When it comes to working, it’s in everyone’s best interest to be fair. You want to pay the employee, contractor, or freelancer exactly the agreed amount. At the same time, they want to get a fair wage for their hard work.
However, if you want to play by the book, things can get complex. How do you pay someone an hourly wage if they worked for an hour and 37 minutes? Or 2 hours and 1 minute? Enter time clock rounding.
Today, we’ll show you what time clock rounding is, how it works and what types of models you can apply in your business.
What is time clock rounding?
Time clock rounding is the practice of rounding off the time worked to the next roundest unit for ease of payment and calculating a wage. In the example above, we would round off 2 hours and 1 minute to 2 hours because it’s an easier way to calculate an hourly wage.
Time clock rounding becomes a necessity if you pay your employees or contractors based on billable hours. You want to make sure that you’re paying your people according to the time they put in. At the same time, you don’t want to be rounding off to a higher digit and pay more in the process.
Doing time clock rounding correctly can save your business plenty of money and even help you from paying overtime fees to some employees. However, it’s not as simple as you may think.
Why is time clock rounding necessary?
You’ve probably done a good job without it so far, so why introduce a new practice in the workplace? There are a few reasons.
One, it stops your employees from clocking in early or late. If your work hours are from 9 AM to 5 PM, they could clock in early as they come to work. Without time clock rounding, you could be paying them for the time they spent before work — even when they weren’t working.
Two, it helps drive costs down. For example, 1 hour and 32 minutes could be rounded off as an hour and a half or an hour and 40 minutes. 10 minutes once is not a big deal, but imagine the same situation every day, week, and month in a year. The amount you pay in these two scenarios can be wildly different — and that’s just for one employee.
It’s also an easier way to calculate your payroll costs. If you track time for many of your employees, time clock rounding helps get to more accurate numbers.
Last but not least, your workplace could mandate a much higher wage if an employee moves into overtime. Without time clock rounding, this is a realistic scenario.
The legal issues behind time clock rounding
Since it’s related to billable hours and time spent in the workplace, time clock rounding is a practice mandated by law in many places. In other words, you can’t just decide to do it one day to make your HR work easier.
First, you need to check your local laws and see whether time clock rounding is legal. If it is, you’ll have clear guidelines on how you can do it within your business. Before doing anything else, mark this step off the list to avoid potential lawsuits and issues down the line.
Online sources give many different claims about the system in the USA. According to the Code of Federal Regulations that the time for employees can be rounded off “to the nearest five minutes or the nearest one-tenth or one-quarter of an hour,” according to Labor Department officials.
In reality, it’s best to check with your local laws as well as those in your state. Some round off by 7 minutes, others by 6, etc. We’ll show you some examples that you can use below. If you don’t have any legislation on time clock rounding in your area, you can choose a model from this list that best suits both you and your employees.
Time clock rounding examples
There are many different ways to slice up 60 minutes and get it to a round number. Depending on where you’re located, you may be forced to use one of these examples. If you’re lucky, you can choose a model that suits you instead.
Six minutes is ten percent of an hour. If you round off the time by six minutes, it allows you to get decimal percentages for hours worked. For example, if someone worked for 3 hours and 37 minutes, you can round that off to 3 hours and 6/10 of an hour. That means that you can pay them for a full hour and 60% of an hour they have not completed.
We already know that the hour is split up into 10 frames of six minutes. To round off the time, we use 3-minute increments. For example, 25 minutes is rounded off to .4 while 27 minutes is rounded off to .5.
This is the most common way to round off work hours for practical reasons. One, most HR software and tools have been set up for this time interval. Two, it’s the maximum amount of time for rounding off in many countries and regions around the world.
It’s pretty simple: you have 4 intervals of 15 minutes in an hour. To round them off, you use blocks of 7 minutes. For example, if an employee worked for 34 minutes, the amount is rounded off to 30 minutes. If they worked for 38 minutes, the amount is rounded off to 45 minutes.
While this is the most common way of rounding off time at work, it’s not the most perfect. If you have a contractor working for a hefty hourly wage (e.g., $100 per hour), rounding time off at 15-minute intervals could mean a big difference in how much you end up paying them.
Arguably better than the 15-minute interval is the 5-minute time clock rounding. In this method, the hour is split up into 12 intervals at 5 minutes. To simplify things, anything between round numbers is rounded off at 2.5 minutes.
In other words, if someone has worked an hour and 32 minutes, it’s rounded off at 1h30, and if they worked for an hour and 36 minutes, it’s rounded off at 1h35. This is the smallest time increment that most businesses round off for, and depending on the payroll and HR tools you use, it may make the most sense.
Things to know before starting time clock rounding
You’re now probably ready to start with this practice in your business. However, let’s not jump ahead and discuss some important matters first.
Determine why you want to do time clock rounding
You probably have some sort of goal behind introducing this new practice in your HR and payroll systems.
Some reasons could include:
- Better compliance with your local and state laws
- Better treatment and payment of your contractors, employees, and freelancers
- More accurate time tracking
- Cutting unnecessary costs
Put all of your needs and concerns on paper to determine if you really need to time clock rounding in 2023.
You could have legal issues
If you’re considering rounding off employees’ time at work to save some costs, think again. Many companies introduce this policy to round off smaller time increments and prevent employees from charging them for a full hour.
But there is the other side of the story — you could easily go into overtime, causing significant losses to your business.
Probably the worst side of it is that you’ll lose the trust of your employees. You may even get lawsuits if the newly imposed time clock rounding is not fully compliant with local laws. Lawsuits you may recover from, but broken trust is hard to win back.
There is a better way - tracking employees' time at work
Time clock rounding was invented in a different era — when it was common for employees to punch in their cards before starting work and punch out as they left. In today’s day and age, very few businesses operate in this way. Instead, you can use time tracking and an app such as Timely.
It’s more convenient and easier to track billable hours
Timely lets you track your employees’ hours at work with a single click from any device. Whether it’s their phone, laptop, Chrome extension, or even in person as they’re out and about, it’s a matter of a single click or a tap of a button.
Time doesn’t get rounded off.
Instead, Timely tracks the precise number of hours, minutes, and seconds someone has worked. You can designate how much an employee or a task type should be paid per hour. Timely then tells you exactly how much to pay for that employee’s time and how much to bill a client.
You’ll never underpay or overpay anyone again
Timely creates timesheets based on the work that the employee has done in a certain time period. Everything is summed up automatically, and you can pay for the exact number of hours, minutes, and seconds someone has worked.
You greatly reduce the risk of paying the wrong amount. And perhaps even more importantly, you avoid unintentionally breaking any laws.
Your team will trust you
There are many time-tracking apps out there. What makes Timely special is our dedication to employee privacy. When they start the timer, all the app is tracking is their time and how much of it they spent on specific tasks.
There are no plugins or apps that your employees download that spy on them. We don’t take screenshots or measure activity based on keystrokes or mouse movements. Your team can work uninterrupted.
Time clock rounding was a good business practice in the past when employees had to clock in and out of work manually. With the rise of tech-related jobs and especially remote working, this practice is slowly becoming obsolete. You can still do time clock rounding in 2023, but there are better options.
Speaking of which, you can use a time tracking app such as Timely and never worry about rounding off your employees’ time again. Timely track your employees’ time at work accurately and without hurting their productivity or privacy.