Understanding Time Clock Rules for Hourly Employees

understanding time clock rules for hourly employees

Exempt vs Non-Exempt Employees

Defining Exempt and Non-Exempt Employees
Exempt employees are salaried employees who receive a fixed amount that is not dependent on the number of hours they spend working.

Exempt employees typically occupy higher-level positions in the organizations in which they belong. Outside sales personnel, professionals, and administrators are typically exempt employees.

What exactly are exempt employees exempted from? Here's the shortlist-

  • Minimum wage
  • Overtime regulations
Non-Exempt employees get paid depending on the total hours they have spent working. Unlike exempt employees, non-exempt employees paid time is covered by the Fair Labor Standards Act (FLSA).

Factors That Determine if an Employee is Non-Exempt
Here are the factors to take into account when determining if an employee is exempt or non-exempt-

  • Type of work
  • Level of earnings
  • Responsibilities and job duties
Specific states might have additional criteria for determining non-exempt status.

Differences Between Exempt and Non-Exempt Employees
  • Non-exempt employees are entitled to overtime pay while exempt employees are not. Under federal law, non-exempt employees must be paid overtime at a rate of 1.5 times the regular pay if they work more than 40 hours a week. Specific states might have additional overtime requirements
  • Exempt employees typically work more than 40 hours a week. In place of the requirement to fulfill a certain number of hours, they are typically assessed based on whether they meet key performance indicators (KPIs) attached to their role in the company.
  • Non-Exempt employees must be paid the federal minimum wage through a salary or hourly wage. Exempt employees must be paid a minimum income in the form of a salary. For example, $455 per week or $23,660 per year.
Similarities Between Exempt and Non-Exempt Employees
  • Both kinds of employees are typically subjected to time tracking but with an important difference. Non-exempt employees require more precise time tracking with every hour and minute being monitored and recorded so that overtime hours can be calculated accurately. Exempt employees have less stringent tracking; basically, employers just want to make sure they clocked in for work for the day.
  • Both exempt and non-exempt employees are taxed using the same tax bracket. Whether the pay is a salary or hourly it is all considered income and the appropriate tax brackets apply.
  • Laws that protect workers are applicable to both exempt and non-exempt employees. These would be child labor laws, workplace safety laws, medical leave, equal opportunity laws, and others. Legislators do not delineate between exempt and non-exempt workers when creating these laws.
  • In large part, unemployment benefits apply to both non-exempt and exempt workers. Details may vary from state to state.

What Are Time Clock Rules for Hourly Employees?

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Federal, state, and local wage laws and regulations mean that accurate up-to-the-minute record of the hours applicable to non-exempt employees must be maintained.

Let's look at time clock rules and best practices that are used for hourly employees.

Software-Based Time and Attendance Systems
The alternative to not using an automated time and attendance system is to go with the traditional punch card or the even older logbook system.

These are cheaper solutions, certainly but what if the logbook or punchcards get lost or damaged? Also, employees will certainly not consider it a plus if a business still uses these antiquated time clock solutions.

With software-based time and attendance systems employees have a variety of ways to clock in and out-

  • Biometric clocking - typically involving fingerprint scanners
  • Proximity clocking - through swipe or access cards, key fobs, or IDs
  • PC Clocking - employees can log via their own computers
  • Mobile phone clocking - clocking through an app or SMS
The data may be stored in an on-premise system or on the cloud with integration to payroll and reporting systems.

Here are features to look for when choosing a software-based time and attendance system-

  • Accurate timekeeping - Up to the minute, if not the second
  • Ease of Use - Employee facing interfaces should be intuitive
  • Integration capabilities with other systems - Typically to payroll and accounting systems
  • Alerts - Look for email and SMS notifications
  • Audit trails - Allows for historical records
  • Ease of customizability - A non-programmer should be able to make simple configuration changes.
The system would most likely be on-premise or cloud-based. An on-premise option will require an on-site server and a one-time payment. A cloud-based system will have no server requirements and will involve a subscription-based payment.

Rounding and the 7-Minute Rule
Rounding means adjusting the time records of employees based on an increment. For example, considering a 15-minute increment, if an employee clocks out at 5-17 the time can be rounded down to 5-15. Alternatively, if an employee clocks out at 5-26, the time can be rounded up to 5-30. Whichever is the nearest 15-minute increment.

Although the FLSA does allow employers to round the number of minutes recorded, before implementing rounding it would be good to check applicable laws; if only to check that the preferred time increment is allowed.

Related to this is the concept of the 7-Minute Rule. This is applicable to 15-minute increments. Under the 7-Minute rule if an employee works 7 minutes but less than 8 minutes of the 15-minute increment the employer can round down the time.

If the employee works a full 8 minutes or more of the 15-minute increment, the time must be rounded up. The cutoff point here is 7 minutes and 59 seconds. The fact that seconds are relevant should be considered when choosing a time tracking system.

The Employee Handbooks and Non-Exempt Employee Prerogative
For non-exempt employees time is literally money and even as small a time increment as a second is important.

In line with this, it is only right to anticipate that employees will be very interested in the rules governing their timekeeping. Also, it is also right to anticipate that some employees might try to exploit the timekeeping system and to prepare accordingly.

In the spirit of good employee development and making sure employees know how their time is tracked and evaluated, time clock rules should be included in the handbook and the employee onboarding and training programs. Specifically, the following points should be clear-

  • Ways to clock in and out.
  • Allowed clock in and clock out time ranges
  • Increment used by the company.
  • 7-minute rule, if applicable
  • Penalty for tampering with the timekeeping system
  • A penalty of clocking in or out on behalf of colleagues and vice versa
  • Contingency if one forgets to clock in or clock out.
Employees should also be given the prerogative to check their recorded time data and raise any issues if needed before their wages are calculated.


  • Non-exempt employees are those employees who get paid based on the hours they work on the job.
  • Exempt employees are those who get a fixed salary regardless of the hours that they work.
  • Non-exempt employees are different from exempt employees because they are paid for overtime work for every hour beyond 40 hours a week they spend working.
  • Both kinds of employees are subject to the same tax and worker benefit laws.
  • Time clock rules for hourly employees include the adoption of software-based time and attendance systems, rounding of time records, and adequate employee orientation regarding timekeeping rules.