Time Clock Rules for Hourly Employees

Time clock issues at work

To create a smart system for working with hourly employees, it’s a good idea to be aware of the most common problems that come up with time clocking.

Time theft

One of the biggest issues in the modern workplace is time theft committed by employees. The American Payroll Association (APA) has found that it impacts 75% of U.S. companies. It’s widespread and affects businesses in all industries, reducing their efficiency and costing them money.

Time theft is any situation where employees log timesheet hours for time they haven’t actually worked. It’s one of the most popular forms of counterproductive work behavior (CWB). Timesheets are legal documents, and your business is required to keep them for inspection by the Department of Labor. That means that, by forging timesheets, employees are actually committing fraud.

Buddy punching

One of the typical forms of time theft include buddy punching, but also excessive breaks, unregulated personal time, and unauthorized overtime. You need to be aware of all these practices before you can prevent them. It’s also a good idea to regularly inform your employees about your time theft policy to discourage the activity before it happens.

Differentiation between various types of employees

It’s crucial for your business to treat different types of employees in accordance with the legal framework in the U.S. For many companies, especially small ones, navigating this is a bit daunting.

Salaried vs hourly employees

In the case of salaried staff, payment is due for a certain agreed period of time during which they have worked for a company. Typically, the salary is based on an annual amount for a 2080-hour year. Salaried employees have the right to benefits and usually have an employment contract. They are not required to complete timesheets.

Hourly employees, on the other hand, are paid on the basis of the actual hours they have worked for a company. The payment is based on a wage set by the hour. Additionally, hourly staff don't need to have an employment contract. However, they do need to fill in timesheets for the hours worked.

NON-EXEMPT

EXEMPT

Entitled to overtime pay at 1.5 times their regular rate

Could be paid a salary or hourly wage

No required earnings per week

Applies to any field of work

NOT entitled to overtime pay at 1.5 times the regular rate

MUST be paid a salary, not an hourly wage

MUST earn at least $684 per week

Must be whitin the eight set categories

Exempt vs nonexempt employees

The exemption here refers to whether or not employees are entitled to receiving the federal minimum wage and overtime pay for more than 40 hours of work per week.

Hourly employees are considered nonexempt. This means that your hourly staff should get payment which is not below the minimum wage. They should also receive 1.5 times the regular payment for overtime hours for anything over 40 hours a week.

Don’t forget that states may have different minimum wage and overtime pay requirements. You need to choose either the federal or the state law, opting for the one that’s more favorable to employees.

As for salaried staff, they can be both exempt and nonexempt, depending on the exact role description. For example, executive, administrative, professional, computer and outside sales employees can qualify for exemption. The full details are in the Department of Labor’s Fact Sheet.

On-call and off-the-clock work

Other issues that often come up for businesses working with hourly employees are how to handle on-call shift payment, and if non-payment for off-the-clock work is legal.

Whether you have to pay staff for on-call time or not depends on the specific duties of the job. Typically, if an employee doesn’t have to be on the company’s premises and is free to engage in personal activities while being on standby, no payment is due.

In some cases, though, you would need to pay for on-call shifts as worked time. These include situations when an employee needs to be in a certain location and doesn’t have sufficient time for their personal activities due to work calls or tasks. On-call pay may be due even if an employee is working from home, in case their time is filled with work activities and thus their private activities are restricted.

As for off-the-clock work, under the FLSA it is deemed illegal not to pay your staff for such work. This applies both to cases when employees are forced to work off the clock and when they voluntarily decide to do so. Thus, you should always pay off-the-clock work in order to prevent potential lawsuits.

Some of the typical situations in which employees may perform off-the-clock work are:

Work activities for preparation before a shift starts
Cleaning or arranging at the business location before or after a shift has ended
Transporting work equipment before or after the end of a shift
Work emails and calls before or after a shift
Work activities during unpaid lunch breaks (breaking employee break and lunch policies)

This is also important in terms of your missed time clock punch policy. Under federal law, you have to pay an employee for hours worked even if the person forgot to clock in at the start of work.

Labor laws: clocking in and out

The guiding principles for setting up your time clock rules are contained in the federal Fair Labor Standards Act (FLSA), as well as in state laws. You need to know the federal time clock laws and the specific requirements that your state imposes.

That’s how you can be on the safe side, both in terms of your business interests and for the sake of fair practices for your employees.

There is no legal requirement for employers to have a time clock. Nevertheless, the FLSA stipulates that businesses should have clear records of the time their staff has worked. This includes the start date and time of a working week, hours worked for every week day, and the full number of hours for the whole week.

There are, however, specific recordkeeping requirements set forth in the FLSA. Payroll records have to be kept for at least three years. On the other hand, records on whose basis wage calculations are made should be preserved for two years. These include time cards and piece work tickets, wage rate tables, schedules, and wage additions or deductions. All these types of records have to be ready for inspection by the Department of Labor’s Wage and Hour Division.

Timesheet rounding

Many businesses use timesheet rounding to handle their payroll. It’s one of the cornerstones in the time clock rules and regulations that you should be aware of.

According to Department of Labor’s time clock rules, timesheet rounding is a legal practice. However, there are well-defined guidelines on how it can be used, so that it does not infringe on the rights of employees.

The essential need for timesheet rounding comes from the difficulty of accounting for the so-called indefinite periods of time that employees log in. They usually constitute seconds and minutes. In order to avoid having to deal with such small periods of time, businesses choose to handle logged time in certain intervals.

According to the FLSA, the maximum rounding interval is 15 minutes. Companies can round to smaller intervals as well, such as 5 or 6 minutes.

In addition to sticking to the 15-minute maximum, you also have to comply with the 7-minute rule for payroll. It states that you have to round down if the logged time is up to the 7th minute after a 15-minute interval mark, and round up if it is 8 or more minutes after the last 15-minute interval.

Your time clock punch in and out policy should first and foremost be fair towards employees. It’s not legal to round logged hours in a way that benefits only your business — you must set up a system that is only favorable to your staff. Alternatively, you can opt in for a policy that balances between the interests of your employees and of your company.

Whether you have to pay employees if they clock in early or not will depend largely on the exact parameters of your timesheet rounding practice. If you round down the clock out time (which rounds it in your favor), then you need to pay your staff for the time that they log in before the official start of work. However, clocking in before a shift should not be more than a few minutes in any case in order to prevent off-the-clock work.

Effective time tracking

There is no state or federal requirement as to what clocking system a company should use. It should simply allow complete and accurate time tracking. The options throughout the decades have been different — from punch clocks and time cards to mobile and digital systems.

Having solid timesheet and payroll management and ensuring legal compliance is easier than ever before. Instead of using old-school punch cards, today businesses can benefit from time tracking software that ensures efficiency and accuracy, as well as ease of use for employees.

Solutions like Hubstaff are built for the modern workplace. Besides automatic time tracking and manual input of timesheets, our tool also offers extras like GPS time tracking and geofencing technology that can meet the needs of every type of business.

Time Clock Rules for Hourly
Employees