This page contains the following information:

• Penalties for Failure to Keep Payroll Records
• Accurately Recording Time
• Clock Records Versus Actual Hours Worked
• Rounding Practices
• De Minimis Time
• Prohibiting Off-the-Clock Work
• Remote Workers and Timekeeping Problems

Every employer is required by law to keep accurate information about each employee, including the following:1

• Full name, home address, occupation and Social Security number.
• If under 18 years, birth date and designation as a minor.
• Time records showing all hours worked, including when the employee begins and ends each work period, meal periods, split shift intervals and total daily hours worked. (Meal periods during which operations cease, and authorized rest breaks need not be recorded.)
• Total wages paid each payroll period, including value of board, lodging or other compensation actually furnished to the employee.
• Total hours worked in the payroll period and applicable rates of pay. This information must be made readily available to the employee upon reasonable request.
• When a piece rate or incentive plan is in operation, piece rates or an explanation of the incentive plan formula must be provided to employees. An accurate production record must be maintained by the employer.

Employers cannot prohibit employees from maintaining a personal record of hours worked or, if the employee is paid on a piece-rate basis, piece-rate units earned. [FN - Lab. Code sec. 1174]

An employer cannot require an employee, as a condition of being paid, to execute a statement of hours worked during a pay period that the employer knows to be false. Employers who violate this law are guilty of a misdemeanor.2

You must also provide employees with additional information about the hours worked in the pay period; deductions made; the name and address of the employer; and the applicable rates of pay. This information must be contained as a detachable part of the employee’s paycheck or in a separate itemized statement.3 For more information on this requirement, see Form of Wage Payment.

Failure to Keep Payroll Records

Failing to keep the required payroll records for your employees can create liability, including for unpaid wages and penalties. In addition, not having accurate payroll records can significantly hamper your ability to defend against wage and hour claims, such as employee claims for unpaid wages and overtime, and missed meal and rest breaks.

The Wage Orders provide that in addition to any other civil penalties provided by law, any employer or any person acting on behalf of the employer who violates or causes to be violated the provisions of the wage orders, are subject to the following civil penalties:

• Initial violation - $50 for each underpaid employee for each pay period during which the employee was underpaid in addition to the amount that is sufficient to recover unpaid wages.
• Subsequent violations - $100 for each underpaid employee for each pay period during which the employee was underpaid in addition to an amount that is sufficient to recover unpaid wages.
• The affected employee shall receive payment of all wages recovered.

There are also penalties for failing to maintain accurate, itemized records of all the information required to be included on employees' wage statements. For more information on this requirement, see ”Itemized Wage Statement” in Form of Wage Payment.

The Labor Commissioner can also issue citations pursuant to California Labor Code sections 1197.1 and 1199 for nonpayment of wages for overtime work.

In addition to meeting your obligation to retain payroll records for your employees, you must also make them available for inspection by the employee upon reasonable request. Failing to do so can result in penalties. For more information, see Access to Payroll File.

Accurately Recording Time

Employers must keep accurate records of hours worked by nonexempt employees to comply with applicable state and federal laws.4

Timekeeping records must include the start and end time for the employee's shift and the start and end of the employee's meal break. Employees should be required to verify to the employer that their time record is accurate and should sign and acknowledge that they accurately reported all hours worked each pay period.

Your company policy should generally define your timekeeping practices, including that employees must accurately report all time worked and immediately report any errors so that they can be promptly corrected.

In addition, your company’s handbook should communicate to employees the consequences for:

• Falsification, destruction, modification or removal of time records;
• Late or early recording of time; and
• Recording another employee’s time records.

Employers may want to consider regularly auditing timekeeping records to ensure that employees are accurately reporting time and if they are not, to take appropriate measures to ensure accurate timekeeping, including disciplining employees.

• If you don't keep proper records of time worked and wages paid, you might not be able to defend yourself if you're sued by employees who claim you didn't pay them the right amount. In addition, accurate time records are important because a time record showing a missed, late or short meal break creates a presumption of a meal break violation.

Rounding Practices

Employers must accurately capture all hours worked by nonexempt employees, including when the employees begin and end work. While the law currently permits employers to use “rounded” time records under certain circumstances, if you are using a rounding policy, you must ensure that it doesn't result in a failure to pay employees for all the time they work.

• California courts are increasingly scrutinizing employer policies and practices that function to deprive employees of pay in any amount, even seemingly trivial amounts of time. Recent cases have called into question the viability of rounding policies, and one rounding case is currently pending before the California Supreme Court. Thus, a best practice is not to “round” time entries and instead record the actual hours worked and pay employees based on their actual hours worked.

The Labor Commissioner has taken the position that it may accept an employer's practice of rounding work time to the nearest five minutes, one-tenth or one-quarter of an hour, provided that such a practice is used in a manner that will not result in a failure, over time, to compensate employees properly for all the time they have actually worked.5

Courts have also approved the ability of California employers to round employee timecard entries up to the nearest quarter of an hour as long as the rounding practice is neutral on its face and in practice; meaning that, over time, it doesn’t favor either the employer or the employee. However, recent court decisions have called those practices into question, so employers should be cautious and consult with legal counsel about the use of any rounding practice.

Silva v. See’s Candy Shops, Inc., was the first California case to specifically authorize the practice of rounding.6 See's utilized a timekeeping software system that required employees to “punch” into the system at the beginning and end of their shift, and then rounded those punches up or down to the nearest tenth of an hour. For example, if an employee clocked in at 7:58 a.m., the system rounded up the time to 8:00 a.m., and if the employee clocked in at 8:02 a.m., the system rounded down to 8:00 a.m.

The timekeeping system included a “grace period,” which allowed employees to voluntarily punch in up to 10 minutes prior to their scheduled start time and 10 minutes after their scheduled end time. Employees were not permitted to work during the grace period, but could use it for personal activities. Since employees were not supposed to be working during the grace period, if an employee punched in during the grace period, the employee was paid based on scheduled start/stop time, rather than the punch time.

In approving See’s rounding policy, the court relied upon the federal DOL rounding standard in determining that rounding policies are permissible provided the policy is “fair and neutral on its face” and over time does not result in the failure to properly compensate the employee. In addition, the court was persuaded by the fact that the federal standard was also followed by the DLSE.

See’s demonstrated that its rounding policy did not result in a loss to employees over time. See's was also allowed to assume, based on its formal policy, that the employee was not working and not under its control during the grace period, and could use the scheduled start/stop time for pay purposes absent evidence that the employee actually worked during the grace period.

Additionally, See's presented evidence that employees knew about the rounding and grace period policies. Because See's policies were clear and understood by its employees and because See's could show that the policies did not result in underpayment to its employees, See's prevailed in the action.

Although the California Supreme Court has not yet addressed the See’s Candy standard, it has addressed cases that raised questions about whether See’s Candy is still appropriate: Troester v. Starbucks and Donohue v. AMN Services, LLC.

In Troester v. Starbucks, the Court held the FLSA de minimis standard does not apply to California employees. The de minimis standard applies to small amounts of time (usually fewer than 10 minutes) that are irregular and administratively difficult or impossible to record, and had been regularly followed by the DLSE.

The California Supreme Court, relying on the public policy behind the Labor Code, found it is specifically designed to protect employees and is therefore liberally construed to the benefit of employees. Applying that standard, the Supreme Court found that because the de minimis standard is not expressly permitted under California law, the law must be construed to require payment for all regular work no matter how small the time. De minimis time and the Troester decision are discussed in more detail in the next section.

In 2021, the California Supreme Court addressed whether employers can round time punches for meal breaks in Donohue v. AMN Services, LLC.7 Acknowledging that it had never addressed See's Candy, the California Supreme Court found that rounding would defeat the very strict requirements that nonexempt employees receive a compliant 30-minute meal period.

Highlighting that even if a break is interrupted by just a few minutes, a violation has occurred and so, the Court noted, rounding is not an appropriate practice for meal breaks. Although it was not invited to address See's Candy, the Court questioned whether any administrative benefit to rounding exists anymore.

In Camp v. Home Depot, a California Court of Appeal was presented with a case that looked very similar to See’s Candy.8 Two employees brought a class action for unpaid wages allegedly resulting from the employer’s rounding policy.

The employer used an electronic timekeeping system that recorded the exact time employees punched in and out for shifts. At the end of each shift, the system automatically rounded each nonexempt employee’s total shift time to the nearest quarter of an hour for purposes of calculating their pay for that period. For example, if the total shift was six hours and three minutes, the total shift hours would be rounded to 6.00. If the total shift was six hours and eight minutes, the total shift hours would be rounded to 6.25. Just like the lawful rounding policy in See’s Candy, the policy was neutral on its face.

A time record audit for the relevant time period found that employees gained time in 49.2 percent of pay periods, lost time in 47.1 percent of pay periods and employees were paid for actual time worked in 3.7 percent of the pay periods.

The policy was seemingly lawful under the See’s standard since the employer’s rounding policy was more beneficial to its employees. While the trial court ruled for the employee, the appellate court took a different view. In the context of Troester, Donohue and technological advances in timekeeping, the court felt that FLSA rounding rules adopted in the See’s Candy decision do not comport with California’s wage and hour laws requiring that all employees be paid for all hours worked. As a result, the court found that the employer violated California law by failing to pay all employees for all hours worked and reinstated the lawsuit.

The court was explicit that its decision was limited to the specific facts at hand — that an employer could, and did, accurately capture all minutes worked by the employee. The court didn’t fully reject See’s Candy, saying there may be other circumstances in which neutral rounding policy may be appropriate because precise timekeeping is impossible.

Recognizing that its decision contravenes a decade of existing precedent from another Court of Appeal, the appellate court asked the California Supreme Court to step in to resolve whether See’s Candy is an appropriate standard and how technological advancements impact an employer’s timekeeping obligation. The California Supreme Court agreed to review the Camp decision and answer the following question: “Under California law, are employers permitted to use neutral time-rounding practices to calculate employees' work time for payroll purposes?”.9

• With the issue of rounding currently before the California Supreme Court and the Court's penchant for making its decisions retroactive, employers should consult with legal counsel to examine any rounding practices immediately.

De Minimis Time

Employers frequently run into questions regarding counting “de minimis,” or insignificant, periods of time. Lawsuits have been filed over small amounts of uncompensated time that is spent either before or after the employee clocks in. While federal law recognizes the “ de minimis ” rule, California law does not.

• Exercise caution if you are not compensating employees for small or insignificant periods of time beyond scheduled working hours. Consult legal counsel with questions.

The United States Supreme Court has found that a few seconds or minutes of work beyond scheduled working hours may be disregarded under the federal Fair Labor Standards Act (FLSA). This is generally referred to as the “ de minimis” rule. Under federal law, it is only when employees must “give up a substantial measure” of employee time or effort that compensation is required.10

Factors that are often considered in determining whether the time is compensable have included:

• The practical administrative difficulty of recording the additional time;
• The aggregate amount of compensable time; and
• The regularity of the additional work.11

However, in Troester v. Starbucks Corporation, the California Supreme Court held that California's Labor Code and wage orders have not adopted the federal de minimis rule to excuse payment for small amounts of time that are administratively difficult to keep track of. California labor laws, according to the Court, don't allow employees to routinely work for minutes off the clock without being paid because California labor laws require pay for “all hours worked.”12

The case involved an employee who claimed that he should have been compensated for the brief time he spent performing work to close the store where he worked after he clocked out, including:

• Exiting the store and locking the door after setting the alarm (he had to exit within a minute)
• Walking co-workers to their cars (pursuant to store safety guidelines), which took about 45 seconds
• Occasionally reopening the store to let a co-worker retrieve a forgotten personal item
• Bringing patio furniture in once every couple of months

The lawsuit, brought under the California Labor Code for unpaid wages and overtime, was dismissed before trial by a federal district court, which ruled that the time spent was de minimis and that the employee was not entitled to payment for it.

The employee appealed to the Ninth Circuit, which asked the California Supreme Court to decide whether the FLSA's de minimis rule also applies to claims for unpaid wages in California, noting that California wage-and-hour laws often provide greater protection to employees than do federal laws.

In its decision, the California Supreme Court held that:

• California statutes and wage orders have not incorporated the FLSA’s de minimis rule.
• Any general legal de minimis principle does not apply to the regularly reoccurring activities that are principally at issue here because California law doesn’t allow employers to require employees to regularly work for minutes off the clock without being paid.
• Whether some employee activities are so irregular or brief in duration that it’s unreasonable to require employers to keep track of and pay for the time remains an open question.

The Court stated that an “employer that requires its employees to work minutes off the clock on a regular basis or as a regular feature of the job may not evade the obligation to compensate the employee for that time by invoking the de minimis doctrine.”

In making its decision, the Court liberally construed the applicable labor laws (the Labor Code and wage orders) to favor protecting employees. The Court also pointed out that California is free to, and often does, provide greater protection to employees than that provided in federal regulations.

With employee protections in mind, the Court commented that “a few extra minutes of work each day can add up,” and the amount of wages at issue in the case could be enough to pay a utility bill, buy a week of groceries or pay for a month of bus fares. Something that may seem de minimis to an employer may be quite substantial to many people who work for hourly wages.

Finally, given technological advances in recent years — like smartphones, tablets or other devices — the Court pointed out that what may have been difficult to track in years’ past is no longer, putting the burden on employers to be more proactive in capturing and compensating for off-the-clock time regularly worked by employees.

Prohibiting Off-the-Clock Work

Wage-and-hour lawsuits involving “off-the-clock work” are on the rise at both the state and federal levels. In these types of lawsuits, nonexempt employees claim they weren’t paid for time spent performing work for the employer either before or after their scheduled shift. But employers can minimize the risk with strong policies and consistent enforcement of the policies. For more information, see “Tips on Off-the-Clock Policies and Practices” in Timekeeping and Recording Guidelines.

• To minimize the risk of such claims, employers can require nonexempt employees to accurately report all hours worked and inform employees that they are not to perform any work unless they are clocked in. It's also a good practice to have employees sign their time records and verify that they have reported all time worked and that they understand that off-the-clock work is not permitted. Employers have the right to prohibit off-the-clock work. Maintaining a policy prohibiting "off-the-clock" work is a best practice for minimizing potential liability for unpaid wages.

In Brinker, the California Supreme Court refused to allow the employees to pursue a class action claim against the company for off-the-clock work. The court noted that the company had a specific policy prohibiting off-the-clock work and requiring an employee to notify a manager immediately if time records were not accurate.

The employees claimed they were required to perform work while clocked out during their meal period. The court held that when employees are clocked out, there is a presumption that they are doing no work.13

In another case, a California court dismissed an off-the-clock lawsuit before trial, finding that the employer was not liable because: 14

• The employer explicitly prohibited off-the-clock work;
• The employee worked off-the clock contrary to this policy; and
• The employer had no actual or constructive notice of the employee’s unapproved off-the-clock work.

The class action lawsuit sought unpaid overtime for off-the-clock work under California Labor Code section 1194, which allows a worker to sue for unpaid overtime wages. An employer's liability for unpaid overtime is limited to those instances where the employer has actual or constructive knowledge that an employee worked overtime. If the employer doesn't know the employee worked overtime and the employee fails to notify the employer or deliberately prevents the employer from learning of the overtime work, then an employer's failure to pay the overtime is not a legal violation. An employer has to have the opportunity to comply with its overtime obligations and can't do so if it doesn't know overtime is being worked. This is the law in California and under the federal FLSA.

The employer argued that the employees lacked evidence that it failed to pay overtime wages for hours it “knew or should have known” were worked. The court agreed with the employer, pointing out that the employees:

• Knew it was the employer's policy to pay for all hours worked, including overtime, even if an employee failed to obtain pre-approval for the overtime;
• Knew the employer's written policy that employees should be clocked in whenever they were working;
• Knew the employer's timekeeping rules and how to use the timekeeping system;
• Signed an “attestation” form stating that off-the-clock work was not allowed; and
• Were paid for time they recorded on the employer's recording system, including both approved overtime and overtime that was not approved in advance.

Further, the court considered that:

• If the employees requested approval to work overtime, the request was never denied.
• No manager or supervisor ever told the employees that they should perform work before they clocked in, after they clocked out or to otherwise work off the clock.
• The employees did not know whether anyone in management was aware they were performing off-the-clock work; and
• The employees were unable to recall the number of off-the-clock hours worked and kept no written record of those hours.

This case highlights the benefits of a strongly written policy that prohibits off-the-clock work.

Tips on Off-the-Clock Policies and Practices

You may want to consider the following when creating policies and practices prohibiting off-the-clock work:

• Be specific about what you mean by “off-the-clock work,” such as no checking emails at home, no performing work in the morning before logging in and no running work errands after logging out.
• Consider not issuing smartphones, tablets or laptops to nonexempt employees.
• It’s not enough to merely have a policy prohibiting off-the-clock work or unauthorized overtime: Supervisors should regularly check in with employees to ensure that they are not performing off-the-clock work.
• If you learn an employee worked off the clock in violation of the policy, you should report the off-the-clock work to HR as a disciplinary matter.
• Train supervisors to not permit or encourage off-the-clock work. Supervisors who violate your policy may be subjected to discipline.
• Examine any company practices that tie supervisor rewards to not incurring overtime or keeping labor hours low. Are these practices encouraging off-the-clock work?
• Consider issues relating to email communications with nonexempt employees, including:
• Instruct nonexempt employees that checking emails before or after a scheduled shift is not allowed without advance approval, and that if it does happen, with or without approval, the employee must report the time worked.
• Pay nonexempt employees if you know they logged in after hours to check email. For instance, if you get an email from your nonexempt assistant at 6 a.m., talk to them about off-the-clock work but do pay the employee for the time worked.
• Tell managers to minimize after-hours emails sent to nonexempt employees. If an email needs to be sent, train managers to indicate whether a response can wait until the employee's regular work day begins.
• Block after-hours access to company servers or allow access only with advance approval.

• Don’t forget that you will have to pay the employee for the time, regardless of whether the employee violated the policy, if you knew or should have known that work was performed. Even unauthorized overtime or off-the-clock time must be paid.

Remote Workers and Timekeeping Problems

If a remote worker is nonexempt, they must maintain a record of their hours, including meal and rest breaks. When an employee works remotely, you must trust that employee to record hours accurately. You must also determine how the remote employee will transmit their hours to the payroll department.

Determine how you will monitor a remote nonexempt employee’s work hours and provide the nonexempt employee the required meal and rest breaks. You must record the hours a nonexempt employee works, including when meal breaks are taken.15

You should also determine how to manage the approval of overtime work. If you knew or had reason to know overtime was being worked by a remote employee, you must pay overtime for all overtime hours worked even if the employee was not authorized to do so.16 You could argue that you had no knowledge or reason to know an employee was working overtime at home. However, a sudden increase in work completed or an employee’s comment that they “simply can’t get it all done in eight hours (or 40 hours)” could be construed as reason for you to know that the remote employee was working overtime.

1. Lab. Code sec. 1174; Wage Orders (section 7)