Punch in, punch out: State appeals court allows time clock rounding
by Jack Sholkoff, Esq., Ogletree Deakins, Los Angeles
If you use a time clock, you probably also use a rounding method so employees who clock in a little early or clock out slightly late are only paid for their scheduled time. The presumption is that over time, employees will clock in both early and late.
Fortunately, a recent California appeals court decision sanctions this common-sense practice and doesn’t punish employees who round up or down 10 minutes, as long as over time, employees are paid for all work performed.
How the system worked
See’s Candy Shops uses a timekeeping software system called Kronos to record its employees’ work hours. (See’s Candy Shops, Inc. v. Superior Court, No. D060710, Cal. App. 4th, 2012). Under the system, employees must punch in at the beginning and punch out at the end of their shifts, and also before and after lunch breaks. Kronos shows the actual time to the minute that employees use the system.
However, See’s Candy calculated its employees’ pay subject to adjustment under two policies: a nearest-10th rounding policy and a grace-period policy.
Under the nearest-10th rounding policy, employees’ in and out punches are rounded up or down to the nearest 10th of an hour. Time punches are thus rounded to the nearest three-minute mark.
Under the grace-period policy, employees whose schedules are programmed into the Kronos system may voluntarily punch in up to 10 minutes before their scheduled start time and 10 minutes after their scheduled end time. However, employees are not permitted to work during the grace period and may use this time for their own personal activities. They are paid based on their scheduled start and stop times rather than on their Kronos punch times.
According to the grace-period policy, managers must make timekeeping adjustments for employees who perform work during their grace period.
Class-action lawsuit
A former nonexempt employee of See’s Candy, who represented a class of current and former employees, challenged the policy of rounding to the nearest 10th of an hour. The lawsuit alleged loss of compensation in violation of California Labor Code section 204, which “generally requires an employer to pay an employee all wages every two weeks, and section 510, which requires paying overtime to an employee for any work after eight hours per day or 40 hours per week.
The court determined that, since there was no California statute or case law specific to employee time-rounding, the appropriate standard for determining whether See’s Candy violated the law by rounding was the federal standard under the Fair Labor Standards Act, which has also been adopted by the U.S. Department of Labor.
The same standard has also been adopted by the California Division of Labor Standards Enforcement (DLSE), the agency charged with enforcing California’s wage-and-hour laws.
The adopted standard allows for rounding employees’ hours to the nearest five minutes, or one-10th or quarter of an hour. It presumes that in doing so, the time that is rounded “averages out so that the employees are fully compensated for all the time they actually worked.”
Two seconds per shift
See’s Candy presented expert testimony, which the court relied upon, showing that the company’s nearest-10th rounding policy was unbiased and actually resulted in a gain of 2,749 hours for the employees. The expert also found an “aggregate shortfall” of 28 minutes, which he said “equates to a shortfall in the average rounded relative to actual shift of two seconds.” The total difference “across the more than 860,000 shifts studied,” he said, “is 2,230 hours in favor of employees.”
The court rejected the plaintiff’s argument that rounding violated California law. It noted that the plain language of Labor Code section 204 pertains only to the timing of wages being paid every two weeks; it does not require employers to perform a “mini actuarial” every two weeks when rounding hours.
As to the plaintiff’s argument that rounding violated overtime provisions under California Labor Code section 510, the court stated, “whether California’s overtime rules mean a rounding rule is biased against employees is a factual issue” to be decided at trial.
In short, the appeals court was persuaded that See’s Candy’s nearest-10th “rounding policy did not result in a loss to the employees.”
Practical impact
This is good news for employers that use rounding practices. However, rounding practices may still violate California law if they do not ultimately average out in a neutral way. Although this case affirms the legality of rounding practices legal in California, it does not necessarily make them easy to implement. Contact an attorney to review rounding practices before implementing them.
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Jack Sholkoff is a shareholder in Ogletree Deakins’ Los Angeles office. He filed a successful amicus brief in this case.
