Time Clock Rounding Rules

—Background—

 The federal Fair Labor Standards Act (FLSA) and the New Jersey Wage & Hour Law both require employers to pay for “all hours worked.”  However, the standards for rounding off time for hourly employees had been applied differently at the federal and state levels for many years. Federal standards permitted employers to round off time in either direction as long as, on average, employees were properly compensated.  New Jersey prohibited time rounding unless, in every circumstance, time was rounded to the employee’s favor.  In 2010 New Jersey adopted regulations identical to federal standards.

—Employer Time-Keeping Requirements—

The New Jersey Department of Labor and Workforce Development (DOLWD) explicitly authorizes employers to round off the number of hours an employee works.  Specifically, employers are permitted to record an employee’s start and stop times to the nearest five minutes or to the nearest one-tenth or quarter of an hour, provided that, over time, employees are fully compensated for the time they actually work.  The regulations explicitly state:

It has been found that in some industries, particularly where time clocks are used, there has been the practice for many years of recording the employee’s starting time and stopping time to the nearest five minutes, or to the nearest one-tenth or quarter of an hour.  Presumably, this arrangement averages out, so that employees are fully compensated for all the time they actually work. For enforcement purposes, this practice of computing working time will be accepted.

(The DOLWD does not require the use of time clocks or the practice of employee time rounding.)

—Practical Examples—

 Under the regulation, an employer using a time clock to track hours is permitted to round an employee’s time forward when clocking in and backward when clocking out.  For instance, if an employee is scheduled to work from 9 a.m. to 5 p.m., but begins the day at 8:56 a.m. and ends the day at 5:05 p.m., an employer with a system that rounds to the nearest one-tenth of an hour can record the time as if the employee had worked from 9 a.m. to 5 p.m.  Similarly, if an employee has a start time of 9 a.m., but clocks in at 8:56 a.m. on Monday and 9:04 a.m. on Tuesday, an employer with a system that rounds to the nearest one-tenth of an hour can record the employee’s hours as if they clocked in at 9 a.m. on both days.

In the case of a quarter-hour rounding system, if an employee is scheduled to work at 9 a.m. but starts earlier at 8:53 a.m., the employer can round the time to 9 a.m. because that is the nearest quarter hour.  However, if the employee clocked in a minute earlier at 8:52 a.m., the employer would have to round the time to 8:45 a.m. because that is now the closest quarter hour.  In essence, the employer can round time back for as much as seven minutes after the quarter-hour and forward for eight minutes or more past the quarter hour.

Assuming an employer rounded to the nearest five minutes, an employee who reported anytime between 8:58 a.m. to 9:02 a.m. could be recorded as if he or she reported exactly at 9 a.m.

—Additional Considerations—

Employers utilizing a “rounding” system must take care to ensure that they do not violate federal or state minimum wage and overtime laws.  Consistently rounding down when it is more appropriate to round up could result in a violation, since federal standards and state regulations make clear that the rounding practice must average out so that employees are properly compensated.  To that point, any computerized time-keeping systems should be programmed to record hours correctly.  Additionally, rounding may not be appropriate in cases where an employer explicitly requires an employee to report early or stay late.  Finally, rounding practices may result in the payment of overtime for non-exempt employees.

Employer costs can be high for the incorrect implementation of a rounding system.  Penalties can be assessed for each individual employee who is not properly compensated over a period of time.  Employers could also face additional charges for unpaid wages, interest and attorney fees.  When in doubt, an employer should consult with his or her attorney or accountant.

 —Additional Information and Resources—

New Jersey rounding rule:  N.J.A.C. 12:56-5.8

http://nj.gov/labor/wagehour/content/mw-376.pdf

New Jersey Wage and Hour Compliance

https://www.nj.gov/labor/wagehour/lawregs/wage_and_hour_laws.html

New Jersey Wage and Hour Compliance Frequently Asked Questions

https://www.nj.gov/labor/wagehour/content/employer_faqs.html

New Jersey Wage and Hour Law

https://www.nj.gov/labor/wagehour/lawregs/nj_state_wage_and_hour_laws_and_regulations.html

Handy Reference Guide to the Fair Labor Standards Act

https://www.dol.gov/whd/regs/compliance/hrg.htm

— For More Information—

If you need additional information, please contact NJBIA’s Member Action Center at 1-800-499-4419, ext. 3 or member411@njbia.org.

This information should not be construed as constituting specific legal advice.  It is intended to provide general information about this subject and general compliance strategies.  For specific legal advice, NJBIA strongly recommends members consult with their attorney.