In general, employers in California are required to pay their hourly and nonexempt employees for all hours they work.1 They are also required to keep accurate records and provide regular wage statements that correctly state the total hours worked by the employee.2
Problems arise, however, when employers and their workers disagree about how hours are calculated. Should the employer track and pay for every minute worked? Every second? Every fraction of a second?
One common approach to these difficulties is called “rounding.” Rounding is the practice of adjusting an employee’s hours worked, either up or down, to the nearest increment of a certain amount. That increment is usually easier to use when calculating their hours worked, and may also be more efficient for accounting purposes.
Employers often round their employees’ hours worked to the nearest tenth of an hour because paying an employee for 6.1 hours is easier than paying them for 6.09999 hours.
Rounding policies can result in employees being slightly underpaid or overpaid, depending on the type of policy and the employee’s specific circumstances. Legal disputes are common when an employer’s practice routinely results in employees being underpaid. This article will take a closer look at when rounding policies break the law in California.
Rounding Policies Are Allowed, but If They’re Fair
California courts generally follow federal wage and hour laws, which allow employers to adopt policies that round their employees’ hours worked.3 A rounding policy cannot, however, consistently result in a failure to pay employees for their time worked.4
Put simply, employers are allowed to adopt fair rounding policies, but they can’t design their rounding policies to underpay their workers. Rounding policies must follow two rules:
- The policy must be fair and neutral on its face; and
- The policy must be applied in a way that, on average, does not favor underpayment.5
If the policy is designed to systematically undercompensate employees, then it will be found unlawful. A policy, for example, that only ever rounded an employee’s hours worked down and never up, would likely break the law.
Additionally, the employer’s rounding policy should be established before the employer implements it, and it must be consistently applied regardless of whether it results in overpayment.
Employers cannot create a rounding policy on a whim. Nor can they apply their rounding policy on an ad hoc basis, just because it might benefit them in a particular pay period. Otherwise, the employer risks the appearance that their policy was adopted for the purpose of underpaying their workers.
Likewise, both federal and state agencies take the position that employers may round to the nearest five minutes, six minutes, or quarter-hour for purposes of calculating the number of hours worked.8
Employers Might Not Be Required to Track Small Periods of Work
An issue closely related to rounding disputes involves the employer’s obligation to track and pay for very small periods of work beyond work hours. Federal wage and hour laws generally do not require employers to track insubstantial or insignificant periods of time beyond the scheduled working hours.9 The Supreme Court described these periods “negligible” and held:
“When the matter in issue concerns only a few seconds or minutes of work beyond the scheduled working hours, such trifles may be disregarded.”10
One federal court, for example, held an employee could not recover for about 7 or 8 minutes they spent reading a log book and exchanging information with other employees. The court described this work as de minimis and held that it was not recoverable under federal law.11
There is no strict rule about what constitutes de minimus time for these purposes. Employers are, however, required to compensate employees for even small amounts of daily time unless that time is so miniscule that it cannot, as an administrative matter, be recorded for payroll purposes.12 The language used by courts in describing this rule suggests that employers who use automated time clocks that can easily track additional time cannot invoke the de minimus rule to short their employees’ hours.13
Federal courts consider three factors to determine whether time can be disregarded as de minimus:
- The administrative difficulty of recording the additional time;
- The aggregate amount of compensable time; and
- The regularity of the additional work.14
Under this standard, de minimus work hours are usually very low and infrequently-incurred. One court, for example, held that an extra $9.3815 of earnings per workweek would not be considered de minimus.16
The California Division of Labor Standards Enforcement (DLSE) has suggested that California’s wage and hour laws follow the federal approach to small periods of work.17 But that position doesn’t appear to be well-supported (yet).
The California Supreme Court has upheld the de minimus rule in other contexts, where a legal violation has no substantial effect on the rights of the parties.18 But it has never addressed it in the context of California’s employment laws.
In the lower courts, only one published case in California has discussed the de minimus rule in the context of tracking work hours, and it did not indicate whether such a rule would actually apply. Instead, it held that two to six hours per week of overtime was not de minimus.19
There is a fair argument that the language of California’s Labor Code prohibits the use of a de minimus rule. The Labor Code it requires employees to pay all of their employees’ earned wages and to provide accurate accountings of all hours worked.20 So, employers in California that rely on the de minimus rule to underpay their employees do so at their own risk!
“Grace Periods” Are Allowed, but Only If No Work Is Performed
Some employers adopt a “grace period” policy, which is similar to a rounding practice. A grace period policy allows employees to clock in early or clock out late, but the employer assumes that no work is performed during those times and instead pays the employee according to their scheduled shift.21
Employers might adopt a grace period policy to allow workers using automated time clocks to punch in when they arrive, without having to worry about forgetting to punch in when they actually begin work. Employees are then free to do as they please until their shift starts.
Grace period policies are allowed in California,22 but only if a few requirements are met:
- The employee performs no actual work during the grace period;
- The employee is not permitted to work during the grace period; and
- The employee is not subject to the employer’s control during the grace period.23
An employee is subject to their employer’s control if the employee is restricted from using the grace period effectively for his or her own purposes.24
Courts allow grace periods when employees are required to comply with company policy that prohibits them from working during the grace period. In those cases, if an employee punches into the system during the grace period, the employee is presumed to not be working during the grace period.25
If, however, the employee works during the grace period or the employer exercises any degree of control over the employee’s conduct, the grace period does not apply and the employer must pay the employee for that time.
How to Handle a Violation of California’s Rounding Laws
Employees who have been underpaid usually have at least three options. They can:
- Resolving the dispute informally with the employer,
- File a lawsuit in court, or
- Bring a claim for unpaid wages and penalties with a government agency.26
Employees have a right to hire an employment attorney to assist or advise them with any of these options. It is often a good idea to do so, rather than trying to handle it alone.
Employees who choose to pursue a remedy for unpaid wages will need to decide whether to seek relief under federal or state law. Both federal and state law allow an employee to recover unpaid overtime that the employee earned.
Whether it is better to seek a state or federal remedy, and whether it makes sense to file an administrative claim or a lawsuit, will depend on the facts of the case.
To learn more about the process for bringing a claim for unpaid hours worked, visit How to File a Wage & Hour Claim in California: The Ultimate Guide.
Labor Code, § 204 [“All wages, other than those mentioned in Section 201, 201.3, 202, 204.1, or 204.2, earned by any person in any employment are due and payable twice during each calendar month, on days designated in advance by the employer as the regular paydays.”].Footnote 1
Labor Code, § 226, subd. (a) [“An employer, semimonthly or at the time of each payment of wages, shall furnish to his or her employee, either as a detachable part of the check, draft, or voucher paying the employee’s wages, or separately if wages are paid by personal check or cash, an accurate itemized statement in writing showing . . . total hours worked by the employee . . . .”]; see also Labor Code, § 1198.5 [employee’s right to inspect employer records].Footnote 2
See’s Candy Shops, Inc. v. Superior Court (2012) 210 Cal.App.4th 889, 903 [“In the absence of controlling or conflicting California law, California courts generally look to federal regulations under the FLSA for guidance.”]; 29 C.F.R. § 785.48(b).Footnote 3
Alonzo v. Maximus, Inc. (C.D.Cal. 2011) 832 F.Supp.2d 1122, 1126 [“While few Courts have interpreted this regulation, those that have recognize that the regulation permits employers to use a rounding policy for recording and compensating employee time as long as the employer’s rounding policy does not ‘consistently result in a failure to pay employees for time worked.'”].Footnote 4
See’s Candy Shops, Inc. v. Superior Court (2012) 210 Cal.App.4th 889, 907Footnote 5
See’s Candy Shops, Inc. v. Superior Court (2012) 210 Cal.App.4th 889, 913 [“Relying on the DOL rounding standard, we have concluded that the rule in California is that an employer is entitled to use the nearest-tenth rounding policy if the rounding policy is fair and neutral on its face and ‘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.'”]; see also East v. Bullock’s, Inc. (D.Ariz. 1998) 34 F.Supp.2d 1176, 1184; Adair v. Wis. Bell, Inc. (E.D.Wis. Sep. 11, 2008, No. 08-C-280) 2008 U.S.Dist.LEXIS 68942, at *30 [“[T]he practice of rounding to the nearest 5 minutes, or to the nearest tenth or quarter hour, is expressly approved by the FLSA regulations as long as it is used in a manner that does not result, over a period of time, in failure to compensate employees for all of the time they have worked.”].Footnote 6
Corbin v. Time Warner Entm’t-Advance/Newhouse P’ship (9th Cir. 2016) 821 F.3d 1069, 1079.Footnote 7
Div. Lab. Standards Enforcement, The DLSE Enforcement Policies and Interpretations Manual (Revised) at 47.1 (April 2017), available here; 29 C.F.R. § 785.48(b) [“It has been found that in some industries, particularly where time clocks are used, there has been the practice for many years of recording the employees’ starting time and stopping time to the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour. Presumably, this arrangement averages out so that the employees are fully compensated for all the time they actually work. For enforcement purposes this practice of computing working time will be accepted, provided that 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.”].Footnote 8
29 C.F.R. § 785.47 [“In recording working time under the Act, insubstantial or insignificant periods of time beyond the scheduled working hours, which cannot as a practical administrative matter be precisely recorded for payroll purposes, may be disregarded. The courts have held that such trifles are de minimis.”].Footnote 9
Anderson v. Mt. Clemens Pottery Co. (1946) 328 U.S. 680, 692 [66 S.Ct. 1187, 1195].Footnote 10
Lindow v. United States (9th Cir. 1984) 738 F.2d 1057, 1062.Footnote 11
Lindow v. United States (9th Cir. 1984) 738 F.2d 1057, 1062-1063.Footnote 12
Lindow v. United States (9th Cir. 1984) 738 F.2d 1057, 1062–1063 [“Employers, therefore, must compensate employees for even small amounts of daily time unless that time is so miniscule that it cannot, as an administrative matter, be recorded for payroll purposes.”].Footnote 13
Lindow v. United States (9th Cir. 1984) 738 F.2d 1057, 1063 [“[I]n determining whether otherwise compensable time is de minimis, we will consider (1) the practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and (3) the regularity of the additional work.”].Footnote 14
For the purposes of this example, this number has been adjusted for inflation.Footnote 15
Addison v. Huron Stevedoring Corp. (2d Cir. 1953) 204 F.2d 88, 95 [“To disregard workweeks for which less than a dollar is due will produce capricious and unfair results.”].Footnote 16
Div. Lab. Standards Enforcement, The DLSE Enforcement Policies and Interpretations Manual (Revised) at 47.2.1 (April 2017), available here.Footnote 17
Lahman v. Hatch (1899) 124 Cal. 1, 5.Footnote 18
Gomez v. Lincare, Inc. (2009) 173 Cal.App.4th 508, 527.Footnote 19
Labor Code, §§ 204, 226.Footnote 20
See’s Candy Shops, Inc. v. Superior Court (2012) 210 Cal.App.4th 889, 909.Footnote 21
See’s Candy Shops, Inc. v. Superior Court (2012) 210 Cal.App.4th 889, 907–909 [“The parties agree (at least for purposes of this writ petition) that under California law a grace period (the time during which an employee punches in before his or her compensable pay is triggered) is allowed if the employee is not working or is not under the employer’s control.”].Footnote 22
Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 594 [defining “hours worked” under California’s wage and hour laws to include all time in which the employee is “suffered or permitted to work,” as well as the “time during which an employee is subject to the control of an employer”].Footnote 23
Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 583.Footnote 24
See, e.g., Silva v. See’s Candy Shops, Inc. (2016) 7 Cal.App.5th 235, 252 [“Because employees are required to comply with company policy that prohibits them from working during the 10-minute grace period, if an employee punches into the system during the grace period, the employee is paid based on his or her scheduled start and stop time, rather than the punch time.”].Footnote 25
Post v. Palo/Haklar & Associates (2000) 23 Cal.4th 942, 946 [“[I]f an employer fails to pay wages in the amount, time, or manner required by contract or statute, the employee may seek administrative relief by filing a wage claim with the commissioner or, in the alternative, may seek judicial relief by filing an ordinary civil action for breach of contract and/or for the wages prescribed by statute.”].Footnote 26