Consider the following scenarios. Two employees clock in for their shift early but before starting work they end up having their morning coffee while chatting about their lives. Similarly, after an employee finishes her shift, she spends some time on her phone, browsing news that are not relevant to work, before officially calling it a day and clocking out. In these situations, timesheets don’t necessarily reflect the actual hours worked by the employees.
As the need to accurately calculate billable hours started becoming relevant, employers made time clock rounding a common practice. Rounding billable hours becomes important in accurately calculating the paycheck of non-exempt employees, who are paid on an hourly basis. This becomes even more important when you consider the rate for overtime pay.
Generally, there are three common practices of rounding employee work hours.
Employers round to the nearest five minute
Employers round to the nearest six-minute
Employers round to the nearest fifteen-minute
The laws that address overtime pay and the non-exempt status are changing every year. The Fair Labor Standards Act (FLSA), set forth by the Department of Labor has clearly defined rules and regulations that employers have to follow with regards to wages, overtime pay, exemption statuses and more.
How can employers round hours in their favor?
Some employers may take advantage of rounding in order to cut expenses across payroll. A major motivation behind this behavior is the idea of having to pay employees an overtime rate beyond the 40-hour standard. If you are constantly rounding down work hours to cut expenses, you may want to give your strategy a second thought.
To start, the practice of calculating billable hours is regulated by law. And any action taken against the rules set forth by the FLSA may get your business in serious trouble. Additionally, employees may take notice of the employer’s act and decide to avoid working overtime (even for as little as some minutes) at all costs. This then raises other questions related to productivity - which may have indirect consequences to the quality of goods and/or services offered by the business.
Employees may even choose to file a ‘wage and hour’ lawsuit. Such lawsuits are the most common legal complaints that are usually ruled in favor of the employee who is filing the lawsuit. In fact, the Department of Labor collected $322 million in back wages for over 215,000 workers only in 2019.
Defining Back Wages: Back wages, also known as back pay, is the amount of salary or other related benefits employers withheld from the employee throughout the time of employment. An employee may file a lawsuit against the employer for back pay, thereby demanding back pay for all the billable hours left uncompensated. Under the Fair Labor Standards Act (FLSA), if you owe unpaid wages to the employee, you are also subject to penalties.
But, can employees also take advantage of rounding hours?
You might be thinking why the employer is portrayed to be the villain of the story in this dynamic. That is not the case. Employees might also have a motive to find a loophole in the system and adjust their clock in and clock out time to their advantage. If you round to the nearest fifteen minutes, an employee can potentially take advantage of the system by clocking in at 8:52 am and clocking out at 5:08 pm, which is purposely surpassing the seven-minute threshold to get paid for an extra fifteen minutes of work. As a business owner, if you notice such behavior constantly, that’s probably an indicator that you should have a conversation with the employee.
Now that you understand how this practice can be misused by both parties, you may rightfully be asking yourself how to remain neutral in rounding hours. Let's discuss several simple things you can do. The following tips are applicable to all types of businesses.
So, how do I round employee hours effectively?
The number one thing all businesses can do to round hours effectively is simple - keep track. In practical terms, this means rounding billable hours down and up when appropriate, instead of consistently rounding down.
If you round to the nearest fifteen minutes, you generally split it in half, which is 7 minutes and a half. So, when employees clock in the 8:53 - 9:07 interval, their clock in time will be 9:00.
If you round to the nearest six-minute, you will use 3 minutes as the guide. So, if employees clock in the 8:57 - 9:03 interval, their clock in time will be 9:00.
If you round to the nearest five minutes, you will use 2 minutes and a half as the guide. So, if an employee clocks in the 8:58-9:02 interval, their clock in time will be 9:00.
Alright, now that rounding hours sounds fairly simple, it is time to introduce a new idea - the neutralizer. If the employee in the first scenario clocked in early at 8:53 and their clock in time was recorded at 9:00 am (rounded up), you cannot round down to 4:45 pm if the employee leaves at 4:53 pm. In this case, you record their clock out time up the nearest fifteen-minute, that being 5:00 pm.
The same logic is applied vice versa for a late clock-in. In the second scenario, if the employee clocks in at 9:03 am and the clock-in time is recorded at 9, clocking out at 5:03 pm should be recorded as a 5 pm clock out. As you might have guessed by now, you record a 9 am clock-in time for the employee clocking in at 9:02 am, and 5 pm clock-out for leaving at 5:02 pm in the third scenario. Therefore, regardless of what increment you round to, you can remain neutral in rounding down and up accordingly.
It is crucial that if you round up for an early clock in, you also round-up for an early clock out, to ensure fairness.
What regulations should I worry about?
Although a perfectly legal practice, rounding billable hours does have some legal restrictions. Business owners who round employee work hours should take the time to understand the regulations set forth by the Department of Labor.
The Fair Labor Standards Act (FLSA) allows you to round employee work hours to the nearest five, six or fifteen-minute at most,
"provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.”
“The Seven Minutes Labor Law”
The Seven Minutes Law is applicable to companies rounding to the nearest quarter-hour. Under this rule, employees working an extra seven minutes will be rounded down, while working an extra eight minutes has to be rounded up. Use the reference table below for guidance.
The Simplest Method of Rounding Billable Hours
A practice of rounding billable hours in the modern business world is automation. Automated systems save you administrative time and effort, and importantly help you remain neutral.
Successful businesses know the importance of minimizing the time spent on a task without compromising its quality. Automation eases the administrative burden of rounding employee work hours and supports compliance efforts, saving you time and money in the process. Additionally, automated timekeeping, unlike manual timekeeping, doesn’t leave room for human error. Automating timekeeping takes the burden of recording, rounding, and processing employee work hours from the administration’s hand. Conveniently, you will also have access to highly accurate and readily available data about employee attendance with an automation process in place. Automating timesheet processes might save your company more than you are aware of.
Time tracking, simplified
Timesheet rounding, settled!
Atto is a time clock app that rounds employee workhours effortlessly. Try our 14-day trial now!
Atto’s automated timesheets offer detailed and actionable insights into your team’s work hours. They are available for you to access and review in real-
time and include regular time, overtime and paid time off. Atto’s unique timesheet feature includes the automation of rounding billable hours. This feature eases the administrative burden, enhances accuracy, ensures compliance, and establishes employee trust in the company.
Atto’s automated timesheets strive to make your job easier. You can set up your timesheet rounding rules to automatically round employees' clock in and out to the nearest rounding increment selected of 5, 10, 15, 20 or 30 minutes. You grow the business, while Atto ensures its health.