6 Must-Know Time Clock Rules for Hourly Employees
Written By: Lucy C.
Last Updated October 26, 2026
Timekeeping involves much more than simply recording employees’ clock-in and clock-out times. You need to know how to handle breaks, overtime, and work done outside of scheduled hours, as well as how to store all this information so you remain compliant.
This becomes even more complicated when state rules differ from federal laws.
In this guide, we walk you through six key time clock rules, explain important differences between some state laws, and highlight common timekeeping mistakes to avoid.
We also share expert insights and practical ways to make accurate timekeeping easier to manage.
What are time clocks and time clock rules?
A time clock is any device you use to record when your employees start and end work. These can be physical or digital and are also known as punch clocks.
You must follow certain state and federal laws (particularly the Fair Labor Standards Act, or FLSA) when using time clocks. These laws don’t mandate a particular type of time clock, but they do require you to maintain accurate records of employees’ hours. For this, you can use physical punch clocks, paper timesheets, spreadsheets, or time tracking software.
Hourly vs. salaried employees
Time tracking requirements can apply to both hourly and salaried employees; the latter aren’t automatically exempt.
Whether an employee is exempt or non-exempt depends on the legal tests outlined in the Department of Labor’s Fact Sheet 17G, not on their job title or how they’re paid.
All non-exempt employees, including some salaried workers, are entitled to overtime pay when they work more than 40 hours in a workweek.
6 must-know time clock rules and labor laws
Now that we’ve covered the basics, here are the most important time clock rules you should know. Note that for all of these, federal and state laws may vary, and your internal policy should meet all applicable requirements.
1. Time clock rounding
Time clock rounding is when you adjust an employee’s recorded clock-in or clock-out time to a set increment by rounding it up or down. While it’s optional, many businesses round time data as it helps standardize time records and simplify payroll.
Employers commonly round to the nearest five minutes, six minutes (one-tenth of an hour), or quarter hour. But under federal laws, they can do it only as long as employees are paid for all the time they actually work. For example, if an employee’s time is consistently being rounded down, they’d end up being paid for less time than they’ve put in.
However, even though federal laws allow rounding, state laws may not. Before introducing time clock rounding as a policy, check applicable requirements in your state.
Source: 29 CFR 785.48
2. Who needs to track hours
While you can ask employees to record their own hours using a time clock or timekeeping system, under the FLSA, it’s the employer’s responsibility to ensure full records are maintained for each covered, non-exempt worker. Along with other details, you must store:
- Hours worked each workday
- Total hours worked each workweek
- Pay rate
- Total overtime earnings for the pay period
- Total wages paid each pay period
- Date of payment and pay period covered by payment
Source: DOL Fact Sheet 21
3. The 7-minute rule
To stay compliant with federal laws, many employers use the 7-minute rule when rounding employees’ clock-in and clock-out times to the nearest quarter hour. This lets you easily split a 15-minute interval in half.
So if someone’s punching in or out in the first 7.5 minutes of a 15-minute interval, round it down, and if they’re clocking in or out in the next 7.5 minutes, round it up.
For example, if you’re tracking time in whole minutes:
- For someone logging in between 8 a.m. and 8:07 a.m., round their punch-in time to 8:00.
- For someone logging in between 8:08 and 8:15 a.m., round it to 8:15.
However you round, apply the same method to both start and end times, and ensure it doesn’t result in employees being paid for less time than they’ve worked. Your policy should make it clear that the 7-minute rule isn’t permission for employees to arrive seven minutes late.
Source: 29 CFR 785.48
4. On-call and off-the-clock work
If you have employees working on call, here’s what you need to know about tracking time:
- If they need to stay on the premises when on call, it’s generally classified as work time.
- If they can leave the premises, whether it’s classed as work time generally depends on the restrictions they face during that time — specifically, whether they can use that time for themselves. If they can be at home, or simply notify the employer about where they can be reached, they’re considered “not working while on call.”
Off-the-clock work is any work an employee does without receiving compensation. Off-the-clock work is generally illegal and violates the FLSA. Any work you permit, or know about, must be recorded and paid, including work performed remotely. This means that if you send a work email to an employee after hours and they respond, that time spent is compensable, even if it’s just five minutes.
Source: DOL Fact Sheet 22
5. Overtime rules
Covered, nonexempt employees generally qualify for overtime under the FLSA if they work more than 40 hours in a workweek. For any extra hours, employers must pay workers at least 1.5 times their regular rate of pay. Some states impose additional requirements.
A workweek is a fixed, recurring period of 168 hours (seven consecutive 24-hour periods). You can’t average out employees’ hours across multiple weeks to avoid overtime.
Employees must be paid overtime for any work that you permit or know about — even if your internal policy requires approval before overtime is worked but the employee didn’t get approval.
Source: DOL overtime guidance
6. Meal and rest breaks
While the FLSA doesn’t generally require employers to offer meal or rest breaks, it does provide guidance regarding how these breaks must be counted when paying for hours worked:
- Rest periods, usually 5 to 20 minutes, must count as paid working time.
- A bona fide meal period, typically of at least 30 minutes, can be recorded as unpaid, but only when the employee is completely relieved of their duties.
Depending on where your business operates, you may need to offer meal and/or rest breaks to meet applicable state laws.
Sources: DOL break guidance and Fact Sheet 22
Common time tracking mistakes to avoid
When creating and implementing your internal time tracking policy, keep an eye out for these common mistakes.
Misclassifying salaried employees
Salaried employees aren’t automatically exempt from overtime pay. Some roles, like doctors, lawyers, and business executives, are usually exempt, while workers in retail, construction, and restaurant work may need to be paid overtime even if they’re salaried.
Recording scheduled hours, not actual hours worked
Record actual start and finish times, not simply scheduled hours. This could include time spent traveling to customer sites or work completed at home.
Not counting work done before or after scheduled hours
Employers need to track and pay employees for work performed before or after they clock in or clock out if they permit or know about it. Businesses where employees frequently work at job sites or customer locations are especially at risk of this mistake, shares Russell Manry, Senior Manager of Customer Support at Service Fusion:
“In the trades, the time that slips through the cracks usually happens around the jobs rather than on them. The biggest examples we see are techs arriving at the shop early to load the truck, pick up work orders, or wait for dispatch before heading to their first appointment; mid-day runs to the supply house for parts; driving time between job sites; and end-of-day admin like finishing job notes, uploading photos, or answering customer texts after they’ve clocked out.”
Automatically deducting pay for rest and meal periods
“If an employee is required or permitted to perform work during a period that was supposed to be an unpaid break, that work time can’t disappear from the time record,” says Anthony Michel, Employment Law Attorney at Michel | Sinor.
“Employers should have a clear process for employees to report missed, shortened, or interrupted breaks and ensure that any compensable time worked is accurately recorded and paid.”
Sometimes, employees may deliberately falsify data and take breaks without logging them. It’s the employer’s responsibility to ensure all work time is accurately logged.
Using standard rounding and overtime calculations
Automatic rounding can simplify payroll, but if you aren’t careful, it can lead to employees losing compensable time, explains Michel.
“A rounding policy can appear neutral because the same rule is applied to everyone, but if an employee regularly clocks in a few minutes early and the employer’s rounding system repeatedly rounds that time down, those small differences can add up to a significant amount of unpaid work over time.”
Your timekeeping rules must meet all applicable federal, state, and local requirements. Edward Hones, Owner of Hones Law, advises how to proceed in case of conflicts between laws.
“Employers often default to federal FLSA standards without realizing state law frequently provides greater protection, daily overtime thresholds instead of just weekly, different exemption tests, or stricter meal and rest break requirements. When federal and state law conflict, the employee is entitled to whichever standard is more favorable to them.”
Failing to retain complete, accessible records
Retain complete time records for the required retention period and keep them easily accessible, recommends JoAnne Loftus, owner at Archival Designs.
“Disputes often surface weeks later, and no one can recall exactly what happened on that Tuesday in March. Recording the correction on the time card with the employee’s signature helped us to settle all questions, including ensuring the employee’s best interests were protected.”
What happens if an employee forgets to clock in?
If an employee misses a punch, you’re still obligated to pay for the work performed. As far as possible, flag the missing entry before payroll closes and ask the employee to confirm their actual times in writing, along with supporting records such as GPS check-ins or dispatch logs. When updating the entry, document the reason for the change.
Can an employer change an employee’s time card?
Yes, but only if you need to correct an employee’s time card, such as when they forget to clock out or deliberately recorded inaccurate hours. Corrections must reflect actual working time and must not erase compensable work. Note that an early or late punch doesn’t automatically imply intentional falsification.
How long must employers keep time cards and payroll records?
Under the FLSA, employers must retain payroll records for at least three years and supporting wage calculation records, including time cards, for two years. State laws may require you to keep records for longer. Keep these records easily accessible so you can quickly find them in the event of wage disputes.
Stay compliant with time clock rules
Accurate timekeeping starts with recording the hours actually worked. That includes understanding when rounding is allowed, calculating overtime pay correctly, tracking breaks as needed, and keeping necessary records.
State laws can add extra requirements around overtime, meal periods, and rest breaks. Your timekeeping policy should account for the laws that apply to your business.
Contributors
- Russell Manry, Senior Manager, Customer Support, Service Fusion
- JoAnne Loftus, President and Owner, Archival Designs
- Anthony Michel, Attorney / Employment Law Attorney, Michel | Sinor
- Edward Hones, Owner, Hones Law
