For decades, the Department of Labor (DOL) has recognized the impracticability of requiring Fair Labor Standards Act (FLSA) nonexempt employees to clock in exactly at the beginning of their scheduled shifts. In most situations, workers begin work a few minutes before or after that starting time. As a result, the DOL adopted regulations (20 C.F.R. §785.48) that allow employers to “round off” these few extra minutes. If the employer does not dock employees’ wages for clocking in up to five minutes late, it does not have to pay employees who clock in up to five minutes early. The rule presumes that over time the early and late time will balance out.

A new decision from the Eighth Circuit Court of Appeals reminds employers that this rounding rule does not provide absolute immunity from lawsuits claiming shorted wages. In Houston v. St. Luke’s Health System Inc., the plaintiffs filed a collective action FLSA and state wage lawsuit alleging that despite compliance with the rounding rule, employees were systematically underpaid over time. They obtained data from the employer’s automated timekeeping system showing that two-thirds of the time, the rounding policy was applied to workers who clocked in a few minutes early. The amount of unpaid time for each affected employee was small. But when it’s multiplied over a large workforce subject to this system for a number of years, the cumulative claimed underpayments reached several million dollars.

The district court dismissed the claims on the basis that the lost time was de minimus and because alternative analyses of the rounding system showed a more equitable result. On appeal, the Eighth Circuit reversed this decision, remanding the claim for trial. The court noted a material factual issue as to the effect of the rounding system on the plaintiffs.  Under the DOL rule, rounding only acts as a defense to an FLSA claim if it actually fairly compensates the employees over an extended period of time. 

This case may foreshadow a new wave of collective action claims against employers. Plaintiffs using software to quickly analyze large amounts of payroll information could make such claims against large companies economically viable to pursue even if the per employee amount is relatively small.  

Employers have several options for mitigating this risk. They could conduct their own review of the impact of their rounding policies (preferably under a claim of attorney-client privilege) and adjust the system if long-term discrepancies are found. As an alternative, employers could attempt to strictly enforce rules prohibiting employees from clocking in or beginning work prior to the start of their scheduled working time. While difficult to administer and enforce, avoiding the rounding rules entirely would eliminate exposure to these FLSA claims.

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