Lord Grantham.jpgOne of the most common reasons that states end up with unclaimed property is money or other property owed to former employees.

As you know, the federal Fair Labor Standards Act requires employers to pay final compensation to their employees, but it doesn’t give you a specific timetable for doing it. Many state laws (like Illinois and California) have specific requirements that define how soon final compensation must be paid after employment ends. Neither state nor federal law wage and hour laws explain what happens, though, when an employee never comes to pick up that final check, or fails to cash it before the check expires. Why? Because state “escheat” or unclaimed property laws already do.

What is unclaimed property and why do I have to return it? 

The common law principle governing unclaimed property is called “escheat.” Under English common law, it was a rule that returned (surrendered) property to a lord or to the Crown if no lawful heir could inherit it. Today, the definition of “unclaimed property” is governed by state statute, but generally consists of stocks, bonds, cash or other personal property that your business holds for a specified statutory period. In the wage and hour context, this unclaimed property is most commonly uncashed paychecks belonging to former employees.

Unclaimed property laws prevent holders of property from keeping it for themselves, give states an opportunity to return property to its rightful owners, and provide those owners a single source (their home state) to locate and claim their property. In short, enticing as it may seem, you can’t play Lord Grantham and keep unclaimed or uncashed paychecks. If you hold unclaimed (and even expired) paychecks, state law likely binds you to remit those funds to the state where the person last worked after some period of time. Most statutes even provide for fines and penalties if you don’t return property to the state, even if you can’t find the rightful owner (e.g., if their last known address is invalid).

What Are the Rules for Returning Employee Paychecks?

First, check your state laws. Personal property (including a paycheck) that has gone unclaimed for some statutorily defined time must be turned over to the state’s designated entity for unclaimed property, provided the account has remained dormant and the business’s attempts to contact the owner have been unsuccessful. In Indiana, the designated entity is a division of the Attorney General’s office. Colorado has more fun with it: the Office of the State Treasurer maintains a “Great Colorado Payback Office.”

You can generally group states into three-, five- or seven-year escheat states. Indiana, for example, is considered a three-year state. Illinois is considered a five-year state. Generally, property of any type that goes unclaimed for three years in Indiana is eligible for reporting. However, states can apply different dormancy periods depending on the property type. For example, both Indiana and Illinois requires businesses to report and remit payroll checks after one year of dormancy, which is a common timeframe among the states for paychecks.

Second, check the reporting deadline. In Indiana and Illinois, you must report and remit unclaimed funds no later than November 1. This means that you may need to start locating former employees early in the year.

Third, nearly every state requires employers to make some good faith effort to find the former employee. If you do have unclaimed paychecks, a good way to start is by sending a certified letter to the person’s last known address. State laws typically tell you how long you need to wait after attempted notification before submitting funds to the state, but six months is typical. Using a certified letter or some other tracked delivery will help you demonstrate to the state that you have complied with any due diligence requirements in the statute.

Finally, follow your state’s requirements for submitting funds and any supporting documentation. You may have periodic reporting requirements after your initial reporting deadline as well. However, by remitting unclaimed paychecks to the state as required, you can give your business at least some protection against future claims that you did not pay wages to your former employees as required.

cars.jpg

In my last post, I outlined the “normal” commuting case after Congress passed the Employee Commuting Flexibility Act (ECFA). The ECFA clarified the applicability of the Portal-to-Portal Act to the payment of wages to employees who use employer-provided vehicles. Clarification was necessary because of two conflicting opinion letters on the topic issued by the DOL in 1994 and 1995, respectively. As I mentioned earlier this week, the ECFA made commuting in a company car non-compensable only if the use of the employer’s vehicle was (1) “for travel that is within the normal commuting area for the employer’s business or establishment;” and (2) “subject to an agreement on the part of the employer and the employee or representative of such employee.” 29 U.S.C. § 254(a).

Guidance from the DOL confirms this interpretation. In a 1999 Opinion Letter interpreting the ECFA, the DOL stated that a home-based employee traveling in a company van would not need to be compensated for travel from home to a work site unless “the time involved is extraordinary.” The DOL reiterated this stance in 2011. Easy right? Not so fast.

Neither the FLSA nor the ECFA provide further guidance on what constitutes a “normal commuting area” or when time involved is “extraordinary.” The DOL has said a one-hour commute is not compensable, but has not been clear about longer ones. Courts have held that a “normal commute” could be defined by distance or time, or both, and sometimes extended non-compensable commutes to three or four hours in very specific situations. So is there a particular distance that is “safe”? A maximum time? Unfortunately, no. There’s no rule of thumb to follow here.

How Can I Avoid Paying for Every Commute?

If your business relies on non-exempt employees traveling within a territory, what do you do if you don’t want to pay for every commute? Fortunately, there is another set of regulations that provide some guidance. The regulations that apply to federal government employees do define what the federal government considers a “normal commuting area” for duty stations around the country. See 5 C.F.R. § 550.112(j), 551.442(d). The Office of Personnel Management’s (OPM) FLSA regulations for federal employees require that “[w]hen an employee travels directly from home to a temporary duty location outside the limits of his or her official duty station, the time the employee would have spent in normal home to work travel shall be deducted from hours of work.” 5 C.F.R. §422(b).

For instance, a federal employee based in Fairview Heights, Illinois has a duty station that encompasses the cities of O’Fallon, Fairview Heights, Collinsville, as well as the entirety of Bond, Calhoun, Clinton, Jersey, Macoupin, Madison, Monroe and St. Clair Counties. Travel from home to a job site within those cities and counties—no matter how long it may take—would not be compensable time for a federal employee. Travel outside of those cities and counties would be compensable, once you subtract the normal commute (which can be a headache in and of itself). It’s not a perfect solution, but it is one that could carry some weight with the DOL.

Insights for Employers

When should you talk to us? In most situations, if your employees are routinely driving more than one hour to their first job site or more than one hour home from their last job site, or are driving to job sites outside of your normal service area, the time could be considered compensable depending on the specific facts. That’s when you should pick up the phone to call or e-mail. With a little help from OPM and your favorite Franczek Radelet wage and hour attorney, though, you can craft a reasonable solution that should not require you to pay for every commute.

 

Heigh Ho.jpgIf only “Heigh-Ho” from Disney’s Snow White had been written sometime in 1938, rather than 1937, maybe my FLSA-influenced version would have had a chance. O.k., on second thought, probably not. But today, one of the more convoluted areas of the FLSA relates to the compensability of travel time. In general, travel time for non-exempt employees that is “all in a day’s work,” as well as any travel time during which the employee is actually performing work (including the “work” of driving!), must be counted as hours worked for both minimum wage and overtime computation purposes. Particularly in service industries, like telecommunications, Internet service, home repair, and utilities, that involve travel across a service area by technicians, the rules on whether to count travel time as “working time” will depend on both the kind of travel involved and when it occurs.

A couple of years ago, we addressed some general rules about travel time, but one area still troubles many employers: the “normal” commute.

General Rule: Ordinary Home to Work/Work to Home Travel

In 1996, Congress passed the Employee Commuting Flexibility Act, which amended the Portal-to-Portal Act to specify that “the use of an employer’s vehicle for travel by an employee and activities performed by an employee which are incidental to the use of such vehicle for commuting shall not be considered” compensable if two conditions are met. 29 U.S.C. § 254(a). First, the use of the vehicle and incidental activities must be “for travel that is within the normal commuting area for the employer’s business or establishment;” and second, the use must be “subject to an agreement on the part of the employer and the employee or representative of such employee.”

Normal commuting travel from home to work is not “working time” and, therefore, does not have to be paid. Under the FLSA regulations, “an employee who travels from home before his regular work day and returns to his home at the end of the work day is engaged in ordinary home to work travel which is a normal incident of employment. This is true whether he works at a fixed location or at different job sites.”  Courts have looked at this as a subjective standard, defined by what is “usual” within the confines of a particular employment relationship. If extensive travel is a contemplated, normal occurrence in the employment relationship you have with your employees, then travel time to the first job of the day and home from the last job of the day is likely not compensable.

I say “likely” because some travel might be far enough outside of normal that it would require compensation. In an April 3, 1995 Wage & Hour Division Opinion Letter, the DOL observed that an employee’s travel time between home and the first work site of the day, even in the employer’s vehicle, would not be compensable if, among other things, the “work sites are within the normal commuting area of the employer’s establishment.” Or, as the Tenth Circuit wrote in 1999, “[w]hile it may be more awkward or inconvenient to arrange for transportation to and from work where the employees…may begin or end their work day at diverse locations, such awkwardness or inconvenience does not change an otherwise non-compensable commute into compensable work time.”

On our next blog post, we will look at this issue in more depth with the special case: determining the “normal commuting area” for employees driving employer-provided vehicles.

Thumbnail image for restaurantstaff13507427.jpgMy colleagues and I have noted repeatedly over the past couple of years that the National Labor Relations Board takes a very expansive view of the National Labor Relations Act, even (and perhaps especially) when the case does not involve a union or any union activity at all. Recently, an NLRB Administrative Law Judge issued a decision that reminded employers again of that fact. This time, the decision touched on our favorite topic here on the blog, wage and hour. The ALJ found that a restaurant waiter who had filed a lawsuit against his employer claiming violations of the FLSA and state wage and hour laws had engaged in protected, concerted activity protected by the NLRA.

Under the NLRA, employees are protected from retaliation for engaging in activities that are protected by the NLRA if the employees act “in concert” rather than in pursuit of their own interests. In this case, the restaurant had terminated the waiter on the same day it received a copy of the employee’s wage and hour lawsuit in the mail. Terminating the waiter for filing a wage and hour lawsuit creates its own set of problems under federal and state wage and hour laws. However, by terminating the waiter, the restaurant brought itself another one: an unfair labor practice charge before the NLRB.

The ALJ’s Decision

The NLRB’s ALJ addressed whether the restaurant terminated the waiter for engaging in “protected, concerted activity” under the NLRA or whether he was fired for something he did for himself only (filing a wage and hour lawsuit). The ALJ had no problems finding that a wage and hour lawsuit is protected under the NLRA. He found that whenever an employee filed a lawsuit “relating to wages,” that employee is engaged in protected activity. However, is filing a lawsuit where you are the only named plaintiff a “concerted activity within the meaning of Section 7” of the NLRA, or is it “acting solely in pursuit of [your] own interests?”  On its face, this seems like an easy issue: the employee filed a lawsuit by himself. No concerted activity, right? Wrong (at least according to the ALJ). The ALJ concluded that although the waiter acted alone, the complaint stated that he had filed his lawsuit “on behalf of a class of similarly situated employees who work or have worked at the [restaurant] over a three year period of time,” and that, even though the waiter did not name any other employee and no other employee was aware of the lawsuit, it “could be argued that [the waiter] sought ‘to initiate or to induce or to prepare for group action.’” The ALJ assumed that when the restaurant read the complaint, it had then assumed that the waiter was acting along with others who could later join the collective action.

The ALJ recommended that the restaurant reinstate the waiter with full back pay and no loss of seniority and that the employer post a notice for employees that they have the right to “file lawsuits on behalf of themselves and others relating to their wages or other terms and conditions of employment.” While the decision could be changed by the NLRB itself (though such an outcome is unlikely) and carries on precedential value, the decision should remind employers that the NLRB’s aggressive outreach extends far beyond union activity. Even non-concerted activity, such as an individual wage and hour lawsuit, could be viewed as “concerted activity.” Employees can seek recourse for retaliation or violations before the friendly NLRB just as easily as they can in the courts.

 

My colleagues and I talk regularly about the ever-increasing number of wage and hour cases alleging violations of minimum wage and overtime provisions of the Fair Labor Standards Act (FLSA). These cases aren’t going away, which means that I will probably have plenty to blog about over the next year. According to PACER, litigants filed a total of 8,119 FLSA cases between May 1, 2013 and April 30, 2014. For comparison purposes, from May 1, 2012 to April 30, 2013, plaintiffs filed 7,388 FLSA cases. That is an increase of10%, breaching not only the 7,500 case mark, but also the 8,000 case mark for the first time. Just for reference, PACER reports just 3,456 FLSA cases were filed a decade ago between May 2003 and April 2004.  Part of this increase is due in part to Plaintiffs, Plaintiffs’ attorneys and the government (Secretary Perez’s administration alone brought nearly 160 cases last year) being both more familiar with workers’ rights under the FLSA and more aggressive in defending those rights.

Importantly, these statistics do not capture any wage and hour lawsuits based on State law claims or brought in Circuit Courts. Anecdotally, we can report that those cases have continued to increase as well. The totals above would look even more ominous if you added lawsuits filed under state wage and hour laws, too.

What can you do?  Here are a few suggestions to get you started:
  1. Read this blog. Congratulations! You’ve completed step #1. Knowledge is your friend.
  2. Get help! Wage and hour counsel is an even better friend. If you look hard enough, you can find a state or federal wage and hour violation in any business that pays someone for labor. The laws are complex and some type of review – annual or otherwise – of job descriptions and pay practices by wage and hour counsel can help you proactively identify problems before you get served with a lawsuit.
  3. Pay overtime to your non-exempt employees. Under the FLSA, that’s for any hours worked over 40 in a work week. Not sure who your non-exempt employees might be? See point #2.
  4. Pay your exempt employees on a salary basis at least $455 a week (with a few exceptions).  Once again, see point #2.
  5. Get  legal advice. Seek legal advice about whether your exempt employees fit the Executive, Administrative, Learned Professional, Computer-Related, or Outside Sales classifications (or one of the other less common ones). This can provide important protections for you in a lawsuit.
  6. Know your state laws. This is not just a federal law problem. Despite the focus on the FLSA, state laws often grant more generous benefits to employees and can define the common “white collar” FLSA exemptions in point #5 differently. For example, in California, employees must be paid overtime (OT) for any hours worked over 8 in a work day, where as other states strictly count hours worked during the week for OT purposes. Another example is here in Illinois, where there is a statute that classifies nearly any trade worker tangentially related to construction an employee, even if that worker would otherwise qualify as a contractor under federal law.
  7. Prohibit off the clock work. Pay for it if it happens, but impress on even the most well-meaning of employees (with discipline, if necessary) that they must have your authorization before working off-the-clock and before working any overtime.
  8. Friends don’t let friends use 1099s. As I said in a recent post and on Twitter (@WageHourInsight, if you aren’t following already), you can’t “agree” to give your employees a 1099, even if it was their idea. If you violate the FLSA, the DOL won’t care what you’ve agreed to do.

 

Ernie Ford.jpgDespite the focus in recent years on the misclassification of employees as contractors, unfortunately, we continue to see numerous companies ranging from the Fortune 500 to startups make mistakes, albeit mostly unintentional, with their use of “contractors.” Generally, these mistakes are because of misunderstandings (“We agreed to do it this way.”), myths (“She works two jobs. I heard that makes her a contractor”), and the realities of running a growing business: monitoring classification compliance is pretty low on the to-do list. However, this is an area of law that is not going away any time soon. It remains a high priority for the Department of Labor and provides big pay days when employers slip up, as evidenced by the $600,000 that an Arizona drywall company shelled out for misclassifying workers as “member/owners.” That settlement and a recent complaint in the Northern District of Illinois scheduled to be answered this week (barring an extension) caught my eye and made me wonder about all of the ads for franchises that I hear on my satellite radio: Could franchisees be the next independent contractor misclassification?

In a complaint filed earlier this spring, the plaintiff claims that he, along with a class of at least 100 others, were induced to sign exploitative “franchise agreements” with CleanNet USA and its Illinois affiliate. In the complaint, the plaintiffs allege that these agreements were fraudulent and unlawful, and that they violated both the FLSA and the Illinois Minimum Wage Law (IMWL) in several respects.

The theory of the complaint is that the franchise agreement combines elements of misclassification as to independent contractor relationships and aspects of debt bondage from the “company store” model, abuses immortalized in the song “Sixteen Tons” written by Merle Travis and made famous by Tennessee Ernie Ford. CleanNet allegedly charges a large fee to each new “franchisee,” but lends them the money to pay for the fee, which it then requires “franchisees” to pay back at a high rate of interest. The complaint alleges that this makes the worker “unable to leave the employment relationship without significant loss.” The plaintiffs also allege that CleanNet compounds things by targeting immigrant communities with promises of a guaranteed amount of income, and then persuades them to enter into a one-sided contract that is written in English, not their native language.

According to the complaint, CleanNet makes the “franchisees” further dependent on the company by controlling new client contacts, business investments, and sales practices, and by socking “franchisees” with fees and costs. The company promises a “guaranteed customer base within a few months,” but the plaintiffs allege that the company begins directing business to new “franchisees” almost right away, taking business away from existing franchisees, leaving them with little hope of earning enough to pay back their franchise fees, much less earning the minimum wage. The plaintiffs claim that the result is that CleanNet gets “a national workforce of sub-minimum wage cleaners denied overtime wages and who are dependent on and often in debt to CleanNet.” By misclassifying its workers as “franchisees” (and, therefore, independent contractors), the complaint alleges that CleanNet failed to guarantee a minimum wage or to pay overtime, and that the various fees and costs were actually unlawful deductions from the plaintiffs’ pay. For good measure, the last count tosses in a fraudulent inducement claim, too.

But we know our readers would never try to exploit immigrants or any workers this way, so what can you take from this?

Complaints are always only one side of the story, but stripping away the allegations of exploitation, this case does serve as a good reminder that dressing up your independent contractor relationship as a “franchisee” or “consulting” agreement, or even contracting with someone’s sole proprietorship or S corporation, won’t avoid FLSA misclassification problems.

Furthermore, pushing your own costs out to “franchisees” or “consultants” not only can be unlawful, but, as in this case, can shine a light on lots of other potentially problematic practices that might have otherwise stayed under the radar.

US Department of Labor logo.jpgRecently, we told you that President Obama had issued a Presidential Memorandum to the U.S. Department of Labor (DOL) instructing its Secretary to update regulations regarding overtime protection for workers under the Fair Labor Standards Act (FLSA), the federal law that establishes minimum wage and overtime pay requirements. The regulations have not been revised at all since 2004, and we made some predictions last month about what employers could expect and, more importantly, when they could expect it.

Over the holiday weekend, the Obama Administration released its required Semiannual Regulatory Agenda. The Agenda, which is not binding on the DOL, includes several FLSA-related items. Most importantly, the DOL plans to address the “white collar” overtime exemption regulations with proposed rules in November 2014. The section, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees,” appears on page 56 and 57 of the Agenda.

Notably, the “Right to Know Under the Fair Labor Standards Act” continues to appear in the Agenda as a “Long-term Action” item. According to the DOL, this proposed regulation would “enhance the transparency and disclosure to workers of their status as the employer’s employee or some other status such as independent contractor, and if an employee, how their pay is computed.” The DOL did not include a deadline for this significant regulation. In 2010, the DOL announced that it would propose a rule on this same topic in April 2011, but never did so. The Agenda also references long term consideration of changes to child labor regulations.

That being said, any proposed changes to the regulations are subject to the federal Administrative Procedure Act’s rulemaking process, which means the administration would need to complete a number of time-consuming steps before any rule change could take effect. These steps include a required notice of proposed rulemaking and a public comment period. Then, the DOL would need to hear testimony, consider public comments, and have a final version of the revised regulations approved by the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA). Typically, the public comment period will extend at least 30 days. After, the DOL drafts a final regulation that responds to any public comments, OIRA would then conduct a final review, approve the text of the regulation, and publish it in the Federal Register. The period for the Office to review a draft regulation is limited by an Executive Order to 90 days, with the possibility of a single, 30-day extension. While there is no minimum period for review, the average review time in past years has been approximately two months. Therefore, even with a short 30-day comment period and a quick turnaround on a final rule, the DOL is unlikely to have any new regulation in place before spring 2015.

To put this in perspective, the 2004 regulations took more than 18 months to implement, and those changes were not viewed as “drastic” as what is anticipated to come from the DOL in its November proposal. Even if the administration can push through the new regulations before the end of President Obama’s term, affected parties are likely to file legal challenges to any revisions, which could potentially delay their implementation further.

boys in summer_40264674.jpgMemorial Day weekend has passed, the Major League Baseball season is in full swing, and summer is upon us. With apologies to Roger Kahn, for us wage and hour practitioners, the “Boys of Summer” (and girls!) are the wave of workers joining employer workforces for the next few months. Whether they are interns in your office, lifeguards at your pools and beaches, or the thousands of seasonal hospitality and service workers joining payrolls, if you are adding staff this summer, it’s time for our annual summer reminders.

Complete Form I-9 for Every Worker

Employing seasonal workers does not get you out of this obligation. Not only do you have to complete the form, you have to complete it on time (best practice: before the employee starts work), and you have to complete it exactly as the instructions require. The Form I-9 process is highly technical and full of traps for the unwary employer, and summertime adds even more risks, since the influx of workers can often mean that supervisors and managers with no training are completing I-9s, while others might simply fall through the cracks. I-9 compliance is a challenge in any industry, but especially so in service industries with large immigrant workforces and seasonal staffing. Regularly conducting audits and training staff can help avoid harsh penalties that can range anywhere from up to $1,100 per employee for simple, technical errors to as much as $16,000 per employee for more serious violations. In my experience assisting clients with business immigration matters and I-9 audits, I have seen even the most well-meaning and sophisticated employers (including those with completely legal workforces) get hit with significant fines simply due to technical non-compliance with their I-9 obligations.

Look Again at Whether you Have to Pay Your Summer Interns

Last year, my colleague Mark Wilkinson offered a great overview of the six-factor test that the Department of Labor (DOL) uses to determine whether an internship qualifies as unpaid under the Fair Labor Standards Act. It is worth another look.

Public and non-profit entities still have some latitude here, but private, for-profit businesses’ opportunities to create unpaid internships have shrunk considerably. Given the continued focus by the DOL on this area, and the interest that the issue has drummed up from the plaintiff’s bar, now is a good time to take a hard look at whether your unpaid internship programs still qualify under the DOL’s six-factor test. Particularly because programs change from year-to-year, you need to evaluate your programs each summer to avoid problems. Like other employees (or misclassified contractors), interns cannot contract away their rights under the FLSA or state wage and hour laws. An internship agreement or acknowledgement form tailored to the factors in the test is a good start, but it isn’t enough on its own, even if you and the intern agree. If you have come to rely on substantive contributions and benefits of work from interns each summer or during school semesters, you will likely have a hard time justifying your internship program as unpaid, even if you think every other employer in the industry does the same thing.

Don’t ruin your business’s summer with wage and hour violations! And, oh, go Tigers!

In my last two posts (here and here), I’ve discussed rounding at the beginning and end of a shift, but what about rounding for meal breaks?

lunch9568375.jpgIf an employee clocks in from lunch at 12:25, do you round that time to 12:30? Unlike the beginning and end of a workday, rounding meal breaks is almost never a good idea. Under the FLSA, and in many states that have passed meal and break laws like Illinois and California, meal periods do not have to be paid if they are at least a certain length (usually 20 to 30 minutes) and the employee is relieved of all duties during the entire break.

However, if you round meal breaks to the nearest fractional increment, state and federal enforcement agencies will rightfully question whether your employee actually took the full unpaid break period. For instance, if your practice is to round meal breaks to the nearest quarter hour, can you show that your employee actually took a 30-minute unpaid lunch, as opposed to clocking in after just 24 minutes? In California, where employers must provide employees with a 30-minute meal period no later than the end of the fifth hour of work, rounding meal breaks not only creates wage and hour liability under the FLSA, but also risks incurring the meal period penalty under California law, too. If an employer fails to provide an employee a meal period in accordance with an applicable California Industrial Welfare Commission Order, the employer must pay one additional hour of pay at the employee’s regular rate of pay for each workday that the meal period was not provided pursuant to Labor Code Section 226.7. Shorting meal breaks for 800 employees every day? That could add up to some serious cash. Ask Tesoro Refining, which paid out $11.6 million to settle allegations that it was not providing proper meal breaks to its California refinery employees.

A Few Final Insights on Rounding Practices

The least risky position on rounding? Don’t do it. But, if you must, consider rounding to the shortest increment possible so you can limit your potential liability. If you ever have to litigate your rounding practices, you will generally have less time in dispute if you round to the nearest five minutes than if you round to the nearest 15. Mechanically, how should you round? In the United States, there are three commonly accepted rounding methods:

  1. Nearest Interval – Simply round up or down to the nearest increment. If you round to the nearest 5 minutes, a punch at 8:01 or 8:02 becomes 8:00, and a punch at 8:03 or 8:04 becomes 8:05.
  2. One for You, One for Me – Remember learning how to divide a pile of toys, cookies, or anything else with your friends as a child? You can do that with your employees too: one for you, one for me. Under this approach, round to your chosen increment in favor of the employee when they punch in and in your favor when they punch out. Be careful, though! This is an option only if, in practice, it sometimes will benefit both you and the employee. 
  3. Employee’s Favor – You can also always round in your employee’s favor. That’s pretty risk-free, too, but it also results in more time worked for the employee. In the aggregate, this approach could be costly, especially if the rounding results in overtime.

As with most wage and hour issues, these rounding issues are very fact specific and it may not apply precisely to your business. If you have questions about how to apply rounding to your situation, e-mail or tweet me at @WageHourInsight.

Dos Equis Man_cropped.jpgIn my last post, I discussed how the FLSA approaches the “rounding” of time. In short, rounding is simply the practice of adjusting time clock punch times within specific bounds. For example, if your employees punch in for work at 7:57, 8:01, and 8:02, your rounding rules may treat all of those punches as occurring at 8:00 a.m. for payroll purposes. Here are a few pointers that I mentioned would help you avoid some of the risks associated with rounding your employees’ time entries.

Is rounding even necessary?

Sometimes clients ask me about whether they should implement a rounding scheme, since the regulations allow it. My answer is usually NO! In 1938, when the FLSA was passed, it might have made sense to use rounding when tabulating timesheets without the aid of computers, Excel, or some other automated process. But this is 2014! Even small businesses should be able to calculate time right down to the last minute. Unless you are facing a unique challenge, tracking straight time is easy and avoids any of the ambiguity of rounding practices. It’s also transparent to employees.

However, there are some employers where tracking straight time has some unique challenges. One such example is accounting for the time employees take lining up at the time clock to clock in or clock out. Recently, a colleague and I discussed this very situation with a client. At the beginning and end of each shift, the employer had hundreds of people lining up to record a time punch. Even though the digital clock used a proximity card and required no physical punching, this process still often took 8-10 minutes, meaning that employees would punch in or out a few minutes early or late. Rounding in this situation is certainly an option, as long as it sometimes will benefit both the company and the employees, as I discussed in my last post.

If you do decide to round time punches, stick with an interval specified in the regulations. 29 CFR § 785.48(b) gives you three standard increments you can use: five minutes, six minutes (1/10th of an hour), or 15 minutes (1/4 of an hour). Of course, check your state laws and regulations, too, as they may impose additional limitations, or even provide additional incremental rounding options.

Even in situations like the one above, though, consider whether you have a simpler, more transparent option available: buy more time clocks and start paying straight time. By shortening or eliminating the lines at the clock, you likely will get more productive time out of employees who no longer have to worry about queuing up. More importantly, using the exact time punch promotes transparency. Employees no longer have grounds to suspect that something untoward is happening to their time records, and this can reduce the risks of FLSA litigation down the road.

Rounding should never obscure your duties under the FLSA to accurately record the hours your employees work. The FLSA regulations specifically allow rounding, but ask yourself if rounding is really your best option. If you weigh the risks and benefits and find that it is, make sure that you don’t round yourself into a DOL audit and FLSA litigation. Tomorrow, I’ll talk about one other “special” case: rounding meal breaks and offer some final thoughts on this topic for now.