To calculate payroll time, take each employee’s raw clock-in and clock-out records, round them to a consistent increment federal law allows, convert the leftover minutes into decimal hours, subtract any unpaid breaks, and multiply the result by the pay rate, adding overtime for hours above 40 in the workweek. The rules below come from the Fair Labor Standards Act and cover non-exempt hourly workers, which is nearly everyone whose time you’d be tracking punch-by-punch in the first place.
Start With Accurate Punches and Clean Break Data
Before any math happens, the time records need to show the actual start and end of every shift. Digital punch systems, badge readers, and handwritten cards all qualify, so long as they capture the real times before any rounding is applied.
Then separate paid time from unpaid time. Short rest breaks of roughly 5 to 20 minutes count as compensable work time and cannot be subtracted from an employee’s hours.1eCFR. 29 CFR 785.18 – Rest Meal periods of 30 minutes or longer are generally unpaid, but only when the employee is completely relieved of duty. Anyone required to stay at a workstation or cover phones during lunch is still on the clock.2eCFR. 29 CFR 785.19 – Meal
Two other categories catch people out. An employee kept on the premises or held so close they can’t use the time freely is working while on call, and those minutes count.3eCFR. 29 CFR 785.17 – On-Call Time Travel between job sites during the workday also counts; the ordinary morning and evening commute does not.4U.S. Department of Labor. Fact Sheet 22 – Hours Worked Under the Fair Labor Standards Act If your crew moves between locations mid-shift, log that transit time before rounding.
Round the Punches to a Legal Increment
Federal regulations let employers round clock-in and clock-out times to the nearest 5 minutes, the nearest one-tenth of an hour (6 minutes), or the nearest quarter-hour (15 minutes).5eCFR. 29 CFR 785.48 – Use of Time Clocks Ten-minute rounding is not on that list, despite a common mix-up: one-tenth of an hour is six minutes, not ten.
Rounding is only legal if, over time, it doesn’t systematically shortchange employees. A system that always rounds start times up and end times down will eventually fail that test and produce back-pay exposure.5eCFR. 29 CFR 785.48 – Use of Time Clocks Pick one increment and apply it uniformly to every employee and every punch.
Quarter-Hour Rounding Worked Out
Quarter-hour rounding is the most common choice. Within any 15-minute window, punches 1 to 7 minutes past the quarter round down; punches 8 to 14 minutes past round up. For a shift scheduled to start at 8:00 a.m.:
- Clock-in at 7:53 (7 minutes before 8:00) rounds to 8:00.
- Clock-in at 7:51 (9 minutes before 8:00) rounds to 7:45.
- Clock-out at 5:06 rounds to 5:00.
- Clock-out at 5:09 rounds to 5:15.
Apply the same logic to lunch punches and to every shift in the pay period.
Convert the Minutes to Decimal Hours
Once the timestamps are rounded, subtract start from end, take out unpaid breaks, and convert any leftover minutes to decimal form by dividing by 60. Payroll math needs decimals so you can multiply cleanly by a dollar wage rate.
- 15 minutes ÷ 60 = 0.25
- 30 minutes ÷ 60 = 0.50
- 45 minutes ÷ 60 = 0.75
- 6 minutes ÷ 60 = 0.10
- 12 minutes ÷ 60 = 0.20
Quarter-hour rounding will only ever produce 0.00, 0.25, 0.50, or 0.75 in the minutes column. Six-minute rounding gives you 0.00, 0.10, 0.20, 0.30, 0.40, 0.50, 0.60, 0.70, 0.80, or 0.90. A shift of 8 hours and 15 minutes is 8.25 hours.
Skipping this step is the classic payroll error. At $20 per hour, 8 hours and 30 minutes pays $170.00 (8.50 × $20). Punching “8.30” into the calculator instead of 8.50 costs the employee $4.00 every shift, and those mistakes compound over a year.
Multiply by the Pay Rate and Apply Overtime
Non-exempt employees must receive one and one-half times their regular hourly rate for every hour worked beyond 40 in a workweek.6U.S. Department of Labor. Fact Sheet 23 – Overtime Pay Requirements of the FLSA A workweek is a fixed, recurring period of 168 consecutive hours. The employer chooses the start day and stays with it.
A full example with quarter-hour rounding and a 30-minute unpaid lunch each day:
- Monday: In 7:58, Out 5:04 → rounds to 8:00–5:00, minus 0.50 lunch = 8.50 hours.
- Tuesday: In 7:52, Out 5:11 → rounds to 7:45–5:15, minus 0.50 = 9.00 hours.
- Wednesday: In 8:03, Out 5:06 → 8:00–5:00, minus 0.50 = 8.50 hours.
- Thursday: In 7:55, Out 5:22 → 8:00–5:30, minus 0.50 = 9.00 hours.
- Friday: In 8:06, Out 5:08 → 8:00–5:15, minus 0.50 = 8.75 hours.
Weekly total: 43.75 hours. At $24.00 per hour, that produces:
- Regular pay: 40.00 × $24.00 = $960.00
- Overtime pay: 3.75 × $36.00 = $135.00
- Gross earnings: $1,095.00
A handful of states also require overtime after 8 hours in a single day, regardless of the weekly total. If your workforce spans multiple states, check for a daily overtime trigger before you close out the pay period.
Keep the Records
Federal law requires employers to keep specific payroll data for every non-exempt employee: hours worked each day, total hours each workweek, the regular hourly rate, total straight-time and overtime earnings, and every addition to or deduction from wages.7U.S. Department of Labor. Fact Sheet 21 – Recordkeeping Requirements Under the Fair Labor Standards Act
Payroll records with wages and hours must be kept at least three years.8eCFR. 29 CFR Part 516 – Records to Be Kept by Employers Supporting documents like time cards, work schedules, and wage rate tables must be preserved at least two years.7U.S. Department of Labor. Fact Sheet 21 – Recordkeeping Requirements Under the Fair Labor Standards Act There’s no required format. Paper logs, spreadsheets, and digital timekeeping systems all satisfy the rule, so long as the data is accessible and complete. If an audit arrives three years after a pay period and you can’t produce the records, the employee’s version of events tends to win.