Neutral System That Automatically Rounded Employee Time OK in California

By Joanne Deschenaux July 18, 2018
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An employer's use of a payroll system that automatically rounded employee time up or down to the nearest quarter-hour did not violate California wage and hour law, the California Court of Appeal ruled.

Payroll procedures that result in the systematic undercompensating of employees are impermissible, the court said. However, the method used in this case was applied neutrally and provided a net benefit to employees. The fact that some employees lost a small amount of compensation did not make the rounding procedure improper, the court said.

A respiratory care technician and a registered nurse brought a class action against a Los Angeles-area hospital system for failure to pay wages due, among other claims. 

Both named parties were employed in hourly positions, requiring them to clock in and out, which they did by swiping their ID badges at the beginning and end of their shifts. The hospital system's method of calculating employee hours involved rounding up or down to the nearest quarter-hour prior to calculating wages and issuing paychecks, rather than using the employees' exact check-in and check-out times.

For example, if employees clocked in between 6:53 and 7:07, they were paid as if they had clocked in at 7:00. If employees clocked in between 7:23 and 7:37, they were paid as if they had clocked in at 7:30.

The plaintiffs alleged that use of this system violated California law.

[SHRM members-only toolkitComplying with California Wage Payment and Hours of Work Laws]

A payroll expert examined the time records of all employees over a four-year period and found that the number of minutes added to employee time by the rounding policy exceeded the number of minutes subtracted, and the majority of employee shifts either had time added or were unaffected. The named plaintiffs, however, each lost a small amount of pay from the application of the policy—in one case $118.41, in the other $63.70.

The trial court denied both the plaintiffs' and the hospital system's motions for summary adjudication, asking to have the matter decided before trial. The hospitals sought review of this denial in the appellate court, and the appeals court reversed, ruling that no trial was necessary, the policy was legal and the claim should be dismissed.

System Was Neutral

The court first found that the rounding system was neutral. It rounded all employee time punches to the nearest quarter-hour without considering whether the employer or the employee was benefiting from the rounding, the court said.

Furthermore, the system proved neutral in practice, the court concluded. At one of the two defendant hospitals, a minority of employees lost time, but the remainder either gained time or broke even, and the overall use of the rounding system caused the employer to compensate employees for 1,378 hours not worked. At the second hospital, although a slight majority of employees (52.1 percent) lost time, overall, employees were compensated for 3,875 more hours than they worked.

Because the hospitals showed that the rounding system was neutral and that collectively employees were significantly overcompensated, the evidence established that the time-keeping method did not systematically undercompensate employees over time, the court said. The system was therefore legal under California law.

The fact that a small majority at one hospital lost minor sums during a discrete period did not mean that the system might not be valid, the court added. It is not necessary that every employee gain or break even over every pay period analyzed for a system to operate in a neutral manner, the court said.

AHMC Healthcare Inc. v. Superior Court, Calif. Ct. App., No. B285655 (June 25, 2018).

Professional Pointer: Use of rounding practices in California still may pose a risk to employers. Although the employer in this case succeeded in getting the claim dismissed, the dismissal occurred only after the employer established, through expert analysis of its pay records over a period of time, that the rounding practice did not have a net effect of undercompensating employees. This may not always be the case.

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md. 

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