01 Jul Did You Know…Your Payroll Software May Be Rounding Employees’ Work Hours Illegally?
On July 1, 2019, the Department of Labor’s Wage and Hour Division (WHD) issued an Opinion Letter addressing permissible rounding practices for calculating hours worked under the Fair Labor Standards Act. Opinion Letters represent the WHD’s official, written opinion on how a particular law applies in specific circumstances presented by the person or entity requesting the letter.
Hours worked under the FLSA ordinarily include all the time during which an employee is required to be on the employer’s premises, on duty or at a prescribed workplace. Though FLSA regulations recognize that minor differences between time clock records and actual hours worked cannot ordinarily be avoided, they caution against major discrepancies that can raise doubts as to the accuracy of the records of hours actually worked. An employer’s rounding practices can create the kinds of discrepancies that should be avoided.
The regulations acknowledge that employers have a history of recording start- and stop-times to the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour. The presumption is that this arrangement averages out so that employees are fully compensated for all the time they actually work. For enforcement purposes, rounding practices will only be accepted if they do not result, over a period of time, in failure to compensate employees properly for all the time they actually worked.
The rounding practices at issue in the Opinion Letter involved payroll / time clock software that converts recorded work time into a number that is extended out to six decimal points. For example, 7 hours and 30 minutes is converted into 7.500000 hours. The software then rounds these numbers to two decimal points. If the third decimal is less than .005, the second decimal stays the same (ex. 6.784999 hours rounds down to 6.78 hours). If the third decimal is .005 or greater, the second decimal rounds up by 0.01 (ex. 6.865000 hours rounds up to 6.87 hours). Finally, the software calculates pay by multiplying the rounded hours number by the prevailing wage.
The Opinion Letter notes that the software’s rounding function may result in downward rounding of no more than 0.29994 minutes per day and upward rounding by as much as 0.3 minutes per day, which is consistent with the WHD’s policy of accepting rounding practices that average out so that employees are compensated for all the time they actually work. The employer’s policy was characterized as neutral on its face and as applied. Accordingly, the WHD concluded that this rounding practice does not violate FLSA regulations. Wage and hour violations pose a substantial risk to most employers, but Employment Practices Liability Insurance can protect against various employment-related claims, including limited coverage for various wage and hour claims. Please contact us if you would like to learn more about employment practices liability insurance