The True Cost of Time Clock Rounding That Every Business Owner Should Know

Running a business is about more than just having a great product or service. There are many departments to oversee, reports to make, records to store, and data to assimilate.

On top of everything, labor laws often change and can be overwhelming to stay on top of. This makes staying compliant a challenge for many companies. Because of this, a lot of companies adopt rounding timesheets, to make payroll and time-tracking simpler. The National Labor Relations Act was passed in 1935 and then, in 1938, the Fair Labor Standards Act (FLSA), ensuring that employees receive proper compensation for hours worked.

Today’s companies need to be flexible and evolve with technology to stay competitive.

One important aspect of embracing technology is the accurate time-tracking of employees. This puts an end to timesheet rounding: a practice that costs companies trillions of dollars each year.

What Is Time Clock Rounding?

With traditional timekeeping practices - such as a time clock and time cards - employees punch in when working, and out for lunch breaks or leaving work.

Rounding these hours makes payroll easier by allowing payroll personnel to round the hours up or down and, thus, easier to calculate. 

Some companies round timesheets to the 10th of an hour, but most employers round in five-, 10-, or 15-minute increments with a “7-minute rule” being a general rule of thumb. 

The 7-minute rule is used in organizations that track their employees in 15-minute increments. When the employee works for 7 minutes and 29 seconds, their time is rounded down. When they work 7 minutes and 30 seconds or more, it is rounded up. 

This practice is supposed to balance out the employee’s hourly pay, but it doesn’t always work out that way.

Is Timesheet Rounding Legal?

The short answer to this is, yes. 

But, even the most organized companies can end up on the wrong end of a lawsuit if they don’t use proper rounding practices. 

If your company always rounds down, your employees will receive inadequate pay for the hours they worked. This is a clear violation of the FLSA (and likely local/state compensation requirements as well). 

Inaccurate rounding can also end up in workers not receiving the correct amount of overtime pay. This was alleged in a class-action lawsuit against retail giant Amazon.com. 

Although the case was dismissed, the time and resources spent in fighting the lawsuit were likely quite large. 

As long as the timesheet rounding does not favor the employer but is fair and consistent, most employers will be okay. The U.S. Department of Labor suggests employers round in 15-minute increments. They explain that always rounding down can cause a violation of the FLSA minimum wage and overtime requirements.

The DOL gives three basic rules:

1. Timesheet rounding must be either neutral or in favor of employees. It cannot be used to benefit the employer.

1. Round employees’ work hours in 15-minute increments, the maximum allowed by the FLSA. 

1. Employee time from one to seven minutes should be rounded down, and employee time from eight to 14 minutes must be rounded up. This will help prevent a minimum wage or overtime violation.

Why Do Employers Round Timesheets?

The most obvious reason employers use rounding is convenience. Doing so also saves time in administrative duties. 

If payroll personnel round timesheets, it makes calculating payroll simpler and, thus, quicker. It also reduces the chances of inaccurate calculations. 

Employees are also able to approve and sign off on their timesheets more easily. 

Rounding timesheets also gives employees a break when it comes to clocking in late by a few minutes. We don’t know what happens during our employees’ commutes and sometimes clocking in late is not intentional. 

Maybe there was an accident that slowed their drive time or their train was running late. These are things beyond an employee’s control and rounding hours gives them a few extra minutes of time. When employees are not penalized for situations or circumstances that cause them to be late, they are sure to appreciate it. 

Rounding can also protect organizations from paying excessive overtime. If employees clock out a few minutes late, rounding will clock them out at the time they were supposed to clock out. This prevents their hours from accumulating and requiring you to pay overtime.

What Are the Consequences of Improper Timesheet Rounding?

Potential consequences go beyond just the cost of paying too much for work not completed. 

According to experts, wage and hour lawsuits are among the most common brought against employers. More importantly, the courts usually rule in favor of employees.

These lawsuits can require employers to pay “damages for unpaid overtime or minimum wages, as well as liquidated damages equal to the amount of unpaid overtime or minimum wages.”

Seyfarth’s 2019 Workplace Class Action Litigation Report found that 81 percent of wage and hour lawsuits were granted to the employees. These lawsuits cost companies $449 million; more than double from $253 million in 2018. 

On top of the cost of paying damages, companies can be crippled by the costs of litigation, time lost from work, and the disruption to their organization.

Time clock rounding also makes it difficult for employers to track real-time data which is increasingly important in today’s global workforce. Not to mention, inaccurate records don't help you prepare for future job costs. 

Employees are more often permitted to work remotely, either full- or part-time. This means many companies depend on the accurate and honest time-reporting of their employees.

Aside from the risk of human error, there is also the potential for abuse. When employees understand they can get to work late and leave early without a penalty, they can abuse it. Naturally, these costs add up. 

There are also field workers whose jobs are not behind a desk and monitoring the time they are actually working is difficult. Rounding the hours of remote or field workers, or workers who travel, leaves your company vulnerable to time theft.

Such employees can take advantage of timesheet rounding by clocking in late, and clocking out early. The amount of revenue your company loses depends on several factors:

• Number of employees 
• Hourly rate 
• Shifts per week 
• Number of times clocked in/out

For example, a company with 10 employees at a pay rate of $10 per hour working five shifts per week (if each employee clocks in and out for lunch breaks), is losing anywhere from $26,000 to $39,000 per year. 

Rounding is supposed to be fair between the employee and employer but companies that use rounding, run the risk of either over- or under-paying their employees. 

In the first case, they are losing money by paying for unworked hours; in the latter, they are non-compliant with federal law.

How to Stop Time Rounding

Of course, the best way to edge out of time clock rounding is to adopt the best technology available. Time-tracking solutions come with ways to ensure your employees are working when and where they say they are. 

Biometrics like facial recognition eliminates buddy punching. The precision that comes with using time-tracking technology means you will not over- or under-pay your employees because their hours worked will be accurately recorded. 

The American Payroll Association found that three key benefits to having this type of technology are:

1. Improved Employee Experience

Employees who are clear about what to expect on their next paychecks are more inclined to stay with their employers.

2. Increased Time to Tackle New Projects

Companies who invest in payroll and time-tracking technology free up time for new projects. They also overachieve their revenue targets by a reported seven percent. 

3. Ensured Compliance With Federal Law

Labor laws are always shifting. With a time-tracking solution, companies of any size are able to track, record, and report hours worked without fear of non-compliance.

The U.S. Department of Labor’s Wage and Hour Division issued an opinion letter to a company that reached out asking if their rounding practices were in compliance with the FLSA. 

The non-profit company described a payroll software that logs employees’ hours and rounds the time “into a numerical figure in decimal form extended out to six decimal points.” 

This example shows how precise time-tracking solutions can be. Imagine how much revenue you can save with this kind of time-tracking accuracy.

However, technology can quickly become outdated. That's why it's important to go with an experienced company that offers the type of payroll and time-tracking solutions that are best suited for your organization.

How ClockShark Helps Businesses Eliminate Time Rounding and Increase Profitability

According to research, digital productivity tools for employees - such as ClockShark's Mobile Time-Tracking App - can boost profitability by as much as 30 percent. 

ClockShark helps companies not just know where their employees are on the job, but what they are doing and for how long. This improves productivity and helps streamline processes like payroll and scheduling. 

ClockShark’s dynamic cloud-based solution allows you to integrate your time-tracking with other features that simplify processes like payroll, invoicing, scheduling, and billing. It is particularly helpful for companies that have field workers or employees who travel during work.

With ClockShark, your company saves money in administrative costs because everything is automated and readily available.

Less time spent reviewing and double- or triple-checking timesheets, means more time spent on other important tasks. Business owners and managers are then better able to understand the needs of their employees and areas that can use some improvement. 

ClockShark has a variety of features that help today’s businesses stay FLSA-compliant.

 Mobile time-tracking allows companies to accurately and reliably keep track of where employees are and what they are doing. Being able to switch tasks not only ensures employees are paid accurately but also allows you to more precisely gauge job costs.

Facial Recognition with Kiosk Time Clock provides further protection against buddy punching and increases the accuracy of time-keeping records.

Are your employees at work when they say they are or are they visiting home? GPS Tracking prevents this kind of fraud and eliminates the use of timesheet rounding.

Customer Success Story - Extreme Janitorial

Abel Casanga took his window-washing jobs to the next level when he founded Extreme Janitorial in 2004. Based in the San Francisco Bay area, this full-service janitorial company employs dozens of professionals to provide services to such facilities as: 

• Offices
• Retail stores
• Schools
• Manufacturing/industrial facilities
• Fitness Clubs
• Veterinary clinics and hospitals

Naturally, their workforce includes a lot of field workers and, according to Co-founder Mery Casagna, the rapid growth of their customer base meant hiring even more professionals.

The challenge, however, was employee accountability. There was no accurate way to tell if employees were at the jobs they were supposed to be at, or if they were at the job site for as long as they were supposed to be. 

Since Extreme Janitorial prides itself on timely work and punctuality, it was an important issue to resolve. Their old system of time-keeping and employee tracking was not working for them, so they set out to find a solution.

After discovering ClockShark, the company signed up and was happy with how quickly and easily their employees were set up. ClockShark made utilizing their services easy with quality customer service and guidance. 

The employees love that they can take photos and show their supervisors the work that has been done. The supervisors love that they can see where every employee is at any given time, in real-time, and see when they clock in and out. 

Integrating ClockShark with Quickbooks, Extreme Janitorial saves time and ensures employees receive accurate pay for their exact hours worked, on time. They are able to complete payroll in “just minutes.” 

ClockShark has helped elevate this services company, so they can provide accurate pay to their employees and provide even more exemplary service to their clients. 

“ClockShark has given me the peace of mind I needed to carry Extreme Janitorial to the next level.” --Abel Casanga