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 could possibly be 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 is meant to benefit the occasional late employee while rounding in the evening can benefit 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 DOL. 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
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.
Rounding can reduce a few minutes of 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.
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, it must be rounded down, and when an employee punches the clock 8 minutes after the quarter hour, it must be rounded up. Rounding at different intervals is fine but also must be done evenly and not in an employer’s favor.