for all hours worked (including overtime, if applicable) in each paycheck. Don’t rely on averages over a longer period of time. For example, you could require employees to log their actual start and stop times. A spreadsheet or computer program could then automatically calculate whether your rounding practices would result in underpayments for any given employee in a particular paycheck, and if so, you could top off their wages to bring them up to the minimum amount for that paycheck.
In production environments where it’s not physically possible for all employees to clock in at the same time, it’s okay to allow them to punch in a little early. However, it’s critical to ensure they either don’t perform any work until their shifts actually begin, or they specifically note any such work in an exception report so they can be paid for their work time. You should enforce this through a consistent combination of verbal instructions, a written policy, and supervisor enforcement. For further guidance, talk with your Vigilant Law Group employment attorney and see our Legal Guide, Watch Out for Wage and Hour Issues with Time Clocks.