A lot of employees ask “Is rounding payroll hours even legal?”, and the answer is yes. The Fair Labor Standards Act (FLSA) states that you must pay your employees for all hours worked. According to DOL, however, employers are allowed to round hours. Under the FLSA, you are allowed to round employee’s time in 15 minute increments or to the nearest quarter hour. When rounding time you just have to ensure that you are not violating FLSA regulations for minimum wage and overtime pay.
“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. 29 CFR 785.48(b).”
As an employer, you will want to be fair when rounding time. You cannot manipulate rounding to take advantage of an employee and your employees cannot take advantage of you either. Time rounding only works when it’s in favor of both parties, and the FLSA states that you can only round time if it “averages out so that the employees are fully compensated for all the time they actually work.”
Reasons Why You Should Avoid Rounding Payroll Hours
You can accidentally underpay your employees
For example, let’s say an employee works 8 hours and 2 minutes and you round this employee’s time stamp to 8.0 hours. The next day the employee works 7 hours and 57 minutes and you round her hours down to 7.75 hours. This would be illegal because you did not round this person’s hours fairly or correctly. The employee’s hours should have rounded up to 8.0 hours.
Making these kinds of mistakes on multiple occasions can lead to problems. Although a few minutes here and there can seem trivial, your employees will probably think otherwise. Employees expect correct compensation for the hours and minutes that they work. Consequently, making mistakes when rounding reflects poorly on you and hurts everyone. Employees have the right to sue their employers for lost time, and can even be compensated more than the amount of lost pay in some cases.
2. You can accidentally overpay your employees
In addition to underpaying employees, you can also overpay your employees. Imagine an employee clocking in at 8:07 am and clocking out at 4:08 pm. After rounding, your employee’s timesheet would indicate that the employee clocked in at 8:00 am and clocked out at 4:15 pm. Your employee will have earned 14 extra minutes via the rounded time. If your employees understand how to game the system, you can end up paying employees a lot more than expected over time.
3. You might not see real-time data.
Depending on the system you use to track time, you may not see real-time data if the system rounds the time for you. It’s important to keep track of your employee’s real-time records in case you need to access that raw data at a later date.
Although time rounding isn’t recommended, you can still do it if you please. If your company is going to use time rounding, it’s important to use an automated time system to ensure that you are following the rounding rules correctly.