Whether you call it “rounding” or the “7/8ths rule” or have no word to describe it at all, rounding may be of central concern for employers, both in day-to-day operations and in litigation. Rounding is the practice of adjusting time clock punch times within specific bounds. For example, if your employees punch in for work at 7:57, 8:01, and 8:02, your rounding rules may treat all of those punches as occurring at 8:00 a.m. for payroll purposes.
This practice of rounding employees’ time up or down in increments is permissible under the Fair Labor Standards Act (FLSA) regulations. Importantly, though, the FLSA does not require employers to round time! If your system of recording and calculating time worked permits you to track time down to the exact minute, then do it. Paying for actual time worked is always the best practice.
However, for those of you that can’t easily track time down to the exact minute, Section 785.48 of the FLSA’s regulations provides that employers may utilize time clocks that round up or down in increments of up to a quarter hour so long as the clock rounds both ways, occasionally in the company’s favor and occasionally benefitting employees. 29 C.F.R. §785.48(b). Thus, for example, an employee who works a total of 8 hours and 5 minutes would be paid for 8.1 hours, and an employee who works 8 hours and 2 minutes would be paid for 8.0 hours. In other systems, an employee’s starting and ending times are rounded to the nearest 1/10th of an hour. Thus, an employee who clocks in at 7:57 would have her start time rounded up to 8:00, and an employee who starts at 8:02 would have her start time rounded back to 8:00.
Of course, employees who voluntarily clock in and hang out drinking coffee before their regular starting times or who remain after their regular end times chatting with coworkers before clocking out do not have to be paid for those extra periods provided that they do not actually engage in any work. 29 C.F.R. §785.48(a). Of course, if you choose not to pay for those extra periods, this becomes a costly, fact-intensive issue if a claim is made by those employees. Instead, a better approach is to pay for the time recorded and counsel your employees on the proper procedures for clocking in or out.
If you do use rounding, part of your periodic internal and external wage and hour audits should include at least a sampling of time records that you maintain to determine whether it appears that the rounding did occasionally benefit both the company and the employees or, better yet, discussing the algorithm used by any automated time system to determine the rounding method used.