Employers: Don't Take the Money and Run!

Many companies track working hours using rounding practices long accepted under the Fair Labor Standards Act (FLSA). Traditionally, rounding to the nearest quarter of an hour was based on 7-minute increments, with the intent of the FLSA that the practice, at minimum, was neutral to employees. Although the FLSA allows employers to round hours, it also requires the practice be used "in such a manner that it will not result, over a period of time, in failure to compensate … employees properly for the time they have actually worked" (rounding practices).

Recently, an employee of a health care system prevailed in having his putative class action wage and hour lawsuit, which had been settled in favor of the employer in the lower court, revived in the 8th Circuit Court of Appeals, which includes Minnesota and Iowa. The claimants’ suit alleges the organization’s rounding practices favored the health care system by incorrect rounding, which resulted in time cut from approximately one-half of the shifts while adding time to only about one-third. An analysis estimated that the employer did not pay employees for 74,000 hours, totaling $2 million in unpaid wages.

The court disagreed with the employer’s claim that having to pay according to actual hours worked created an administrative burden, pointing to the employer’s use of an electronic timekeeping system, which easily and without undue administrative burden would allow the employer to track the exact time worked—without the need for rounding.

Although it will likely be some time before the court issues its opinion, employers should consider auditing their timekeeping rounding practices to ensure they comply with state and federal laws. Even better, pay according to actual hours clocked rather than rounding. It may keep you out of court!