Compliance Corner: August 2018
Timesheet Rounding: Best Practices to Avoid Liability
Timesheet “rounding” is the practice of adjusting employee time to the nearest set increment. For instance, if an employee clocks in for work at 9:05 or 8:57, an employer’s rounding rules may treat that employee as starting at 9:00 a.m. Although rounding employee time is generally acceptable under the federal Fair Labor Standards Act (FLSA), the Department of Labor (DOL) cautions employers that the practice is lawful only if it averages out that employees are properly paid for all time worked. Since rounding can create compliance risks for employers, here are six best practices to follow to avoid the hazards associated with rounding worker time entries.
Determine if rounding serves a purpose.
Distrustful employees often think rounding is used by employers to cheat them out of wages, and many employers have faced costly lawsuits because of improper rounding practices. So, before implementing a rounding program, employers should ask why they are doing it. Does it serve a legitimate purpose or is it being done simply because it has always been done? Rounding began as way to make payroll calculations easier for employers and to give employees a grace period when starting or ending their shifts. With automated time and attendance systems now able to quickly capture time to the precise second, however, rounding hardly seems necessary any more.
Treat employees fairly.
The most important rule to remember about time rounding is that it must be applied fairly to employees. Employers cannot use rounding as a one-way street that always rounds hours down in their favor. A time rounding system must function in a manner that, at a minimum, equally favors employees and employers.
Round to no more than the nearest 15 minutes.
Under the FLSA regulations, rounding is acceptable if it is done to “the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour.” Rounding to a greater time increment, such as 20 or 30 minutes, violates the FLSA. Moreover, rounding to the nearest five minutes will lead to less potential liability if your time-keeping practice is challenged in court because less time will be in dispute.
Do not round unpaid meal breaks.
The FLSA and several states have meal break laws allowing meal periods to be unpaid if they are an appropriate length (e.g. 20 to 30 minutes) and the employee is relieved of all duties during the full break. If you round unpaid meal periods to the nearest increment, however, DOL and state investigators will likely question whether your employees took their entire unpaid meal break which can lead to liability under both federal and state law.
Advise employees to track all work activities.
The FLSA requires nonexempt employees to be paid for all time worked. This includes “off-the-clock” work and start-up and shut-down activities such as turning on or off equipment necessary to perform a job. No matter what time-keeping system you use, rounding or actual, make sure employees accurately record all their time. Failing to do so could lead to extensive liability and penalties for unpaid work time.
Regularly audit your rounding practices.
Even if your rounding practice appears neutral or favorable to employees, audit it regularly to make sure it continues to function that way. A yearly audit should be sufficient.
If you round, be careful.
Do you pay nonexempt employees for the precise time worked or do you round their start and stop times to the nearest increment? If you round, be careful. Although rounding employee time entries is legal under the FLSA, employers must ensure their system is free from bias and that employees are paid for all time worked. And don’t forget to check your state regulations as they may introduce different time-keeping limitations for employers.