California Court Holds Rounding Employee Time Punches To Nearest Quarter Hour OK—Under The Circumstances

Executive Summary: Under California law, employers are required to pay employees for "all hours worked" when subject to the employer's "control." This raises the question: if an employer uses a timekeeping system that automatically rounds employee time punches up or down to the nearest quarter hour, is that lawful? The California Court of Appeals recently said "yes"—depending upon whether the rounding policy and practice are both neutral.

Under federal law (29 C.F.R. § 785.48), generally employers may round employee hours to the nearest five minutes, or to the nearest one-tenth or one-quarter of an hour, as long as the use of the rounding policy will not result, over a period of time, in undercompensating the employees for all the time they have actually worked. In 2012, this federal law was applied in California in See's Candy, Inc. v. Superior Court, in which the California Court of Appeals determined that an employer's policy that rounded employees' time to the nearest one-tenth of an hour was lawful under California law. In so finding, the court in See's Candy held that a rounding-over-time policy does not systematically undercompensate employees where it is "neutral, both facially and as applied," because "its net effect is to permit employers to efficiently calculate hours worked without imposing any burden on employees."

On June 25, 2018, the California Court of Appeals in the class action case AHMC Healthcare Inc. v. Superior Court reviewed an employer's policy of rounding time to the nearest quarter of an hour and, following a 2016 Ninth Circuit decision, reached the same conclusion that the rounding policy was lawful.

In reaching this conclusion, the court in AHMC first reviewed the rounding policy for its facial compliance and determined that the policy of rounding all employee time punches to the nearest quarter-hour "without an eye towards whether the employer or the employee is benefitting from the rounding" is a neutral policy on its face.

Next, the court reviewed the rounding policy when put into practice to determine compliance—to see if the actual practice of rounding was also neutral.

Reviewing the rounding policy for compliance in practice, the AHMC court opined that the law does not require that every employee "gain or break even" every pay period or set of pay periods because fluctuations from pay period to pay period are expected. A rounding policy is neutral in practice where the system is fair and neutral (e.g., the...