DOL Issues Opinion On Rounding Hours Worked Using Payroll Software

FLSA’s guidelines on timekeeping practices

Many employers are now using payroll software to calculate their employees’ wages. 

Of course, the Fair Labor Standards Act (FLSA) requires that non-exempt employees be paid for all hours worked in a workweek. The employer must therefore ensure that its payroll system complies with this requirement. The Wage and Hour Division of the U.S. Department of Labor (DOL) recently addressed the question of whether an employer’s payroll software, which utilizes a formula for rounding off employee clock-in and clock-out times, properly compensates the employees for all time worked in compliance with the FLSA. 
 

DOL regulations recognize that it is common and acceptable for employers to “round” clock-in and clock-out times. The DOL’s long-standing policy has been to accept rounding to the nearest 5 minutes, 1/10 of an hour, 1/4 of an hour, or 1/2 hour. However, such rounding is permissible only if, over a period of time, such rounding averages out so that employees are compensated for all the time they actually work.1 In other words, an employer may violate the FLSA minimum wage and overtime pay requirements if the employer always rounds down.

In the case considered by the DOL in its opinion letter, an employer used computer-based payroll software to convert the employee clock-in and clock-out times each work day to a numerical figure extended to six decimal points. For example, 7 hours and 30 minutes of reported work time converted to 7.500000 hours. The payroll software then rounds that number to two decimal points. If the third decimal is less than .005, the second decimal stays the same; but if the third decimal is .005 or greater, the second decimal rounds up by .01. The software then calculates wages for that pay period by multiplying the rounded daily hours number by the employees’ pay rate.

Applying the legal standards set forth in 29 C.F.R. §785.48, the DOL concluded that the foregoing rounding practice is permissible under the FLSA. Under its two-pronged analysis, the DOL first determined that the rounding practice “is neutral on its face,” or more specifically that the rounding practice does not overtly reflect an intent to underpay an employee for hours worked. Secondly, the DOL found that the employer’s rounding practice “appears to average out so that it fully pays its employees for all of the time that they actually work.” Thus, the rounding practice complied with 29 C.F.R. §785.48(b).

With use of payroll software becoming so popular and wide-spread, the DOL’s opinion letter offers timely and instructive guidance. To the extent that such payroll software incorporates a formula for rounding employee clock-in and clock-out work time, employers must be mindful of their obligation to ensure that such rounding (when averaged over at least several pay periods) fully compensates employees for all of the time they have actually worked. Failure to do so can result in liability for back wages, including overtime premiums, for a period of two years (or, in the event of a willful violation, three years). 

Note
¹See 29 C.F.R. §785.48(b)

Author Bio

Robert Meyer is a Partner at Poyner Spruill LLP. He represents employers in all aspects of labor and employment, including litigation of cases before federal courts and administrative agencies, and day-to-day advice and counsel. Visit www.poynerspruill.com Connect Robert Meyer Follow @poynerspruill