For the longest time, why anyone would use rounding in payroll calculations was beyond me. Since rounding is meant to even out in the end, what is the point? I don’t like unanswered questions hanging around, so I decided to do some digging. I still don’t think rounding is a brilliant idea, but at least I understand why it’s used. Essentially, rounding in the morning benefits the occasional late employee while rounding in the evening benefits the employer. I’ll explain how this works.
Before I start, I wanted to mention that we have a bunch of free business math calculators that could be helpful if you’re calculating by hand.
First of all, it’s important to understand how rounding is supposed to work in order to be compliant with the DOL. Time must be rounded both up and down and never done in the employer’s favor. Specifically, the time must follow the 7/8 rule:
“Employee time from 1 to 7 minutes may be rounded down, and thus not counted as hours worked, but employee time from 8 to 14 minutes must be rounded up and counted as a quarter hour of work time.” – DOL Fact Sheet
Why Use Rounding
Give Employees a Break
An employer might want to use rounding as a kind of grace period so that employees don’t get docked time when they are a few minutes late for work. This is nice for employees that are not chronically late and who come into work on time. There can be other benefits too for employers in certain states.
When employees leave a few minutes late, rounding in 15 minute increments could save an employer from having to pay the employee those few minutes of overtime at the end of their eight hour shift. This advantage would only work for states that use daily overtime, including Alaska, California, Nevada, Puerto Rico, and the Virgin Islands. Other states wouldn’t see any benefit because overtime is only owed after 40 hours of work in a week and not after 8 hours in a day.
If a company is going to use rounding, it is not a good idea to do it by hand. Rounding is only practical with an automated time clock system which calculates the overtime based on the rules outlined by the Department of Labor.
Specifically, when an employee punches the clock 7 minutes after the quarter of an hour, you must round their timestamp down. When an employee punches the clock 8 minutes after the quarter-hour, you must round their timestamp up. Rounding at different intervals is fine, but you mustn’t round in the favor of the employee or employer– It must be fair.
Watch Out, California Employers
If you’re an employer in California, you may want to steer clear of time rounding. In the recent case, Donahue v. AMN Services, LLC, the supreme court found problems with meal break time-rounding. They concluded that this action results in the underpayment and/or overpayment of employees, which is unfair and unlawful. We suggest that employers have their employees take breaks for 40 minutes or longer to avoid any potential meal break violations. You can read more about the case in our article.