Payroll Rounding Rules: The 2026 Reference

The federal rule: 29 CFR § 785.48(b)

The Department of Labor’s rounding regulation has been on the books essentially unchanged since 1961. The current text reads:

“It has been found that in some industries, particularly where time clocks are used, there has been the practice for many years of recording the employees’ starting time and stopping time to the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour. Presumably, this arrangement averages out so that the employees are fully compensated for all the time they actually work. For enforcement purposes this practice of computing working time will be accepted, provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.”
— 29 CFR § 785.48(b)

Read it carefully. The rule has three pillars:

1. Acceptable increments are 5-minute, tenth-of-an-hour, or quarter-hour.
2. The rounding must average out over time.
3. It must not result in employees being under-compensated for time actually worked.

The DOL further clarified its enforcement position in Fact Sheet 53 and the Field Operations Handbook §32j16. Neither carries the force of regulation, but auditors use them as guideposts.

The DOL 7-minute rule, in detail

When applied to quarter-hour rounding (the most common option), DOL guidance produces the following lookup table:

Notice that exactly seven minutes round down and seven minutes round up within each 15-minute window. That symmetry is what gives the rule its “neutral” quality on average. The eighth minute on each side is where the rule shifts direction.

What “neutral over time” really means

The rounding system itself is neutral on a randomly distributed punch population. The practical question is whether your punch population is randomly distributed.

Common patterns that destroy neutrality:

• Pre-shift work expectation. If supervisors expect employees to be at their station at 9:00 sharp, employees clock in at 8:53. Those punches all round down to 9:00 — an effective 7-minute donation per employee per day.
• Wrap-up time at end of shift. If the policy says “clock out before leaving,” employees clock at 17:08 (after closing tasks). Those round down to 17:00, even though the worker stayed eight minutes.
• Lunch trends. If the lunch policy is “30 minutes,” employees are likely to come back at 12:23, which rounds to 12:30. The two minutes work for the employee. But if the policy is “back by 12:30,” the punches cluster at 12:28–12:32 and the rounding is approximately neutral.

Auditors look for these patterns specifically. If your aggregate rounding consistently shaves time from employees, the rule’s legal protection evaporates.

State variations to know

California

The state previously allowed FLSA-style rounding under See’s Candy Shops, Inc. v. Superior Court (2012) but has narrowed that position significantly. The California Supreme Court’s decision in Camp v. Home Depot U.S.A., Inc. (2024) signaled that where exact timekeeping is feasible, employers must use it. The opinion explicitly invited the legislature to clarify, and several rounding-related class actions are pending as of 2026.

Practical guidance for CA employers: default to exact-minute timekeeping; treat rounding as a legacy practice to phase out, not a current best practice.

New York

New York follows federal FLSA rules but adds wage notice and recordkeeping requirements (Labor Law § 195) that make rounding-related disputes easier to litigate. Rounding remains permitted; recordkeeping requirements are stricter.

Massachusetts, Oregon, Washington

These states permit FLSA-style rounding. Specific case law has not yet narrowed it the way California has, but pay-data reporting laws (e.g., Oregon’s Pay Equity Act) make it easier for plaintiffs’ lawyers to identify systematic rounding effects.

Other 41 states

Generally follow federal FLSA. Rounding remains a permitted practice as long as it’s neutral.

Acceptable rounding methods (and where they break)

Method	Increment	FLSA OK?	Risk profile
Exact	1 min or less	Yes	Lowest. The recommended 2026 default.
Tenths	0.1 hr (6 min)	Yes	Low. Used in some legacy mainframe systems.
Quarter-hour, neutral	0.25 hr (15 min)	Yes	Medium. Watch for non-random punch distributions.
Quarter-hour, always down	15 min	NO	Wage theft. Don’t do it.
Half-hour	0.5 hr (30 min)	NO	Excessive. Auditors will flag.
One-hour	1.0 hr	NO	Per-se non-compliant under most case law.

2026 industry adoption (original survey)

We surveyed 250 U.S. payroll administrators in March 2026. Results below; full methodology at the end of this article.

• 54% use quarter-hour rounding (DOL 7-minute rule applied)
• 32% use exact-minute timekeeping
• 9% use 5-minute rounding
• 4% use tenths (0.1 hr)
• 1% reported “other” or non-compliant rules

Trend over time: exact-minute usage was 18% in our 2024 survey, 25% in 2025. The shift is driven by California case law and by improved time-tracking technology that makes exact tracking trivial.

What auditors check

When the DOL or a plaintiffs’ class-action firm audits payroll rounding, they typically run three tests:

1. Aggregate balance test. Sum all rounding deltas (rounded total minus exact total) over the class period. If the result is negative for employees in aggregate, the policy is presumptively non-neutral.
2. Per-employee test. Check whether individual employees are systematically losing minutes even if the aggregate looks balanced. A handful of cases have rejected aggregate balancing as a defense when individual employees are consistently shorted.
3. Time-of-day distribution test. Plot the histogram of punches by minute-within-hour. If clock-in punches cluster strongly on the “round-down” side, that’s evidence of expected pre-shift work without compensation.

Defending against these tests requires either (a) clean exact-minute records or (b) actual statistical neutrality in your aggregate punch data.

Practical recommendations for 2026

• Adopt exact-minute timekeeping as the default. The cost difference is negligible with modern time-tracking software.
• If you must round, use quarter-hour neutral rounding and audit your aggregate balance quarterly.
• Document your rounding policy in writing. Update your handbook and provide notice to employees.
• Don’t mix rounding rules across employees, departments, or weeks — consistency is itself part of neutrality.
• For California-based operations, treat rounding as legacy and migrate off of it.

How to verify your own paystub

1. Collect your raw clock-in/out punches for one pay period.
2. Use our payroll time converter with the “Exact” rounding setting to compute hours-actually-worked.
3. Compare to the “hours” column on your paystub.
4. If the paystub is lower, ask payroll which rounding rule they apply — you have a legal right to know.

Methodology note (2026 survey)

We surveyed 250 U.S. payroll administrators between March 5 and March 22, 2026, recruited through three professional Slack communities (HR Open Source, PayrollTalk Discord, and the SHRM Connect forum). Respondents self-reported their organization’s rounding rule and aggregate hourly headcount. The sample is biased toward small-to-medium employers (median headcount: 85 hourly employees) and likely undersamples giant Fortune 500 employers.

The survey instrument and full anonymized response data are available on request: contact us.

Sources

• 29 CFR § 785.48 — Computation of working time
• DOL Fact Sheet 53
• See’s Candy Shops, Inc. v. Superior Court, 210 Cal. App. 4th 889 (2012)
• Camp v. Home Depot U.S.A., Inc., 14 Cal. 5th 145 (2024)
• Donovan v. Williams Chemical Co., 682 F.2d 185 (8th Cir. 1982)