Keeping accurate records of the precise time that employees work and paying them accordingly is fair to both a company and its employees. The Fair Labor Standards Act mandates that all nonexempt employees be paid for all of their time worked and issues strict rules governing overtime pay. Dividing hours when calculating payroll ensures accurate paychecks and compliance with the law.
Whether you employ time clocks to track employee hours or paper time sheets, it's unavoidable that employees will sometimes record hours that start or end before a scheduled shift. To compensate, you can use increments of time when calculating payroll. Although 15 minutes is a common increment, both 5-minute and 1/10-hour increments are also used. You base total hours on the nearest time increment you choose. For example, if an employee clocks in at 8:10 a.m. for a shift scheduled to start at 8:00 a.m., you can deduct 15 minutes from the time worked for the day if you use a 15-minute increment.
The FLSA allows you to round time to the nearest increment you've chosen for your payroll calculations. For example, if you choose 5-minute increments and an employee clocks in at 8:02 a.m. for a shift that starts at 8:00 a.m., you must calculate pay as if the employee started at 8:00 a.m. If an employee clocks in at 8:00 a.m. and clocks out at 5:04 p.m., and you've chosen to pay to the nearest one-tenth of an hour, you must record 8.1 hours for the day.
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