Hunton Retail Law Resource

On July 1, 2019, the Department of Labor (“DOL”) issued an opinion letter regarding permissible rounding practices under the Service Contract Act (“SCA”).  Although the SCA governs government contractors, the DOL’s guidance is nevertheless helpful to retailers because the SCA incorporates Fair Labor Standards Act (“FLSA”) rounding principles, which are applicable to them.

Under the FLSA, retailers may round “employees’ starting time and stopping time to the nearest 5 minutes, or the nearest one-tenth or quarter of an hour” as long as it does “not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.”  29 C.F.R. § 785.48(b).  In other words, retailers’ rounding practices must be neutral and “average[ ] out so the employees are fully compensated . . . .”  29 C.F.R. § 785.48(b).

In the opinion letter, the DOL confirms “[i]t has been [its] policy to accept rounding to the nearest five minutes, one-tenth of an hour, one-quarter of an hour, or one-half hour as long as the rounding averages out so that the employees are compensated for all the time they actually work.”

The employer requesting the DOL opinion used payroll software to convert the amount of time reflected in its employees’ timesheets into a numerical figure extended to six decimal points (e.g. 7.500000).  The software rounds the second decimal up by .01 when the third decimal is .005 or greater.  The second decimal, however, stays the same when the third decimal is less than .005.

The DOL confirmed that an employer’s practice is “neutral on its face” and “appears to average out so that it fully pays its employees for all the time that they actually work,” thereby complying with 29 C.F.R. § 785.48(b) and the DOL’s long-standing policy.

Although retailers implementing similar rounding practices should take comfort in the DOL’s most recent opinion for purposes of guidance under federal law, they should regularly audit their payroll practices to ensure that employees are fully compensated for all hours worked over a period of time and facially neutral as well as confirm that their payroll practices are lawful under state law.