Pay Hourly Employees To The Second - Vision Law

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Or round up to the nearest minute, lest one of your employees claims you failed to pay them for all hours worked.

I’ve been preaching for a while that employers should get an electronic time keeping system and pay non-exempt employees to the minute. Based on the recent California Supreme Court ruling (Troester v. Starbucks Corp.) California employers would be wise to consider paying hourly employees to the second, or round up to the nearest minute when paying hourly employees. Here’s why.

Troester Was Not Paid For Minutes That Added Up

We all know Starbucks. Meet Starbucks employee Troester. Troester was an hourly non-exempt employee who had closing duties. At the end of shifts, he would conduct close procedures on a computer, lock the door on the way out, sometimes walked coworkers to their cars or waited for them, and occasionally reopened the store to let employees or to bring patio furniture back in. These various tasks took anywhere from 15 seconds to a few minutes. In total this averaged four to 10 minutes each workday. Over a 17-month period, the time spent on these activities added up to 12 hours and 50 minutes. The wage value: $102.67.

Starbucks’ problem: it made Troester clock out before performing these “closing tasks” and did not pay him for any of the time.

If Minutes Can Add Up, So Can Seconds

California wage and hour law says a non-exempt employee must be paid for “all hours worked.” “All” means all. And of course “all” hours encompasses all minutes and all seconds.

Starbucks argued seconds to minutes a day adding up to $102.67 over 17 months was “de minimus,” amounts so small we need not be concerned about failure to pay for it. De minimus is an exception to paying for all hours worked.

The California Supreme Court said not so fast. It held all hours worked includes small amounts of unpaid time regularly occurring that add up. Sure, the Troester Court tried to blunt the impact of this logic (discussed further below) but the message for a prudent business owner is this: find an electronic time keeping system that can record hours worked to the second (and the author believes they are readily available and affordable) and pay employees to the second.

If You think I’m kidding, From The Court In Troester:

As the facts here demonstrate, a few extra minutes of work each day can add up. According to the Ninth Circuit, Troester is seeking payment for 12 hours and 50 minutes of compensable work over a 17-month period, which amounts to $102.67 at a wage of $8 per hour. That is enough to pay a utility bill, buy a week of groceries, or cover a month of bus fares.

Or about enough to pay 1/10 of that new IPhone 10.

All kidding aside, if “a few extra minutes can add up,” so can a few extra seconds.

Is The De Minimus Defense Viable?

The California Supreme Court left the door open for the de minimus” defense. The opinion states there may be circumstances where the concept might apply to defeat hours worked claims:

We do not hold that payment for time worked must account for “[s]plit-second absurdities.” [Citation omitted]. But it is not clear that “[s]plit-second absurdities” can be readily equated with “minutes of work beyond the scheduled working hours” or that an action should be permitted only when “an employee is required to give up a substantial measure of his time and effort.” Nor is it clear why, when it is difficult to keep track of time worked, the employee alone should bear the burden of that difficulty.

Given the above, it’s hard to image what a de minimus circumstance might look like.

Also, ask yourself as an employer if you want to be the test case for a court opinion on a “de minimus” circumstance. $100s of thousands of legal fees later, all the while with risk of losing, and we doubt it.

Therefore, to avoid the argument that a few seconds of unpaid wages “can add up” and risk losing on a de minimus defense it seems easier and cheaper to pay all non-exempt hourly employees to the second.

Is Rounding Viable?

Rounding means not paying the exact time worked, but estimating time worked to the nearest fraction of an hour (or nearest minute).

One can round up, down, or to the nearest time increment. For example, say employer pays to 1/10 of an hour (6-minute increments) and employee works 6 hours, 5 minutes and 22 seconds: 1) rounding up would result in 6.1 hours worked (6 hours and six minutes), 2) rounding down would be 6.0 hours worked, and 3) rounding to the nearest .1 increment would be 6.1 hours (same as rounding up as rounding up is closer to the nearest .1 hour than rounding down).

If actual hours worked was 6 hours 2 minutes 49 seconds, then: rounding up and down would result in the same hours worked, but rounding to the nearest .1 hour increment would result in 6.0 hours worked (versus 6.1 in the prior example).

If employer was rounding to nearest minute, it would pay the first employee 6 hours and 5 minutes and it would pay the second employee 6 hours and 3 minutes.

If your head is spinning (like mine), then that suggests paying to the second is easier than rounding, say to the nearest .1 hour or to the nearest minute.

But The Question Remains, Is Rounding Legal?

If employer rounds up always (say to the nearest minute) then yes, its legal. That way and employee can never be “cheated” of seconds worked. Employer gets cheated but that’s ok under California law. If employee gets cheated, it’s not ok.

Rounding down (to the nearest minute) creates the “Troester problem” – we are routinely and regularly shorting employee pay. Remember, just as minutes can add up, so can seconds.

Rounding to the nearest time increment may be ok, but has more risk than simply rounding up (or paying to the second). Under current California law, a rounding policy and practice must be “fair and neutral on its face” and must be “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.” If you round, those questions must be answered.  That means any rounding practice is still subject to legal challenge under California law.

And you as the employer will have the burden to prove your rounding policy was fair and neutral and did not result in failure to compensate for all time actually worked – think legal fees!! Better to pay to the second or round up to the nearest minute. Then it’s hard for any employee to sue and claim they were cheated of hours worked via rounding or otherwise.

Conclusions:

  1. If this sounds like “splitting hairs,” it is! But we don’t make the laws. In Troester the California Supreme Court says the California Labor Code and the Wage Orders are “indeed concerned with ‘small things’.” And the trend in the California Court opinions is to ensure non-exempt employees are paid for “all” hours worked no matter how small, no de minimus, no rounding.
  2. Find and implement a California compliant time keeping system that is able to capture time to the second. Now, we know you are time strapped and money is not falling off trees; however, the consequence of having to defend a wage claim based on the argument you have not paid for all seconds worked is an unsatisfactory alternative to spending your time and money on such a system. We are pretty sure the technology is there to pay to the second and is not necessarily cost prohibitive. Vet any and all time keeping systems for California law compliance.

If you are still unsure of how this affects your small or medium business, you should speak with an experienced California employment lawyer. And if you are facing any type of legal action from a dissatisfied employee or former employee, contact us at Vision Law® right away.

Attorney Scott Shibayama has been advocating for California businesses for nearly 30 years. Based in Sacramento, he helps small business employers avoid lawsuits and litigation.

Attorney Shibayama now wants to make sure every business owner and employer can protect themselves by sharing insights learned defending Fortune 500 companies.

Connect with his firm, Vision Law, to stay updated on the latest developments in California Employment Law and gain valuable insights needed to prevent vulnerabilities or employee litigation.

Call For A Free Consultation - (855) 534-1490.

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