Time Clock Rounding Best Practices

• Time clock rounding can ease your payroll calculations and prevent employee time theft.
• Time clock rounding is legally compliant if you follow certain federal labor laws.
• Should you choose to round time clocks, you should establish rounding policies and audit them, stay within budget and look for employees cheating your system.
• This article is for small business owners looking to understand the ins and outs of time clock rounding.

While having an employee who adds a few minutes to their timesheet each day might not seem like a huge deal, it can have a big impact on your bottom line. For example, if an employee adds five minutes of extra time to their sheet each day, you will pay them for more than 20 hours of unpaid work. According to the American Society of Employers, 20% of all employer revenue is lost to employee time theft. Some employers have turned to time clock rounding to counter this revenue loss, but this practice can present legal issues if it's not done properly. It may also be less effective in recouping lost wages than you might think.

What is time clock rounding?

Time clock rounding is the rounding up or down of an employee's hours worked. For example, if an employee clocks in at 9:02 a.m. and clocks out at 4:59 p.m., you might round their start time to 9 a.m. and their end time to 5 p.m. Many employers do so without ever realizing that time clock rounding is a formal concept with legal ramifications.

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Why is time clock rounding important?

Though not required under any employer laws, time clock rounding can help streamline your payroll processes. An example can show how time clock rounding makes payroll easier. If you pay an employee $15 per hour and they work seven hours and 58 minutes, then you will need to pay them $15 x 7 + $15 x (58/60) = $119.50. If you just round the time worked up to eight hours, you can simply calculate $15 x 8 = $120, and the 50-cent difference is minimal.

Time clock rounding can also combat time theft and other forms of paying employees for work they haven't done. If an employee has worked eight hours and two minutes, rounding down to eight hours helps you regain some of the money lost to short employee breaks during paid work time. However, this nickel and diming is a less-compelling reason for rounding time clocks than easing your payroll calculations, as trying to not pay for breaks borders on micromanagement.

Key takeaway: Time clock rounding is important for easing your payroll calculations and potentially combating employee time theft.

Is time clock rounding legal?

Within certain bounds, time clock rounding is entirely legal. According to the federal Fair Labor and Standards Act (FLSA), employers who round time clocks must

1. Round only to certain fractions of an hour
2. Not use rounding to withhold wages that an employee has fully legally earned

Did you know? Time clock rounding is legally compliant if you round to certain fractions of an hour and avoid rounding in ways that unfairly diminish employee pay.

Rounding rules for compliance

To remain legally compliant in your rounding, you must follow one of the three FLSA-approved rounding rules:

1. 15-minute rounding

Fifteen-minute rounding is the most common form of time clock rounding. It involves rounding up or down to the nearest quarter-hour. Put in simpler terms, it rounds all start or end times to one ending in :00, :15, :30 or :45. A table of exact and rounded times should clarify:

As an example, suppose you're rounding an employee's time for a shift that started at 10:01 a.m. and ended at 5:05 p.m. According to the 15-minute rule, you should round the employee's start time to 10:00 a.m. and their end time to 5:00 p.m.

2. Five-minute rounding

For the five-minute rounding approach, you'll round a given time zero to two minutes up or down. The following table shows how this rounding translates to five-minute intervals:

The above pattern repeats every 20 minutes, so a 9:32 a.m. exact start time is rounded to 9:30 a.m. and a 9:54 a.m. start to 9:55 a.m.

3. Six-minute rounding

With six-minute rounding, you'll generate intervals that represent one-tenth of an hour, thus making payroll calculations much easier. The below table shows how six-minute rounding works:

The above pattern repeats every 30 minutes, so a 9:34 a.m. start time is rounded to 9:36 a.m., and a 9:49 a.m. start time is rounded to 9:48 a.m.

What are the challenges of time clock rounding?

Some of the challenges that can emerge if you round your time clocks include the following:

• Short-term wage theft. Although the FLSA allows for the aforementioned rounding methods, employers may view rounding as wage theft. Think about it like this: If an employee works 8:53 a.m. until 5:07 p.m., they've technically worked eight hours and 14 minutes. However, under 15-minute rounding, they'd only get paid for eight hours. That's approximately one quarter-hour of unnecessarily (though legally) held wages.
  
  
• Long-term wage theft. If your employee starts their day at 9:02 a.m. and ends at 5:04 p.m., you might round their start and end times to 9:00 a.m. and 5:00 p.m. That's two minutes of wages not paid, which means little for one work shift. However, if you're not paying these two minutes every work shift, you could eventually wind up not paying employees for what amounts to hours of work in the long term. Employees could sue you over this.
  
  
• Inaccurate work records. Some employers may use employees' exact hours worked to determine which employees are performing best. However, when you round your time clocks, you chop off up to a quarter-hour of extra work that can set one employee apart from others. As a result, you may find strategically planning your shifts more difficult.

What are the best practices for time clock rounding?

To keep your time clock practices legally compliant while still fairly paying your employees, follow these best practices:

1. Regularly assess and tweak your rounding.

As described above, time clock rounding can quickly become wage theft if you're not careful. You can avoid this pitfall by looking at your rounding practices once per pay cycle to catch any cases of excessive wage withholding. For instance, if you frequently spot the 8:53 a.m. to 5:07 p.m. example described above, you may want to switch rounding approaches to something more fair for your employees.

2. Round to benefit your employees, not yourself.

Yes, you're rounding your employees' time to make your payroll calculations easier, but you should avoid rounding in ways that more than slightly diminish your employees' wages. If you find that your rounding regularly reduces what you pay your employees, consider switching to an approach that slightly overpays them. That's a better outcome than being accused of, or sued for, underpayment.

3. Check whether employees are abusing your rounding system.

If you're operating on a five-minute or six-minute rounding system, an employee just needs to work an extra few minutes to earn another one-twelfth or one-tenth of wages. These amounts may be minuscule per shift, but over time, they can add up. When you see employees regularly taking advantage of your rounding system in this way, kindly ask them to clock out after they reach their exact amount of required work hours.

4. Think about your budget.

In some cases, rounding your employees' hours can push them into overtime. If so, you must pay your employees time and a half for those extra rounded fractions of hours. Doing so could throw off your payroll budget.

Conversely, resist the temptation to use rounding to avoid overtime pay and thus stay within a tight payroll budget. Withholding fairly earned wages can lead to lawsuits that ultimately prove more expensive than just paying in full in the first place.

5. Set a clear time rounding policy.

If you round your time clocks, you'll be less likely to find yourself in hot water with your employees if your policy is clear. State which FLSA-compliant rounding system you'll use, and explain how employees can file wage grievances.

6. Decide whether you truly need to round.

The potential for unhappy employees, lawsuits and the like may prove more costly in the long run than just paying employees for their exact hours worked. Plus, with top payroll software and time and attendance systems, the longtime concern of tedious calculations for fractions of hours worked is negligible.