Picture this: Your employee clocks in at 8:58 am and clocks out at 5:04pm, so you round their working hours to 9am to 5pm. No big deal, right?
Not quite. This type of rounding may be common, but if you’re reading this, you probably know it’s rarely that straightforward. Because while time clock rounding can simplify your records and payroll calculations, if not done carefully, you risk breaking federal law and could even be sued by unhappy employees.
That’s why it’s so important to understand time clock rounding regulations — so you can stick to the rules and keep team members happy while still reaping the administrative benefits. But we understand how complicated time clock rounding can seem, especially if you’re struggling to find the right method or calculate payroll manually.
That’s why in this piece, we’ve broken it down to explain:
- What time clock rounding is and why it’s important for small businesses
- What the time clock rounding rules are, including the three types allowed by law
- Common challenges associated with time clock rounding
- Four top best practices for using time clock rounding successfully
We’ve also explored how using team management platforms like Homebase can simplify and automate the process, no matter what kind of time clock rounding (if any) you decide to use.
What is time clock rounding?
Time clock rounding is the rounding up or down of an employee’s hours on their timesheet. For example, if someone’s time tracking records show a clock in at 9:03am and a clock out at 4:58pm, you might round that to 9am and 5pm.
Time clock rounding is also a way to account for anything in the working day that isn’t otherwise tracked in a timesheet because they’re not technically work tasks. For example, bathroom breaks, an unexpected computer restart, or heading to the staff room for a quick snack.
Time clock rounding is also a formal process with certain rules, as stipulated by the Fair Labor Standards Act (FLSA), which should be followed in the United States to ensure your business remains legally compliant. The FLSA requires employers to track and store employee hour records, either manually or using time tracking tools like Homebase.
Why is time clock rounding important for small businesses?
Time clock rounding is important for small businesses because, despite it sounding like no big deal, it:
- Is a formal process
- Has legal ramifications if not done correctly
- Must be done according to rules approved by the FLSA
- Can help simplify the payroll process
- Can help reduce time theft
- May be unpopular among staff and cause a loss of engagement and productivity if they feel you’re “nickel and diming” them for every minute
Time clock rounding can also help reduce labor costs. For example, if an employee clocks in late and clocks out early, you can round up the difference on their timesheet time so you’re not paying for minutes they didn’t work.
On the other hand, time clock rounding can lead to time theft if not done correctly. For example, if an employee clocks in later than their allotted time but gets paid for the entire shift, it can add to your labor costs unnecessarily as you’re paying for work that hasn’t actually been done.
In fact, the American Society of Employers estimates that as much as 20% of small business revenue is lost to employee time theft, whether intentional or not.
All in all, understanding time clock rounding and the laws in your state and country helps you to minimize excess labor costs, retain staff, and protect your business.
How do timesheets help with time clock rounding?
Timesheets are a digital summary of the hours an employee worked, including their breaks and, in some cases, the projects they’re working on.
They help with time clock rounding because they document the hours an employee worked, rounded up or down. Small business owners and managers then use that data to calculate payroll more easily, maintain accurate records, monitor how long projects are taking, manage and predict labor costs, avoid employee time theft, and ensure staff’s working conditions comply with labor laws.
Homebase’s all-in-one platform includes a free time clock calculator, intelligent timesheets, HR and compliance tools, and payroll processing, all in the same place. That means you can streamline the entire time tracking process, from employees signing in and out of work to sending out payments on payday (and rest assured you’re following the labor laws that apply to you).
Time clock rounding rules
Time clock rounding is legal, but you have to follow certain Fair Labor Standards Act (FLSA) compliance rules under US Federal Law to stay compliant. They include guidance for practices like minimum wage, overtime pay, recordkeeping, and hours worked.
The FLSA requires companies to use one of three rounding rules to ensure their time clock rounding practices are legal.
Homebase’s compliance tools are specifically designed to help small business owners follow the laws and regulations that apply to them. Our platform also offers one-on-one, live access to HR experts who can help by providing you with guidance and audits of your small business practices. Homebase also offers access to a digital library of guides, training workshops, and templates.
The FLSA states that three types of time clock rounding are allowed:
- 15 minutes
- Five minutes
- Six minutes
Here’s how each one works in practice.
This means rounding up to the nearest quarter-hour. Because it’s easy to calculate and allows for the largest leeway in time, 15-minute rounding tends to be the most commonly used.
With this method, all times are rounded to either the hour (:00), a quarter after the hour (:15), half past the hour (:30), or a quarter to the next hour (:45).
For example, if an employee tracks their start time as 9:03 am and their finish time as 5:34pm, you’d round that to 9:00am and 5:30pm.
Let’s take the hour between 9am and 10am as an example:
|Exact time tracked||Time rounded to…|
|8:53 – 9:07am||9:00am|
|9:08 – 9:22am||9:15am|
|9:23 – 9:37am||9:30am|
|9:38 – 9:52am||9:45am|
|9:53 – 10:07am||10:00am|
This means rounding up to the nearest five minutes.
For example, 8:58am would be rounded to 9:00am, as would 9:02 am. However, 9:03am would be rounded to the next interval (9:05 am). 9:07am would also be rounded to 9:05 am.
For example, for the time between 9am and 9:20am:
|Exact time tracked||Time rounded to…|
|8:58 – 9:02am||9:00am|
|9:03 – 9:07am||9:05am|
|9:08 – 9:12am||9:10am|
|9:13 – 9:17am||9:15am|
|9:18 – 9:22am||9:20am|
This means rounding up to the nearest six minutes in each hour. The intervals are every six minutes, meaning on the hour (:00), six minutes after (:06), six minutes later (:12), another six minutes later (:18), and so on.
For example, any time between 8:58am and 9:03am would be rounded to 9:00am, but any time between 9:04am and 9:09am would be rounded to the next six minutes, 9:06am.
For example, for the following times between 9:00am and 9:30am:
|Exact time tracked||Time rounded to…|
|8:58 – 9:03am||9:00am|
|9:04 – 9:09am||9:06am|
|9:10 – 9:15am||9:12am|
|9:16 – 9:21am||9:18am|
|9:22 – 9:27am||9:24am|
|9:28 – 9:33am||9:30am|
Time clock rounding rules by state
The FLSA rules are federal, meaning they apply across the entire country of the United States.
However, some US states have some extra rules or suggestions about time clock rounding that you may need to be aware of if your business operates in that location. For example:
- California: This state requires all rounding to be neutral and not favor underpayment on average. A 2021 ruling stated that, in general, rounding is risky for employers and that they should pay all staff for the exact time they worked if they’re able to record it precisely.
- Texas: This state allows employers to use time rounding, especially if the rounding is insignificant. Overall, it encourages employees to track time as accurately as possible and encourages employers to account for all hours worked as precisely as they can.
- New York: This state, especially New York City, has extra hourly work-related laws that employers should be aware of in addition to the federal time clock rounding rules. For example, staff who work split shifts of more than ten hours may be entitled to an hour of extra pay per day. This should be factored into any time clock rounding and payroll calculations.
What are the common challenges associated with time clock rounding?
The main challenges associated with time clock rounding tend to fall into one of the following three categories.
1. Short and long-term wage theft
Rounding up or down can cause issues with accurate wages, even though it’s technically legal. For example, if an employee is scheduled to end their shift at 5:00 pm, but always works until 5:11pm and gets their clock out time rounded down to 5:00pm, they miss 11 minutes of pay each day.
On a single day, this doesn’t make much difference. But over a week, that equals almost an hour of unpaid wages. Over a month, that’s almost four hours, and over a year, it’s 44 hours of unpaid wages or more than a week of extra unpaid work.
Although this would technically be legally compliant, it amounts to significant wage theft and time clock fraud.
2. Unhappy or suspicious employees
Employees may easily become unhappy or disillusioned if they feel that the extra work they put in isn’t counted and that they’re missing out on significant pay.
These situations might lead them to become less engaged and less productive because they feel that their work isn’t valued. Not only that, but they could sue you for underpaid wages in the event of significant wage theft.
An employee would have grounds for complaint, especially if you regularly round down their time.
3. Inaccurate records
Time clock rounding may make payroll calculations more straightforward, but it also means that your records may not be totally accurate.
This may make it more difficult to distinguish different employees’ working patterns, for example, if one staff member regularly works over and above their time, compared to another who regularly clocks off early.
It can also make it more challenging to predict labor needs or plan accurate timetables because your records aren’t as precise as they could be.
4 top best practices for time clock rounding
When choosing to implement a time clock rounding policy within your small business, we advise sticking to the following best practices.
1. Be clear and transparent about your policy
Employees are more likely to accept and understand your approach to time clock rounding and be less suspicious if you’re transparent about it from the start. Explain how you round employee hours and why and pinpoint the exact FLSA rule you’re following.
That way, all employees will understand the system and won’t see it as a negative, sneaky practice, and more of a clear straightforward process.
If you find that some team members appear to be “gaming” the system, hold a meeting or 1-to-1 chats to work out what’s going on. Be sure to keep a fair, transparent approach rather than assuming the worst.
2. Keep employee needs in mind and be open to feedback
Your policy will be more successful if you operate it with employee needs in mind rather than doing it purely for your own administrative or financial gain.
Time clock rounding may make it easier for you to calculate payroll, but be sure to keep your staff on your side and remain open to feedback and making changes if needed.
If you find that your current time card approval process tends to habitually underpay, try switching up your policy so people are more likely to be slightly overpaid. This will likely improve staff happiness, engagement, and productivity and reduce employee turnover.
You could also try a hybrid system where you round clock in times to benefit the employee and clock out times to benefit the employer. This keeps the rounding balanced while still allowing for the simplification it brings and avoiding penalizing employees each time.
It’s a good idea to evaluate your policy regularly and at least once a year to check how it’s working and if employees are happy with it.
3. Be mindful of unintended consequences
Rounding up time can make managing employee timesheets simpler, but stay alert to unintended negative effects. These include accidentally increasing labor costs by repeatedly knocking team members into overtime or not noticing if employees are abusing the system.
For example, just as employers can (unintentionally or intentionally) use time clock rounding to pay less in wages, staff can use it to get paid more than they’re entitled to, especially when all those little minutes add up. This can lead to excessive labor costs and a lack of honesty and productivity.
4. Use time tracking software like Homebase to help you out
Using time tracking software like Homebase can help avoid these issues.
Beyond our powerful time clock and timesheet tools (which can be managed on a smartphone so employees can clock in or out of work anywhere), we also offer HR and compliance features and hiring and onboarding capabilities so you can communicate your policies easily to every new team member.
Homebase also lets you set up communication alerts to avoid staff accidentally rolling into expensive overtime and send team members reminders to take their breaks and clock out of work on time so you avoid extensive rounding. Our platform also has employee happiness tools to boost staff engagement further.
Similarly, you may find you don’t need to use time clock rounding at all (with all of its possible issues) if you use Homebase because it translates time tracking data into timesheets automatically, which enables you to calculate and pay wages accurately, even if employee clock ins and outs aren’t rounded up or down.
Time clock rounding: Simplify to succeed
Time clock rounding can be a real help if you want to simplify timesheets and payroll and account for minor discrepancies in staff time clocking.
It can also help to reduce labor costs. However, it’s important not to prioritize this simplification over employee wages or round up time in a way that only benefits you rather than staff. In fact, federal law states that you can only round up in fifteen, five, or six-minute intervals and ensure that any wage theft is negligible.
Amid this complexity, it’s easy to feel overwhelmed with the process — especially when you’ve got a lot more on your plate when managing a small business.
That’s where team management software like Homebase comes in. It lets you manage time clock rounding more easily and creates automated timesheets. You can also process payroll automatically using those timesheets. So you can implement time clock rounding — if you choose to use it — more efficiently. You may not even use time clock rounding at all with Homebase because it makes calculating hours worked so much more automatic and accurate.
Homebase lets employees clock in and out of work anytime and any place and includes tools like geofencing and photo check ins to reduce time theft or buddy punching. The platform also lets you set up alerts to staff to avoid overtime, reminds staff to sign out to minimize excess rounding, and helps you run automated and accurate payroll.
Because while they might appear no big deal at first, those little minutes can surely add up for both employees and employers.