Why do automatic payroll systems round up/down to the nearest half or quarter hour?

Charles Read, CPA, USTCP, IRSAC
Charles Read, CPA, USTCP, IRSAC
President/CEO GetPayroll
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Here’s the easiest answer: because you, the boss, sets them that way! In all seriousness, automatic systems CAN normally track time to the second. 

Why do automatic payroll systems round up or down to the nearest half or quarter hourAutomatic Payroll Systems

Automatic payroll systems can track time to the second. They normally round to sometimes higher just for sake of ease. As an employer, it’s best to track employee hours as accurately as possible because you may run the risk of underpayment. If you track hours on the 15-minute increments, and you consistently round down (1-7 minutes) then you may underpay them overtime.

Time used to be reported in bigger increments say 5 minutes or a quarter of an hour for ease of calculation.  Some systems and companies use six minutes intervals because that is a tenth of an hour. Makes it really easy to add and subtract daily time and to calculate pay. 

The U.S. Department of Labor has rules set on how to track time which similarly applies to automatic payroll systems. Here’s the information from their website.

Rounding Hours Worked

Some employers track employee hours worked in 15 minute increments, and the FLSA allows an employer to round employee time to the nearest quarter hour. However, an employer may violate the FLSA minimum wage and overtime pay requirements if the employer always rounds down. Employee time from 1 to 7 minutes may be rounded down, and 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. See Regulations 29 CFR 785.48(b).

Example #1:

An intermediate care facility docks employees by a full quarter hour (15 minutes) when they start work more than seven minutes after the start of their scheduled shift. Does this practice comply with the FLSA requirements? Yes, as long as the employees’ time is rounded up a full quarter hour when the employee starts working from 8 to 14 minutes before their shift or if the employee works from 8 to 14 minutes beyond the scheduled end of their shift.

Example #2:

An employee’s schedule is 7 a.m. to 3:30 p.m. with a thirty minute unpaid lunch break. The employee receives overtime compensation after 40 hours in a workweek. The employee clocks in 10 minutes early every day and clocks out 7 minutes late each day. The employer follows the standard rounding rules. Is the employee entitled to overtime compensation? Yes. If the employer rounds back a quarter hour each morning to 6:45 a.m. and rounds back each evening to 3:30 p.m., the employee will show a total of 41.25 hours worked during that workweek. The employee will be entitled to additional overtime compensation for the 1.25 hours over 40.

Example #3:

An employer only records and pays for time if employees work in full 15 minute increments. An employee paid $10 per hour and scheduled to work 8 hours a day Monday through Friday, for a total of 40 hours a week. The employee always clocks out 12 minutes after the end of her shift. The employees pay is $400 per week. Does this comply with the FLSA? No, the employer has violated the overtime requirements. The employee worked an hour each week (12 minutes times 5) that was not compensated. The employer has not violated the minimum wage requirement because the employee was paid $9.75 per hour ($400 divided by 41 hours). Even more, the employer owes the employee for one hour of overtime each week.

If you have a good time clock system (hint, hint, we have one), and a good payroll provider (like us!) these are things you won’t have to worry about. We’ll always keep you on track.

Have questions? Give us a call at 972-353-0000. We’ll be glad to help.

 

 

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