Rounding Methods for Payroll

EMPLOYERS IN CALIFORNIA SHOULD TAKE PRECAUTION WHEN USING ROUNDING METHODS FOR PAYING THEIR EMPLOYEES

It is customary for many employers to use a timekeeping system to track the hours worked by their employees. Such systems may include a computer, a “punch-machine,” or sometimes the employees will even write their hours and submit it to their supervisors at the end of the workweek. Employers in California sometimes will round their employees’ time when computing their time for their time worked, even if their “time system” will record the actual minute when they started or ended their work.

WHAT THE LAW SAYS

Under California Labor Code section 204, all wages are to be paid twice each month on the designated days. Labor performed between the 1st and 15th days shoal be paid for between the 16th and 26th day of the month during which the labor as performed, and labor performed between the 6th and the last day, inclusive, of any calendar month, shall be paid for between the 1st and 10th day of the following month.

However, salaries of executive, administrative, and professional employees of employers covered by the Fair Labor Standards Act, Under the FLSA, the executive, administrative, and professional employees of an employer may be paid once a month on or before the 26th day of the month during which the labor was performed if the entire month’s salaries, including the unearned portion between the date of payment and the last day of the month, are paid at that time.

CASE STUDY: SEE’S CANDY SHOPS INC.

In the recent case of See’s Candy Shops, Inc. v. Superior Court, the Court of Appeal held that employers are now permitted to round employees’ time to the nearest tenth of an hour, provided that the rounding method “will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” In the See’s Candy case, the employee, Pamela Silva brought a wage and hour class action complaint against her former employer, See’ s Candy Shops, Inc. After certifying a class of current and former California employees, the trial court granted Silva’ s motion for summary on four of See’ s Candy’s affirmative defenses and entered an order dismissing the four defense . In a writ petition, See’s Candy challenged the dismissal of two of the affirmative defenses which pertained to See’s Candy’s timekeeping policy that rounds employee punch in/out times to the nearest one-tenth of an hour.

The California Supreme Court granted See’s Candy’s petition for review and ordered the Court of Appeal to hear the matter. The Court of Appeal concluded that the trial court had erred in granting summary adjudication on the two affirmative defenses pertaining to the rounding policy. In its decision, the Court of Appeal stated that the rule in California is that an employer is entitled to use the nearest-tenth rounding policy if the rounding policy is fair and neutral on its face and “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.”

The Court noted that state law did not bar Sees Candy’s policy, since it was appropriate to follow the United States Department of Labor’s regulation at 29 Code of Federal Regulations section 785.48(b), which states: “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.”

The main issue that the Court of Appeal analyzed in its ruling of the See’s Candy case is whether an employer’s policies are consistent with that of the United States Department of Labor. Based on the Code of Federal Regulations and the outcome of this case, a “rounding” policy will not put the employer at risk for any wage and hour claims as long as the rounding results in a credit to the employee for as much time as she or she actually worked throughout the scope of their employment. If the rounding does not result in a failure to pay the legally-required wages in the long run, then its effect is not unlawful under the FLSA.

WHAT SHOULD EMPLOYERS DO?

In summary, California employers are now allowed to use discrepancy in implementing their wage and hour policies for paying their employees. The See’s Candy case places a limitation on more potential wage and hour claims, which have been on the rise in California. Employers in California should take precaution when using rounding methods for paying their employees. The rounding methods must have the same effect of paying the employees for all the time they have worked. And as a customary recommendation, employees should always determine whether new state or local laws would effect the current wage and hour requirements.

2018-10-16T19:09:15+00:00