Many California employers use electronic timekeeping systems to track employee work hours and properly calculate pay. These systems sometimes “round” time up or down-for example, to the nearest quarter hour. The California Division of Labor Standards Enforcement (DLSE) and United States Department of Labor (DOL) have historically approved this practice, provided 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.” In See’s Candy Shops v. Superior Court of San Diego, the California Fourth Appellate District Court also determined that under certain conditions, an employer may lawfully employ a neutral rounding policy.

See’s Timekeeping System

See’s used an electronic timekeeping system that accurately recorded actual clock in times. However, See’s rounded to the nearest tenth of an hour (six minutes) to calculate non-exempt employees’ pay. For example, if an employee clocked in at 7:58 a.m., See’s rounded up to 8:00 a.m. If the employee clocked in at 8:02 a.m., See’s rounded down to 8:00 a.m.

Employees filed a class action claiming that the policy violated several provisions of the Labor Code. See’s alleged in its Answer that the rounding practices were legal under state and federal law. But the trial court granted the plaintiffs’ motion for summary adjudication, rejecting See’s position. The California Supreme Court ordered the Court of Appeal to review the trial court’s ruling on the merits.

A “Fair” Rounding Policy is Legal

The appellate court turned to the DLSE and federal regulations regarding rounding. Relying on these interpretations, the court determined that a rounding policy is acceptable if it is “fair and neutral on its face” and 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.” See’s presented expert testimony showing that the practice actually worked in the employees’ favor, and the policy was “fair and neutral” because it rounded both up and down, depending on when the employee clocked in.

The court rejected the plaintiff’s claim that the rounding practice violated Labor Code section 204, which requires payment for hours worked at least twice per month. The plaintiffs contended that See’s would have to reconcile the rounded time with actual time worked at each payday to comply with Section 204’s requirements. The court reasoned that the statute regulates the timing, not manner, of payment.

The court also rejected the plaintiff’s claim that rounding violates Labor Code section 510, which required an overtime rate for “any work” over 8 hours per day or 40 hours per week. Again, that statute addresses the rate at which overtime must be paid, not whether rounding is an appropriate method for calculating the number of hours worked.

Based on the analysis, the appellate court sided with See’s and ordered the trial court to deny summary adjudication to the plaintiffs on the affirmative defenses.

Lessons for Employers

Although the case did not reach a conclusion on the merits (See’s did not win the entire case based on the appellate court’s recent ruling), it gives employers a solid basis to contend that neutral rounding policies are legally compliant. But, they must be fair. For example, a policy that only rounds down will likely be invalidated, because it will always put the employee at a disadvantage.

Of course, an employer choosing to employ such a practice should fully consider the implications of doing so. Rounding time may require more careful monitoring than other timekeeping methods. For example, employers must still ensure employees have the opportunity to take at least a 30 minute meal periodäóîthat is, that they do not feel the pressure to return to work in less time to avoid their time being rounded down. Employers will also need to monitor carefully for chronic abuse, such as an employee always arriving at work a few minutes late, knowing the time will be rounded up.

So, employers can and should consider a full range of options to address problems with employee start times before implementing a rounding system. For example, employers worried about wasted time when employees clock in early could create a policy requiring employees to obtain supervisor approval before clocking in more than five minutes early. Or, employers who have employees consistently arriving late could program electronic timekeeping systems to automatically notify a supervisor when a direct report clocks in later than his or her start time.

After considering these and other options, an employer may find that a rounding policy is the right timekeeping practice for its business. Provided it is fair and neutral, such a policy should pass legal muster.