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How to Simplify Your Payroll With Time Clock Rounding

why is timesheet rounding important

Time clock rounding is a common practice that helps businesses streamline their time tracking. It’s the strategy and process that an employer uses to round an employee’s logged hours, usually to simplify payroll and invoicing.

When is this practice needed and what are the most popular — and legal — payroll rounding rules? Find out below.

why is timesheet rounding important

Why is timesheet rounding necessary?

1. Weekly or monthly payroll

It can be difficult to handle very small segments of logged employee hours, like seconds or just a couple of minutes. These micro periods of work time can be a burden when you’re trying to finalize your weekly or monthly payroll. This is one of the top reasons for rounding.

2. Calculate billable hours

Another common case when employers may have to round the logged hours is when calculating billable hours for a client. It’s not practical to send an invoice for, say, 10 hours and 3 minutes of work. That’s why the business owner will typically use a rounded standard for billing their clients.

3. Clock in/out early

Some businesses may also use timesheet rounding to prevent employees from clocking in before the start of their official working hours. This is a common situation in companies where a physical punching machine is located in one spot, while the workspaces of the staff are in a variety of different places. It can be tempting for employees to clock in earlier and then spend time drinking coffee with their colleagues before actually heading over to their working station.
In addition, many businesses still use analogue methods for time tracking, like punching physical time cards. This makes accurate logging complicated, since an employee typically has to punch in at a certain location, and then move to their actual workplace.
Digital timesheets make it much easier to get the correct tracking in terms of hours and minutes worked. You can also customize your own rules and time increments for rounding — and make sure you’re limiting them to the maximum that’s legally allowed.
Despite digital innovations, timecard rounding is here to stay. That’s why it’s good to know when you can use it and how to do it right, so that you ensure your complete legal compliance.
time clock rounding rules

Time clock rounding rules and legal issues

In the U.S., timesheet rounding is legal, but there are specific rules as to how it can be applied. The Department of Labor has guidelines about rounding hours worked, as well as about travel time pay, holiday pay, time clock laws for hourly employees, and employee break policy, all based on the Fair Labor Standards Act.
The highest roundup that employees can do legally is 15 minutes. You are not allowed to round up or down to, say, 30-, 60-minute increments.
To comply with the 15-minute limit, you also have to follow the 7-minute rule, which means using the 7-minute mark as a guide in the rounding process. If an employee has clocked in at 10:07, the rounding should be down to 10:00, while if the time was 10:08 or later, the rounding should be up to 10:15.
Another important rule is that your time clock rounding has to be either neutral or favorable towards employees. The FLSA explicitly notes that the rounding has to be impartial, or never in the full favor of the employer. It is illegal to always round down the timesheets in your interest, as this means the employee loses payment for worked time. A good way to ensure fairness is to round the clock-in hour in the employee’s interest, while the clock-out hour can be in your interest. Another option is to round both in and out times in favor of your staff.
If you fail to follow any of these three rules, you can end up with a wage and hour grievance submitted by your employees to the Department of Labor. The guiding principle for the legality of your timesheet rounding should be fairness towards the workers, as the federal framework protects their payment rights rigorously.
You should make sure you don’t end up underpaying employees due to your rounding practices, as this is considered wage theft. It’s also a good idea to clarify to your staff what your payroll rounding rules are, so that people are not left with the wrong impression that you are handling it in an unfair manner. Read about time theft here.
In some states, the 15-minute roundup rule may have further restrictions. Make sure to check if there are different requirements for timesheet rounding in your state, as they may be given priority over the federal rules.
tried-and-true rules

Tried-and-true timesheet rounding rules

Instead of inventing the best time clock rounding rules for your business from scratch, you can build your policy off of legally-verified methods that already exist. Once you decide to use a certain method, it’s essential to stick with it throughout all logged hours. This will ensure the consistency and legality of your rounding rules.

15-minute rounding

The maximum rounding that you can do under federal law is 15 minutes. This means that essentially, all rounding practices have to follow this basic rule. On top of that, many payroll management systems use 15-minute intervals.
In applying the 15-minute limit for rounding, you should also follow the time clock 7-minute rule. It guides whether to round the time down or up. If the clocked time is below the 7-minute mark, you should choose the previous quarter-hour. If it is above 7 minutes, you have to round up to the next quarter-hour.
Here is a simple 7-minute rule chart:

6-minute rounding

Another common way to handle time clock rounding rules is to stick to 1/10th of an hour, or use increments of 6 minutes. If an employee clocks in at 9:04, for example, after applying the rounding, it will come out to 9:06.
Here is a basic 6-minute rounding chart:

5-minute rounding

Yet another typical increment for rounding is 5 minutes. The decision whether to round down or up to the nearest 5-minute increment is based on a 2 ½ minute split of each increment. So, if an employee clocks in at 9:02, the rounding will go down to 9:00. If the clock-in time is 9:03, however, the rounding will be up to 9:05.
It works like this:
best practices

Best practices for time clock rounding

1. Determine if you’re eligible

Start by making sure that you really must use rounding for payroll and invoicing needs.
It might have been necessary back in the day, especially when employees had to wait at the entrance and use a machine to punch in their time cards. For most modern businesses, the system is different today. That’s why it’s good to keep checking how applicable rounding is for you.

2. Consider the pros and cons

In some situations, instead of being a benefit for your company, it can actually lead to losses.
For example, after rounding, an employee’s logged hours may cross into overtime, which means additional costs for your business.
Take the time to do internal research to figure out what purpose the rounding practice serves for your business, so that you can weigh it against the risks.
While some companies use it in order to cut down their payroll costs, this often entails illegal rounding that harms employees’ lawfully-earned payments.
The best piece of advice in this respect is to avoid using rounding for budget-cutting purposes, as it can easily end in:
  • Administrative penalties
  • Costly labor lawsuits
  • Class action suits

3. Create a time rounding policy for your business

If you establish that rounding is truly necessary, it’s a wise idea to make an assessment of your rounding practices every year. By conducting an annual audit, you can examine how practical your system is, and if it needs adjustments.
Make sure that you analyze its impact on employees’ timesheets regularly. It’s also essential to stay up-to-date with the changes in the legal framework and to apply them in your business immediately in order to ensure your compliance.
While rounding is legal in the U.S., it poses many risks if not done correctly, as it may go against the established working hours laws. You should carefully determine your time clock rounding rules, making sure that they do not violate the FLSA.

4. Be transparent and fair

The most important principle that you should keep in mind is that the rounding should not result in paying less to your employees than they legally have earned with the hours worked. Even if this occurs by mistake, it can still result in a lawsuit against your company.
It is also important to not round up unpaid meal breaks, as such cases have also led to legal grievances.
If the rules are transparent and fair, your staff will be less likely to go down the lawsuit path in disputable cases. However, if your rounding practices are unclear or haven’t been communicated well, people will have more reasons to doubt them and, possibly, seek further legal action in problematic cases.

5. Communicate, communicate, communicate

While it’s a tricky subject, getting your employees on board with your timesheet rounding practices can be a great opportunity to foster a better atmosphere and build trust with your team. This means proactively communicating with them and providing a simple, transparent explanation of how you round up their hours.
Make it clear that it doesn’t take paid time away from them (a common misconception) and show how you’ve got their best interests at heart and work to make sure they get fairly, accurately paid for every minute they spend at work.
smarter time tracking

There’s a better way — smarter time tracking

If you’re worried about manually keeping track of time, rounding timesheets, and paying the right amounts, there’s a simpler way to do all of it.
Time tracking with Hubstaff’s desktop, web, or mobile apps captures accurate work hours so you know exactly what you owe each person.
To make things even easier, you can set pay rates so that the amounts are calculated for you at the end of each pay period. No more manual tallying or risk of over or underpaying. Your team can see exactly what they’re owed based on their timesheets.
Important Notice: The information in this article is general in nature and you should consider whether the information is appropriate to your needs. Legal and other matters referred to in this article are of a general nature only and are based on Hubstaff’s interpretation of laws existing at the time and should not be relied on in place of professional advice. Hubstaff is not responsible for the content of any site owned by a third party that may be linked to this article and no warranty is made by us concerning the suitability, accuracy or timeliness of the content of any site that may be linked to this article. Hubstaff disclaims all liability (except for any liability which by law cannot be excluded) for any error, inaccuracy, or omission from the information contained in this article and any loss or damage suffered by any person directly or indirectly through relying on this information.

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