The 7-minute rule is a guideline created by the Fair Labor Standards Act for employers to round employee time correctly for payroll. Time-rounding is actually fairly popular. According to recent studies, about 55% of employers round employee timesheets up and down for payroll purposes. People have reported that it makes their process a little easier because they can see an overview estimation of employee hours. It also prevents early clock-ins and simplifies their invoicing practices. Despite these benefits, there are also some drawbacks.
Let’s dive into how the 7-minute rule works:
What is the 7-Minute Rule?
The 7-minute rule, also known as the ⅞ rule, allows an employer to round employee time for payroll purposes. Under FLSA rules, employers can round employee time in 15-minute increments (or to the nearest quarter hour). Any time between 1-7 minutes may be rounded down, and any minutes between 8-14 may be rounded up. Employers may legally round employee time, as long as time is rounded correctly and adheres to FLSA regulations regarding overtime and minimum wage pay. In other words, an employer cannot round an employee’s time in order to avoid paying a worker overtime pay. However, if the employee earns at least minimum wage and earns overtime properly, time rounding is acceptable.
Here’s are some examples of how to calculate the 7-minute rule:
- If an employee clocks in at 8:05 am, the employer may round down that time to 8:00 am.
- An employee who clocks out at 4:57 pm can round their time up to 5:00 pm.
It’s not too complicated; however, time rounding can come with drawbacks, which is why many advise employers against it.
Why You Shouldn’t Round Time for Payroll
Although time rounding is beneficial, it doesn’t mean it’s necessarily a good idea to round employee time. The FLSA requires all employers to pay non-exempt employees for all hours they work, and they must adhere to minimum wage requirements and overtime calculations. (Check out this article for current minimum wage requirements in each state.) When you round time for payroll, you may inadvertently underpay or overpay employees, and this is why half of the employers in the U.S. avoid it.
Underpaying Employees
Overpaying employees isn’t a big legal issue because that really only hurts the employer. However, underpaying your employees can get you into a lot of trouble. If an employer doesn’t round time in the employee’s favor, the employer may wind up underpaying the employee. Remember, an employer must pay their workers for all hours that they work, including overtime. If the time rounding practice avoids giving employees overtime pay that they should have earned, it becomes an issue.
For example, let’s say that an employee clocked in at 7:56 a.m. and clocked out at 4:58 p.m. with an hour-long unpaid lunch break. This employee would have worked a total of 8.02 hours that day. You can use this easy-to-use free business calculator to see the decimal value of an employee’s time. If you rounded that employee’s timestamps, it would show that the employee clocked in at 8:00 a.m. and clocked out at 5:00 p.m. The employee would then have 8.0 hours for the day, rather than 8.02 hours for the day. The employee ideally should have earned 0.02 hours of overtime, and if that isn’t reflected correctly on the timesheet, you’d underpay the employee.
Ultimately, an employee must earn pay for all hours worked. Employees who aren’t compensated correctly may file a complaint with the Department of Labor’s Wage and Hour Division, which is never good news for an employer.
Time Rounding in Favor of the Employee is Okay!
You can round time if it’s in favor of the employee. This means that you can round an employee’s time if the time equals or exceeds the time they actually worked.
Using the same example from above of the employee who clocked in at 7:56 a.m. and clocked out at 4:58 p.m. with an hour-long unpaid lunch break. If you rounded that employee’s time to 7:55 a.m. and 5:00 p.m., the employee would have 8.05 hours on their timesheet. This is fine because it exceeds 8.02 hours and isn’t any less than the actual 8.02 hours they worked.
Summary
Time rounding isn’t necessarily illegal, but it can make payroll messy. In order to avoid accidentally underpaying employees, it’s wise to track employee time correctly and use their true clock in and clock out times. However, if you do round time, try to use an automated time tracking system that does it correctly so you don’t make mistakes. It’s the best way to avoid making payroll mistakes in the future.
Need to track employee time and expenses for payroll and billing, with optional time-rounding? Try Timesheets.com for free today!
