818.501.4343November 6, 2024
Running payroll is a necessity, but it can cause frustration for many business leaders. As many as one out of every three businesses make payroll mistakes, leading to unhappy employees and potential penalties. Understandably, many employers look for ways to simplify this process.
One solution some businesses have used to make payroll easier is a practice known as time-rounding. Once an accepted and approved HR practice, recent legal developments have called the continuing legality of time-rounding into question.
What Is Time-Rounding?
As the name implies, time-rounding involves rounding an employee’s time to the nearest predetermined time increment.
For example, an employer might round all employees’ times to the nearest five-minute increment. If so, an employee who clocks in at 7:46 a.m. might be treated as if they clocked in at 7:45 a.m. If that same employee were to clock out at 4:28 p.m., time-rounding would consider that employee to have left work at 4:30 p.m.
The purpose of time-rounding is simple: employers can more easily calculate their employees’ pay by using whole numbers for time entries. In some cases, employees might have a few minutes that go uncompensated if their time is rounded down. Others may get a few extra minutes when their time is rounded up.
The History of Time-Rounding in California
A 2012 California Court of Appeals case considered the legality of time-rounding practices.
In See’s Candy v. Superior Court of San Diego County, the California Court of Appeals held that time-rounding was acceptable so long as two key conditions were met: first, the practice must be facially neutral to both the employer and the employee; second, the practice can’t systemically undercompensate the employee over time.
For example, an employer’s time-rounding practice would be illegal if it tended to leave the employee with less money than they would receive if they were paid for all the time they worked.
Since See’s Candy, subsequent cases have limited the application of time-rounding practices.
In Troester v. Starbucks Corp., the court declined to apply the federal de minimis doctrine to California. This doctrine would have allowed California employers not to compensate employees for infrequent and minimal work periods. Instead, the Troester court held that employees must be compensated for all time worked.
Then, in Donohue v. AMN Services, LLC, the California Supreme Court held that employers couldn’t use time-rounding when calculating an employee’s meal break period. State law entitles employees to a 30-minute meal period, and employers must ensure that their employees receive the full amount of time.
Continuing Legality of Time-Rounding Questioned
In 2022, Camp v. Home Depot became the latest case in which the California appellate courts examined time-rounding.
The plaintiff sued Home Depot for unpaid wages, alleging that the company’s quarter-hour time-rounding practice didn’t compensate him for all his time worked. Based on See’s Candy, the trial court entered summary judgment in favor of Home Depot.
In this case, the California Court of Appeals reiterated the principle that employees should be paid for all time they actually work. The Camp court also recognized that the California Supreme Court had authorized time-rounding for a decade.
However, the Camp court noted that the California Supreme Court had never considered the legality of time-rounding where the employer could feasibly keep accurate time records. Home Depot could accurately record the hours and minutes an employee worked, which made the practice of time-rounding unnecessary.
In light of this, the Camp court remanded the case back to the trial court. The trial court was instructed to determine Home Depot’s ability to pay the plaintiff for his actual time worked rather than wages based on Home Depot’s time-rounding practice.
Can California Employers Still Use Time-Rounding?
The holding in Camp suggests that, in the future, California employers who use time-rounding may face additional scrutiny over the practice.
The See’s Candy decision, which had been used to justify time-rounding, was based partly on employers’ difficulty in accurately recording small and irregular work periods. In such situations, time-rounding was a practical (albeit imperfect) solution that could simplify the process of paying employees.
However, California law still demands that workers be paid for their time worked wherever possible. Time-rounding was deemed permissible when it was based on a neutral policy that didn’t consistently underpay employees over time. Even so, the California Supreme Court has already rejected time-rounding meal break periods.
What’s more, time-keeping technology has drastically improved since See’s Candy. Maintaining precise and accurate employee time records is becoming less burdensome for employers. Consequently, it’s becoming more difficult to justify time-rounding on traditional grounds.
Employers who use or are considering adopting a time-rounding policy should keep the following points in mind:
The Policy Should Be Facially Neutral
Any time-rounding practice should be applied fairly and uniformly to all hourly employees. An employer whose policy only applies to certain hourly workers but not others will have its policy quickly invalidated. They could also face additional legal penalties.
The Policy Shouldn’t Consistently Under-Compensate Employees
An employer defense lawyer examining a time-rounding policy would look to see whether employees are being regularly under-compensated for their work. Time-rounding is only permissible when, on the whole, the employee is compensated as much or more as they would be if they were paid for their actual time worked.
The Policy Should Be Enacted as the Most Practical Payroll Solution
Finally, company leaders and their employer defense attorneys should be prepared to show a court why it’s not feasible to accurately track the actual time the employee has worked. If the employer can record the hours and minutes employees work, a court is unlikely to support their time-rounding policy.
Careful Consideration of Time-Rounding Is Key to Employer Defense
Employer defense strategies surrounding unpaid wage claims and time-rounding should shift in light of Camp and other California Supreme Court rulings. Time-rounding was once seen as a practical way to overcome the obstacles of employee payroll. The employer’s practice could continue as long as such practices were fair and neutral.
Now, however, an employer defense strategy should show more than just that the time-rounding practice is neutral and fair. The employer’s practice must also be a more feasible solution than tracking every hour and minute an employee works.
Pearlman, Brown & Wax, LLP helps employers with recent legal changes. Our team can review and strengthen your time-keeping policies to comply with California wage laws. Contact us today to protect your business from unpaid wage claims.