A federal investigation forced a contractor to pay nearly $600,000 in back wages and damages after the Department of Labor uncovered systemic overtime violations tied to time rounding. This wasn’t a minor oversight – it exposed serious failures in payroll and recordkeeping.
For Finance, these are not abstract risks. When labor compliance falters, the financial consequences land squarely in the ledger.
Case Study: What Went Wrong at Amtex-NMS
The Department of Labor’s investigation into Amtex-NMS uncovered timekeeping practices that did more than bend the rules. The contractor’s time rounding methods and recordkeeping failures resulted in significant wage violations and a costly payout.
Improper Time Rounding Led to Unpaid Overtime
The contractor rounded hours in a way that consistently reduced time worked, shortchanging employees of overtime pay, the DOL found. The violations affected 419 workers.
The investigation determined that the contractor also failed to maintain accurate wage and hour records, which compounded its legal exposure.
Why This Matters for Finance
This compliance failure created significant financial exposure. Flawed time data inflates labor costs and distorts key metrics, turning manageable expenses into costly surprises. Finance shoulders this risk, underscoring the need for vigilant oversight.
Even small time rounding discrepancies can inflate labor cost variances by several percentage points, distort EBITDA margins and throw off cash flow forecasts, turning what looks like controlled costs into unexpected liabilities. For example:
- Labor cost variance: Rounding that consistently underpays employees inflates reported labor cost variance, leading to misleading profitability analysis at the department or project level.
- EBITDA impact: Unpaid overtime understates labor expenses, artificially boosting EBITDA until penalties or back wages hit and reverse those gains.
- Forecast accuracy: Inaccurate time data skews labor forecasting and cash flow projections, increasing the risk of budgeting shortfalls or poor capital allocation.
Financial and Compliance Risks of Flawed Timekeeping
This case resulted in $594,313 in back wages and damages. As this case shows, time rounding violations scale rapidly across large hourly teams, compounding financial exposure.
Inaccurate Timekeeping Distorts Financial Reporting
Time records drive payroll, job costing and labor forecasting. When those records are off, your entire cost structure loses reliability.
Recordkeeping Gaps Open the Door to Audits
Noncompliant systems increase the risk of regulatory audits. Understanding the financial consequences of flawed timekeeping is only half the picture. To fully grasp the scope of risk, Finance leaders need clarity on what the law permits and where it draws the line on time rounding practices that impact payroll accuracy and compliance.
FLSA Rounding Rules: What Finance Needs to Know
Rounding employee time is legal under federal law, but only within strict limits. If time rounding always works in the employer’s favor or results in unpaid overtime, it crosses the line into wage theft.
The bottom line: Time rounding that consistently reduces pay violates FLSA and risks enforcement.
Rounding is Legal in Specific Circumstances
The Fair Labor Standards Act allows employers to round employee time to the nearest five, 10, or 15 minutes, as long as the practice is neutral. That means over time, rounding must neither disproportionately benefit the employer nor disadvantage the employee.
“Some employers use a pay method referred to as rounding to produce even and balanced calculations of hours worked. While it can be a useful tool, it is the responsibility of all employers to ensure the use of rounding in their time systems is balanced and does not always round in the employer’s favor,” said Wage and Hour Division District Director Vilma Bell in Orlando, Florida. “We encourage all workers and employers to contact their nearest Wage and Hour Division office with any questions regarding their rights and obligations under the law.”
Violations Occur When Rounding Consistently Reduces Pay
If rounding always results in less time recorded or unpaid overtime, the employer is in violation of the FLSA. Routine underpayment triggers enforcement, particularly for overtime violations.
Accurate Records Are Still Required
Even when rounding is done correctly, employers are still responsible for maintaining complete and accurate time records. Poor documentation can turn a compliant system into a liability.
For additional help, see the DOL’s fact sheet on time rounding practices.
Finance Oversight for Timekeeping Accuracy
Finance often inherits risks from flawed timekeeping. If the input data is flawed, so is the financial output. Finance teams need to treat time tracking as part of the compliance function.
- Audit your payroll and time systems regularly. Regular sampling of time records across departments and pay periods can reveal rounding patterns or anomalies that skew hours worked. Early detection supports stronger financial accuracy and compliance.
- Coordinate with HR and frontline managers. Aligning Finance, HR and Operations around timekeeping policies encourages shared responsibility. Finance’s involvement in governance and reporting helps surface risks early and fosters collaboration to proactively address issues.
- Consider where more precise tracking could reduce risk. Time systems that capture hours accurately reduce rounding reliance, support cleaner payroll runs and strengthen downstream reporting. Evaluate whether your current setup meets Finance’s standards for accuracy and audit readiness.
- Monitor overtime liabilities. Including overtime trends in regular financial reporting can highlight discrepancies between scheduled and paid hours. This data informs forecasting and budgeting, helping prevent unexpected labor cost spikes.
- Embed compliance into internal controls. Integrating timekeeping accuracy and wage verification into internal audits reinforces compliance. Making these reviews routine rather than reactive improves risk management and supports regulatory readiness.
Time Tracking Tech That Supports Financial Control
Upgrading to advanced time-tracking systems is a practical step toward strengthening labor cost controls and compliance. Tools like biometric time clocks and cloud-based platforms offer more accurate, tamper-resistant time capture, eliminating much of the risk introduced by rounding.
The benefits go beyond compliance. These systems reduce manual input errors, improve payroll accuracy and provide Finance teams with cleaner data for labor forecasting and variance analysis.
Treating timekeeping technology as a financial control, rather than merely an operational tool, can strengthen oversight and help prevent unexpected liabilities.
Next Steps for Finance: Strengthen Labor Compliance
Timekeeping deserves the same level of scrutiny as expense controls or audit procedures. If your organization uses rounding, here’s where Finance should focus:
- Audit existing timekeeping practices. Identify where rounding occurs, how it’s applied, and whether it skews in the company’s favor.
- Assess financial exposure. Calculate how even small rounding variances could add up across large hourly teams or over long periods.
- Push for accurate, real-time tracking. Evaluate whether modern timekeeping systems can eliminate the need for rounding altogether.
- Treat time data as financial data. Build wage accuracy into internal controls, and ensure Finance has visibility into time tracking workflows.
Waiting for a DOL investigation to expose the problem is the most expensive compliance strategy you can choose.
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