August 11, 2023

Rounding Pay Practices – What’s Your Impact?

The 8th Circuit U.S. Court of Appeals for recently gave employers a reminder to periodically audit the results of rounding pay practices.  For example, when an employee clocks, punches, or otherwise logs in six minutes before the start of the shift, the employee is not paid for those preliminary six minutes; it is rounded up to the scheduled start time. On the flip side, if the employee logs out six minutes before the end of the shift, the employee is paid for the six minutes the employee did not work; the system again rounds up to the scheduled end time. Employers use different periods for rounding such as six, ten or 15-minute increments.

Is that OK?  The federal regulations suggest the answer is a conditional, “Yes.” “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.” But another part of the federal regulations suggests such as system may be permissible even if it does not pay the employee for “all time” worked.

“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.”

What’s de minimis? The regulations continue, “working time amounting to $1
of additional compensation a week is `’not a trivial matter to a workingman,”…’To disregard workweeks for which less than a dollar is due will produce capricious and unfair results.’…’10 minutes a day is not de minimis.” NOTE: The quotes are from cases in the 1950’s. The reference to $1/day is more like $11.41 today.

In this case the impact of the employer’s rounding practice benefited the employer by, “one free hour of labor per year per employee. If we confine ourselves to only those employees who were net losers, [the employer] benefited nearly two hours per year per employee.” That is significantly less than ten minutes per day. Yet, the court remanded the case to the District Court for reconsideration.

Lessons Learned?

  • If you do not periodically audit the results of your round practices, consider doing so. Talk to your company’s legal counsel about doing so under your attorney’s direction and control.
  • Consider auditing different periods of time, such as over six, 12, and 18 months.
  • If you find a net loss to one or more employees, consider if that result is more than de minimis. This court explained in a footnote that it did not address this issue because the District Court failed to do so. It will be interesting to see if the District Court addresses that issue on reconsideration.