By: Claudia D. Orr
I remember hearing about an older partner bragging that when he was an associate, he knew all of the employment laws by heart, and the young associate saying that’s because there was only one law back then! Alright there were two. The National Labor Relations Act was passed in 1935 and it was followed by the Fair Labor Standards Act (FLSA) in 1938. But still, those were simpler times.
Now there are so many laws, and so many nuisances to those laws that it is difficult for an employer to get it right. But I had to chuckle when I read a recent Department of Labor (“DOL”) opinion letter that was advising on rounding principles for timeclocks.
This employer wrote the DOL asking if its payroll system rounded their employees’ time in a manner permitted under the FLSA. Stay with me here, because this will make you laugh too.
The employer advised that “employees generally clock in and out for each work period using a time clock or computer and the payroll software converts the amount of time an employee records working in each work period into a numerical figure in decimal form extended out to six decimal points (e.g., 7 hours and 30 minutes coverts to 7.500000 hours). The payroll software then totals the converted hours (extended to six decimal points) for each work period on each working day to calculate a numerical figure for daily hours, which is also extended out to six decimal points.
Next, the software rounds that number to two decimal points – if the third decimal is less than .005, the second decimal stays the same (e.g., 6.784999 hours worked rounds down to 6.78 hours); but if the third decimal is .005 or greater, the second decimal rounds up by 0.01 (e.g., 6.865000 hours worked in a day rounds up to 6.87 hours).” FLSA2019-9. Then the software calculates the wages by multiplying the hours worked by the wage rate. Seriously?
This is like the measurement of time used for a photo finish of the Kentucky Derby! Who enters their time by the one millionth of an hour? Do I have this right? [Clients, please don’t get any ideas…]. The employer wanted to know if rounding to the one hundredth of an hour is acceptable. Ok, so apparently the DOL decided to play along…
In relevant part, the DOL responded that “it is common and acceptable for employers to round time in determining an employee’s hours worked provided that doing so ‘will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.’ It has been our policy to accept rounding to the nearest five minutes, one-tenth of an hour [.1], one-quarter of an hour [.25], or one-half hour [.5] as long as the rounding averages out so that the employees are compensated for all the time they actually work.” Id (internal citations omitted). The DOL concluded that because the rounding practice was neutral on its face, the time keeping system was in compliance.
I am not sure if the employer was bragging about its system that tracked time to the one millionth of an hour or seriously confused. And, I can picture the employee at the DOL showing the employer’s letter to coworkers and laughing as he wrote the response.
But I will admit that I learned something. I did not know that an employer could round by a half hour. I have never seen that done. Keep in mind that Michigan requires rounding to the tenth of an hour because its wage and hour agency believes this is “more favorable” to employees. I think we can debate that. An employee would be pretty happy if he only worked 16 minutes and it was rounded up to a half hour. But I digress.
Bottom line, you can keep track of your employees’ work time by the millionth of an hour and round back to the hundredth of an hour and still comply with both the spirit and the intent of the original lawmakers when they passed the FLSA in 1938. Could their time clocks (or sundials) even track time like that back in the 1930s?
This article was written by Claudia D. Orr, who is Secretary of the Board of Detroit SHRM, a member of the Legal Affairs Committee, and an experienced labor/employment attorney at the Detroit office of Plunkett Cooney (a full service law firm and resource partner of Detroit SHRM) and an arbitrator with the American Arbitration Association. She can be reached at firstname.lastname@example.org or at (313) 983-4863. For further information go to: http://www.plunkettcooney.com/people-105.html
Detroit SHRM encourages members to share these articles with others, inside and outside their organization, as long as its name and logo, and the author’s information, is included in the re-post of the article. August 2019.