To make calculating payroll easier, many employees like to use a technique called “rounding.”
Essentially, rounding allows an employer to shift an employee’s arrival or departure time to a standard time interval: the nearest 15 minute mark, 10 minute mark, five minute mark. For instance, using a popular form of rounding (the “7/8 rule” or “15 minute rule”) if an employee arrives at 8:07am, the employer rounds the employee’s time back to 8:00am. But if the employee arrives at 8:08, the employer can round the arrival time forward to 8:15am.
By only having to calculate time in 15 minute increments, payroll computations can be easier for employers, especially for those who use paper timesheets or traditional time cards.
Federal law has permitted rounding for nearly 50 years, with the caveat that the rounding must be applied “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.”
So what’s the big deal with California?
Rounding in California
For employers in California, though, the law has been unclear. The California Division of Labor Standards Enforcement (DLSE) has generally followed federal law, but there has been no state law or regulation either expressly permitting or prohibiting the practice.
So all eyes were on the case of Silva v. See’s Candies Shop, Inc. recently. See’s had a policy of rounding time off to the nearest tenth of an hour. They were sued by an employee who launched a class action suit claiming a number of wage and hour violations — including that the rounding policy violated California Labor Code Section 204, which states “[a]ll wages… are due and payable twice during each calendar month.” The employee argued the employer had to reconcile actual time punches with the rounded time every two weeks in order to determine that “all” wages had been paid.
The trial court originally agreed with the employee and granted summary judgment that the rounding policy was illegal, even before the case went to trial. Eventually, though, the Appeals Court ruled that rounding policies may be consistent with California law. The Court decided the Labor Code only addresses the frequency and timing of pay, not the method by which it is calculated. According to the Court, as long as a rounding policy is neutral (i.e. neither always favoring the employer nor always favoring the employee), “the practice is proper under California law because its net effect is to permit employers to efficiently calculate hours worked without imposing any burden on employees.”
The Supremes Weigh In (Or Don’t, Which Has The Same Effect)
The employee appealed to the California Supreme Court. On February 13, 2013, the Supreme Court denied the employee’s petition to review, which has the effect of allowing the Appeals Court decision to stand. The Supreme Court also declined to unpublish the Appeals Court decision, which means it can be used as precedent in subsequent cases in California.
The End Result
So, now, there is explicit permission from the courts as well as established practice from the DLSE that rounding policies may be acceptable in the state of California.
Of course, as under federal law, the policy must be “fair and neutral on its face” and applied so 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.”
It’s also worth noting, the courts didn’t actually decide if the specific rounding policy in the See’s Candy case is legal. The employee will now have the chance to prove at trial that the rounding policy caused her to be denied pay, and the company will get the opportunity to prove that the rounding was neutral and didn’t result in underpayments over time.
But at least the court decision removes some of the uncertainty previously surrounding rounding policies in California — and officially brings California law on the subject in line with federal regulations.
Are you a California employer? Do you already use rounding? If not, will this ruling inspire you to institute a rounding policy, or do you plan to keep calculating time based on actual arrival/departure time?