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How Rounding Works in Payroll and Overtime

Clock with fifteen minutes blocked

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.

First of all, it’s important to understand how rounding is supposed to work in order to be compliant with the US Dept. of Labor. 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.

Reduces Overtime

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.

Automated Rounding

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.

We’ll do your timesheet accurately for you.

15 Responses

  1. This is what bothers me example 5:11 punch in 14:04 punch out should I give the employee 9 hours or 8 3/4? Thanks for your input.

    1. If you’re using rounding in 15 minute intervals, then this would be like clocking in at 5:15 and clocking out at 14:00.

  2. In the example mentioned above, the employee then loses four minutes of time on each end. Isn’t that in the employer’s favor?

    1. I’m not sure I follow you. When the employee clocks out at 8 minutes after the hour, the employee’s time will register as a clock out at 15 minutes after the hour, hence, in the employee’s favor. Are you referring to a different example?

  3. So, if someone works 40 hours and 16 minutes, does that mean yes overtime pay or No? If yes, then would that count as a quarter?

    What does the 8 minutes gave to do with everything?

  4. I don’t think this is quite right.
    It’s not a “grace period so that employees don’t get docked time when they are a few minutes late for work”.
    It’s so the employee can be at there assigned station at the appropriate time.

    I have to be at work at 8:30, if i clock in at 8:31, I am pointed for being late.

    I clock in between 8:23 and 8:30. If I clock in at 8:30 though, I am not where I am supposed to be at 8:30, reporting to my manager. I clock in a few minutes early and it gives me time to get to my asigned area for work. They round the clock and my time startes at 8:30. I get off work at 5:00, I leave the work area at 5, then it takes me a couple of minutes to get to the clock and clock out. I have 7 minutes to get there and clock out, because of the rounding.

    The issue with this system is what recently happened to me. I get called in to work to fix a technical issue, it took 10 minutes to fix, I clock in and the time got rounded up, I clocked out and the time got rounded down. It rounded my time to 0 minutes of work!

    1. Thanks for sharing. There are more ways than one in which the rounding could fit into a specific business’s needs.

      And you are right about the issue with rounding! It’s not always fair. We don’t recommend it.

  5. So I work for an agency and Im an RN. The hospital keeps track of actual minutes I work and doesnt round up or down so I know exactly how long Ive worked. However, When I turn in my time, the agency rounds up and down to quarter hour. This usually benefits the employer, not me.

    Example: Sunday night I worked 14.90 hours and they rounded it down to 14.75.
    Monday night I worked 15.10 hours and it got rounded down to 14.75 . So just in two nights I worked, I lost 35 minutes and I usually work overtime, so this is affecting my overtime hours, and therefore my pay.. it usually is equivalent to 31.00 a week they are not paying me for the actual time I worked, and over a contract period of 13 weeks, this is going to be about 400.00 they are shorting me.

    1. Hi Donna,

      Not everyone does their rounding the same way. I’d find out how exactly they do the rounding, which should work in both directions if it’s true rounding, and then you can make sure it works in your favor. The idea with rounding in general is that it’s okay if it works in both party’s favor equally.

  6. If I clock in 30 minutes late, or if I happen to leave 30 minutes early. Can my employer take 1 full hour from my pay (instead of a 7.5 hour day, he rounds it to a 7 hour day)?

    1. The normal rule goes as follows: If an employee punches the clock 7 minutes after the quarter of an hour, it must be rounded down, and when an employee punches the clock 8 minutes after the quarter hour, it must be rounded up. Employers cannot round hours in their favor, meaning that they can’t adjust rounding to underpay you.

  7. can an employer enforce the rounding rules differently for different hourly employees, say enforce for a clerk and not enforce for a lead?

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