Small Business Time Clock Policy [+Free Template]

A clock in clock out policy sets the parameters your employees must follow when tracking their work hours. For your business to comply with the Fair Labor Standards Act (FLSA) and pay employees correctly, keeping records of your employees’ hours is crucial.

To help you get started, we’ve created a free timekeeping policy template, which details eligible employees, the procedures for recording and approving time, and disciplinary actions for employees who violate the policy. Use the template to create your small business clock in and out policy, but speak with legal counsel to ensure your policy complies with state and local regulations.

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What You Need to Know When Determining Your Clocking In and Out Policy:

The FLSA only requires that you keep a record of hours worked and does not mandate time clocks, time cards, or any other type of timekeeping.
The FLSA does require certain records be kept for each employee.
The best practice is to have hourly employees and nonexempt salaried employees track their hours.
Rounding hours to the quarter hour is allowed so long as it is done fairly and uniformly.

Eligible Employees

Having your employees clock in and clock out is good business practice for all employees. While the FLSA has no requirement that your small business record hours in a specific way, it does require that you keep track of hours worked for certain employees (more on the recordkeeping requirements later).

These employees include:

Hourly full time
Hourly part time
Nonexempt salaried

Hourly employees need to record time somehow for you to know how much to pay them. You may want to use paper time sheets for simplicity, but that can result in errors, both intentional and unintentional. Many assume that those paid a salary do not need to track their hours, but in some cases, they do.

There are two types of salaried employees for our discussion: exempt and nonexempt.

Under the FLSA, exempt employees are not eligible for overtime pay. To be exempt, an employee must make a minimum salary and meet other requirements.
Nonexempt employees are those who do not meet the requirements of an exempt employee. These workers are eligible to receive overtime pay, so their hours must be tracked so you know when to pay them overtime versus straight pay.

It’s a good idea to have every employee track their hours. Your small business gets great insight on how much time employees log and can better track costs and time for different projects.

On-call Hours

In some industries like retail, healthcare, customer support, hospitality, and food service, employees are on call if their employer needs them to work on short notice. Companies will schedule employees to be on call during potentially high-volume times like holidays in food service. Be aware that some states have scheduling and other laws that impact on-call scheduling.

When you have an employee on call and in the workplace, you must record their hours and pay them, even if they are not doing anything other than waiting to work. Due to the fact that you are restricting the employee’s ability to leave the workplace while on call, they must be paid. If you do not place this restriction on an on-call employee, you do not have to pay them unless you call them into work.

How to Clock In and Out

In your policy, explain to employees how to clock in and clock out. We strongly recommend against using paper time sheets as this is ripe for misuse and mistakes.

If an employee has technical issues or simply forgets to clock in or out, you need to have a process for them to request a punch. This is easy with an electronic system, through which an employee can enter a clock in or clock out and request an adjustment to a different time. That request will go to their manager or another person you designate. If your company is not using an electronic system, make sure your employees know how soon they need to report a missed punch and who to report it to.

A good clock in and clock out tool generates reports for you, so you can see when employees habitually arrive late or leave early. It also makes it easy for your employees to clock in and out, as they can use their computer or a mobile app. You can even regulate where they can punch the clock, putting restrictions on how far away from a worksite an employee can be at the time they do it. Homebase, a time and attendance software, lets you track employee hours, prep for payroll, and better control your labor costs.

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Time Sheet Approval

It’s good practice to require managers or supervisors to approve an employee’s time before it goes to payroll. A manager will know whether an employee’s time sheet appears accurate or if there are clear discrepancies.

A good clocking in and out policy should require employees to electronically or physically submit their time sheet to their manager for quick approval at the end of the workweek or pay period. This will help keep payroll accurate and your overhead costs in check.

Breaks & Rounding Hours

Your policy should discuss company breaks. Federal law does not mandate that you provide breaks or meal periods to your employees. Check your state or local laws, as some jurisdictions do require breaks, depending on the number of hours your employee is scheduled to work. Most employers offer employees paid breaks that last up to 20 minutes. Longer breaks and meal periods are usually unpaid.

If an employee takes a break but cannot step away from their duties, you are required to pay them. For example, if you have a receptionist who eats lunch at their desk and answers the phone during their lunch period, you must pay them for the entire lunch break, even if they answer only a few calls.

Businesses are also allowed to round hours, though you are not required to do so. If you choose to round hours, make sure you note this in your policy so your employees are aware. Under the FLSA, you can round hours to the quarter-hour. You must round fairly, however, rounding up and down appropriately.

For minutes one to seven, round down; for eight to 14, round up. For example, if an employee clocks in at 8:29 a.m., you would round up to 8:30 a.m. If that employee clocked out at 5:05 p.m. you would round down to 5 p.m..

Overtime Calculations

Your policy should also address overtime calculations. In most states, eligible employees who work more than 40 hours in one workweek are entitled to overtime pay at one and half times their normal hourly rate. In some states, like California, and some cities, overtime is calculated more frequently—so ensure you’re following the law in your state.

Disciplinary Actions

Your policy should include information about abuse and dishonesty. Effective employee management often requires disciplinary action when workers abuse a policy—and a clock in and clock out policy is no exception.

Some employees will try to get other employees to clock in for them, especially if they’re running late or just want to add a few minutes to their pay. Commonly referred to as buddy punching, this practice robs small businesses of revenue, paying employees for time they’re not actually working.

If your company uses paper time sheets, which we don’t recommend, your employees could easily adjust their own hours, noting their arrival time much sooner than their actual arrival time. Using an electronic clock in and clock out system can prevent this type of bad behavior since each employee has a different login, and the system tracks IP addresses and GPS location if employees use an app.

For violations of this policy, we suggest sticking with the three strikes approach and making the first offense a minor disciplinary action, followed by a written warning for a second violation. A third violation should be serious and may include termination. This type of behavior is inappropriate and costs your company money.

Recordkeeping Requirements

The FLSA does not mandate that your small business use a time clock of any kind. However, you are required to maintain an accurate record of each employee’s hours worked for hourly and nonexempt salaried workers. The information you must keep for at least three years for each employee includes

Full name
Social Security number
Full birth date, if under age 19
Job title
Time and day of the start of the workweek
Hours worked by day
Total hours for each workweek
Type of pay (hourly, weekly, or salary)
Regular pay rate
Total weekly regular time earnings
Total weekly overtime earnings, if any
All additions and deductions from employee’s wages
Total net wages
Date of payment
Pay period covered by the payment

Bottom Line

As a small business, time tracking is vital to keeping your budget in check. Make sure you have a clear clock in and clock out policy so that all employees understand how to record their time and what happens if they violate the policy. The best way to ensure compliance and ease of use is to use an electronic time clock. Try Homebase for free today.