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Nov 29

California Court Approves Overtime Rounding

A California Court of Appeals recently ruled that, for purposes of calculating overtime pay, employers may round non-exempt employees’ overtime hours to the nearest one-tenth of an hour. In See’s Candy Shops, Inc. v. Superior Court, No. D060710 (Cal. App. 4th, Oct. 29, 2012), plaintiffs filed a class action lawsuit alleging that See’s Candy Shops’ timekeeping practice of rounding its employees’ overtime hours to the nearest one-tenth violated California Labor Code § 204 (which “requires an employer to pay an employee ‘[a]ll wages’ every two weeks,”) and § 510 (which requires an employer to pay its employees overtime “for ‘[a]ny work’ after eight hours per day or 40 hours per week.”). In ruling against the plaintiffs, the court looked to the federal Fair Labor Standards Act, which permits rounding to the nearest five minutes, one-tenth of an hour, or quarter of an hour. The court also noted that the California Division of Labor Standards Enforcement (“DLSE”) Manual approved of the FLSA’s rounding standard. Although the court was not required to follow the guidelines set forth in the DLSE Manual, the court found the guideline persuasive. As such, the court held that employers are “entitled to use the nearest-tenth rounding policy if the rounding policy is fair and neutral on its face and ‘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 actually worked.'” Although employers may now wish to implement a policy that rounds employee overtime hours to the nearest one-tenth of an hour, employers should be cautious that such policies are not used in a manner that will work against its employees over a period of time. In the See’s Candy case, the employer presented persuasive evidence and expert testimony establishing that its rounding policy actually resulted in a total gain of 2,749 overtime hours for the employee class involved in the litigation. As such, employers should conduct periodic audits to ensure their rounding policies average out in a neutral manner over a period of time. Employers are encouraged to consult with legal counsel before implementing a rounding policy.

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