Well-Rounded Timekeeping

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Under the Fair Labor Standards Act (FLSA), employers are required to accurately record the hours worked by nonexempt employees and to pay them for all time worked. These requirements appear straightforward. In practice, however, capturing the time actually worked by employees can be difficult, making accurate payment of wages a challenge.

Advances in software and data collection devices help employers track hours worked, reduce calculation errors and improve payroll processing time. Automated timekeeping systems provide employers with tools that ease the burdensome task of manually recording time and applying other wage and hour rules, such as those regarding overtime, breaks and meals, on a per-employee basis.

In addition, the U.S. Department of Labor and many of its state counterparts have approved methods intended to simplify timekeeping while ensuring that employees are paid in full. These methods allow employers to:

• "Round" the time worked by employees.
• Disregard early and late punches.
• Exclude small amounts of work that, as a practical administrative matter, cannot be precisely recorded.

Employers need to be aware that these methods, while extremely useful, require careful implementation and maintenance. Employers must frequently review their day-to-day practices and results of those practices to minimize exposure under federal and state wage and hour laws.

Accurately Record Hours

The duty to maintain accurate records of hours worked is imposed on employers, not employees. With this duty comes the burden of proof in legal proceedings. Yet unless an employer follows employees around all day at work and at home at night, it may be difficult to capture those hours accurately.

Simply assuming that employees work their scheduled shifts does not ensure compliance and is often a recipe for disaster.

For this reason, employers often ask employees to record their starting and finishing times using time clocks or automated systems. Even then, determining when employees actually begin and finish working can be difficult, particularly when employees punch in early or use BlackBerry-type devices to conduct business outside normal working hours.

Costly, Inadvertent Errors

Accurate timekeeping should not be taken lightly. Wage and hour lawsuits, particularly those claiming that employees were not compensated for all hours worked, are one of the most common types of lawsuits brought by employees against employers. In addition, the Labor Department is increasing enforcement activities and recently announced a plan to update recordkeeping regulations to better ensure compliance.

Employers found liable for violating the FLSA may be required to pay damages for unpaid overtime or minimum wages, as well as liquidated damages equal to the amount of unpaid overtime or minimum wages. Reasonable attorneys' fees and costs also may be awarded. Willful violations may result in increased civil and criminal penalties. Finally, employees who seek redress under state wage and hour laws may be entitled to additional remedies.

Timekeeping Systems

Employers of all sizes are relying on automated processes to capture employees' time and attendance. In addition to recording an employee's working hours, these systems streamline processes by automating calculations, integrating data and producing reports. Automated systems ease compliance with federal and state wage and hour laws, and help employers save time and money.

As with other software, automated timekeeping systems are only as good as the rules programmed into them. Employers should review the rules and computations programmed into their systems for accuracy and compliance, and should update these rules and computations as necessary to reflect changes in applicable wage and hour laws.

Rounding of Hours Worked 

Labor Department officials recognize that in some industries it is common for employers to record the starting and stopping times of employees "to the nearest five minutes, or to the nearest one-tenth or one-quarter of an hour." Labor Department officials accept rounding "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." The acceptance of rounding is based on the assumption that the rounding averages out so that employees are fully compensated for all the time they actually work, according to a Nov. 7, 1994, opinion letter.

In addition to the FLSA, employers must comply with applicable state wage and hour laws. Our research reveals that the majority of states follow federal policy on rounding. Interestingly, New Jersey rejected the federal rounding policy until recently. Effective Dec. 20, 2010, the state adopted the federal rule verbatim, but officials emphasized that they would take appropriate enforcement action if an employer's rounding policy does not properly compensate employees over time.

Employers that use rounding must do so with caution. The courts have ruled in favor of employees where the employer's rounding policy worked only to the employer's advantage or failed to average out over time. An employer's attendance policy may impact whether its rounding policy is lawful. In Austin v. Amazon.com Inc., a federal district court in Washington state noted that "The regulation does not contemplate the situation where an employer allows rounding when it benefits the employer without disciplining the employee, but disciplines the employee when the rounding does not work to the employer's advantage" (No. C09-1679JLR (W.D. Wash. 2010)).

Similarly, some states have strict break and meal period rules that may cause complexities. For instance, while Washington specifically follows the federal policy allowing employers to round on timecards, this practice is explicitly prohibited in the state for meal and rest period calculations.

Courts have ruled in favor of employees where the employer's rounding policy worked only to the employer's advantage.

Early and Late Punches 

Employees often arrive at work before their scheduled start times and remain on the premises after completing scheduled shifts. Employees need not be paid for this time if they are not engaging in any work. Accordingly, early and late punches may be disregarded if the employee did not perform work during this period. In fact, the Labor Department recognizes that minor differences between "clock records and actual hours worked cannot ordinarily be avoided."

Despite this rule, employers still have an obligation to maintain accurate records of hours worked. An employer may have a difficult time proving that an employee was not working when time records indicate otherwise. Hence, the Labor Department cautions that "major discrepancies should be discouraged since they cast doubt as to the accuracy of the records of hours actually worked."

The De Minimis Rule 

Another rule that can ease compliance with strict timekeeping requirements is the de minimis rule. Federal officials and the courts recognize that "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."

In the 1994 opinion letter cited earlier, however, Labor Department officials caution that the de minimis rule "applies only when a few minutes of work are involved and where the failure to count such time as hours worked is due to conditions justified by industrial realities."

That letter continues: Where an employer "arbitrarily fails to pay an employee for any part of the employee's fixed or regular working time, however small, this would be considered a violation of the FLSA."

Many courts apply a four-factor test when determining whether the de minimis rule applies. These factors are:

• The amount of daily time spent on the additional work.
• The practical administrative difficulty of recording the additional time.
• The aggregate amount of compensable time.
• The regularity of the additional work.

Although daily periods of 10 minutes or less have been found to be de minimis, the courts emphasize that the amount of time spent on the additional work is not dispositive. It is merely one factor. According to Spoerle v. Kraft Foods Global Inc., when providing "compensation for a task imposes no additional burden on the employer, there is no justification for denying the employee compensation for the task, regardless of how fast the task was performed" (527 F.Supp.2d 860 (W.D. Wis. 2008)).

Audit Timekeeping Policies

Employers can take several steps to increase the accuracy of time records and, thereby, help ensure that employees are appropriately compensated. These steps include auditing current timekeeping policies and procedures to ensure that they are designed to accurately record the hours worked by nonexempt employees.

If rounding is used, the employer should periodically audit time records to make sure that the rounding occurs both ways and that, over time, employees are fully compensated. If rounding benefits the employer a disproportionate amount of the time, the policy should be revised or discontinued.

We recommend that employers adopt written policies requiring nonexempt employees to accurately record all time worked. The policy should strictly prohibit employees from working off the clock.

Merely adopting such a policy will not insulate the employer from liability, however. The employer must enforce its policy. As such, the policy should notify employees that violations will result in disciplinary action.

In addition, the employer's timekeeping policy should prohibit employees from altering or falsifying time records, and from recording information on behalf of co-workers.

Many automated time and attendance solutions can produce audit reports that allow employers to identify alterations to timesheets.

Preventing "buddy punching" is possible with biometric and other data collection devices. Finally, employees should be required to review and sign their time records to verify the accuracy of the information.

Ban Work After Hours

Nonexempt employees should be prohibited from performing work outside of normal working hours without prior authorization. This prohibition should include a ban on the after-hours use of employer-provided cell phones and Black­Berry-type devices.

In fact, we recommend that employers not provide these devices to nonexempt employees. If the devices are provided, nonexempt employees should be instructed to accurately record the time they spend using the devices before and after working hours.

Audit current timekeeping policies and procedures to ensure that they are designed to accurately record the hours worked by nonexempt employees.

Educate Employees

Employees and managers should receive periodic training on proper timekeeping procedures. The training should educate employees on what constitutes working time, emphasize the employer's policy prohibiting off-the-clock work, and identify procedures for employees to raise questions.

Human oversight must prevail. Managers need to understand and implement procedures relating to disciplinary actions for tardiness, other attendance issues and off-the-clock work. In other words, you still need to pay the employee.

Identify Gaps 

Supervisors should review their nonexempt employees' time records weekly to identify gaps, policy violations and other errors. Any adjustments to the records should be discussed with each employee, and his or her approval and signature should be obtained. The employer also should keep written records explaining the revisions.

One of the many benefits of implementing automated time and attendance systems is that employers and managers have access to the data immediately.

It is essential, however, that employers analyze the data to derive the most benefit and remain in compliance with the law.

Cathy S. Beyda is an attorney with Paul Hastings in Palo Alto, Calif. Somer V. Jefferiss is in-house counsel and an implementation manager at Datamatics Management Services Inc. in Alexandria, Va.