Do employers need to have a computerized timekeeping system to comply with their requirements under California law? Surprisingly (or maybe not so – depending on your views on how slow the law is in adapting to technological advances), the Labor Code does not address this issue right on point. Yet, there are some governing principles employers can review in making the decision on what practices are best for their business. This Friday’s Five covers five key obligations employers should consider when setting up time keeping systems:
1. Are employers required to use a particular type of timekeeping system?
California law does not require the use of any electronic type of timekeeping system or time clocks. Employers may elect to use paper and pen in recording an employee’s time. As explained below, the records should be “indelible,” meaning that the time entries cannot be erased, removed, or changed. However, even with just a handful of employees, many employers find it more efficient to use an electronic timekeeping system. Moving towards an electronic time keeping system can reduce mistakes in the recording and calculation of time worked, make it easier to track changes, and could make a review of the time entries easier should there ever be a challenge by the employee about their pay. Most timekeeping software today will also help monitor meal break compliance and will automatically flag any violations for a manager’s review.
2. Can time records be kept electronically?
California Wage Orders require that employers maintain the employees time records “in the English language and in ink or other indelible form.”
The Division of Labor Standards Enforcement (“DLSE”) issued an Opinion Letter on July 20, 1995 stating that “storage of records by electronic means meets the requirements of California law if the records are (1) retrievable in the State of California, and (2) may be printed in an indelible format upon request of either the employee or the Division.”
The DLSE issued another Opinion Letter on November 10, 1998 advising employers that the electronic time record data could be maintained outside of the State of California “as long as a hard copy of the records was maintained at a central location within California.” While the DLSE’s opinion letters are not binding legal precedent, they are given pervasive authority in court. Thus, employers need to be careful about relying too heavily on these opinions. In addition, these two Opinion Letters contradict each other. As set forth below, the Wage Orders require time records “shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.” Therefore, employers should consider maintaining a copy of employee time records, either electronically or on paper, within the State of California.
Similar language is also found in Labor Code section 226 pertaining to the information required to be provided to employees on pay stubs:
The deductions made from payments of wages shall be recorded in ink or other indelible form, properly dated, showing the month, day, and year, and a copy of the statement or a record of the deductions shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.
The Division in recent years has sought to harmonize the “detachable part of the check” provision and the “accurate itemized statement in writing” provision of Labor Code section 226(a) by allowing for electronic wage statements so long as each employee retains the right to elect to receive a written paper stub or record and that those who are provided with electronic wage statements retain the ability to easily access the information and convert the electronic statements into hard copies at no expense to the employee.
The DLSE approves electronic wage statements if the employer incorporates the following features:
- An employee may elect to receive paper wage statements at any time;
- The wage statements will contain all information required under Labor Code section 226(a) and will be available on a secure website no later than pay day;
- Access to the website will be controlled by unique employee identification numbers and confidential personal identification numbers (PINs). The website will be protected by a firewall and is expected to be available at all times, with the exception of downtime caused by system errors or maintenance requirements;
- Employees will be able to access their records through their own personal computers or by company-provided computers. Computer terminals will be available to all employees for accessing these records at work.
- Employees will be able to print copies of their electronic wage statements at work on printers that are in close proximity to the computer or computer terminal. There will be no charge to the employee for accessing their records or printing them out. Employees may also access their records over the Internet and save it electronically and/or print it on their own printer.
- Wage statements will be maintained electronically for at least three years and will continue to be available to active employees for that entire time. Former employees will be provided paper copies at no charge upon request.
This same analysis would likely apply to the time records employers are required to maintain under California law. However, employers need to approach this issue with advice from counsel, as there are no clear court decisions that have approved of the DLSE’s position.
3. Length of time electronic records should be kept
The records must be kept for at least three years. Labor Code section 1174(d). However, employers should also note that the statute of limitations for many wage and hour class actions in California can extend back to four years under Business and Professions Code section 17200. Therefore, employers should consider keeping wage statements and other documentation required to defend against claims going back the previous four years.
4. Time records must record more than just start and stop times for the day
The Wage Orders require that California employers keep “[t]ime records showing when the employee begins and ends each work period. Meal periods, split shift intervals and total daily hours worked shall also be recorded. Meal periods during which operations cease and authorized rest periods need not be recorded.” IWC Wage Order 5-2001(7)(a)(3).
Additionally, Labor Code section 1174 requires employers to keep time records showing the hours worked daily and the wages paid, number of piece-rate units earned by, and the applicable piece rate paid.
5. Records must be maintained in California
These records must be maintained in the state or at the “plants or establishments at which employees are employed.” Labor Code section 1174(d).
The Wage Orders likewise require that employers keep records “at the place of employment or at a central location within the State of California.” As mentioned above, if employers have electronic records, a copy of the electronic data should be maintained within the state just as a precaution.
Employers need to ensure that the data being saved is the actual time records of the employees and can be reproduced in format that is accurate and easy to read, should the records ever be requested or needed to defend litigation.