On this page
- You're Required to Track Employee Time Under Federal Law
- What Your Employee Time Records Must Include
- You Don't Need a Time Clock to Track Employee Time
- How Long to Keep Employee Time Records
- State Time Tracking Rules That Go Further
- Rounding Employee Time Under Federal Law
- Tracking Time for Remote Employees
- Time Tracking Is the First Step in Getting Employees Paid
- 2026 Form W-2 Overtime Reporting and Your Time Records
- Employee Time Tracking Checklist for Employers
- Frequently Asked Questions
"Am I required to track employee time?" It's one of the first questions new business owners ask, usually right around the first hire. For most businesses, the answer is yes. Federal law requires you to keep accurate records of the hours your non-exempt employees work each day and each week, and many states add their own rules on top.
The good news is that the law doesn't tell you how to track time. Paper timesheets, a spreadsheet, a punch clock and time clock software can all work, as long as your records are complete and accurate. This guide covers who you need to track, what to record, how long to keep it, the state rules that go further, and the 2026 overtime reporting change on Form W-2.
Key Takeaways
- Federal law requires you to record the hours worked each workday and each workweek for every non-exempt employee.
- You don't need a time clock: any tracking method is allowed as long as the records are complete and accurate.
- Keep payroll records for at least 3 years and time cards or timesheets for at least 2 years under federal law.
- Federal law doesn't require daily hours for exempt employees, but some state laws, such as California's paid sick leave law, do.
- Some states go further than federal law: California requires start, end and meal period times, and New York requires payroll records for 6 years.
- Starting with 2026 Forms W-2, you report each eligible employee's qualified overtime in Box 12 with code TT, and that number comes from your weekly hours.
What's New for 2026
Starting with 2026 Forms W-2, you report each eligible employee's qualified overtime pay in Box 12 with code TT. Employees use that amount for the federal "no tax on overtime" deduction, so your overtime records now feed a tax form your employees rely on.
The federal salary threshold for exempt employees stays at $684 a week ($35,568 a year). The 2024 rule that would have raised it was struck down in court and formally removed in May 2026. Salaried employees who earn less than $684 a week are generally non-exempt, so you need to track their hours.
You're Required to Track Employee Time Under Federal Law
The federal Fair Labor Standards Act (FLSA) requires covered employers to keep records of hours worked and wages paid. The details are in the Department of Labor's recordkeeping rules at 29 CFR Part 516.
The FLSA covers most US businesses. It applies to any business with at least two employees and at least $500,000 in annual sales, and to individual employees whose work involves interstate commerce, such as regularly calling customers or vendors in other states or handling records of out-of-state transactions. You can check the details in the DOL's FLSA coverage fact sheet.
Even if your business falls outside the FLSA, your state's wage laws may still require time records, as California's and New York's do.
Which Employees You Have to Track
The full recordkeeping rule applies to non-exempt employees. That includes most hourly workers, both part-time and full-time, and salaried employees who earn less than $684 a week or whose job duties don't meet an exemption.
For each non-exempt employee, you must record the hours worked each workday and the total hours worked each workweek. A workweek is a fixed, repeating period of 168 hours, such as Sunday through Saturday, and overtime is figured one workweek at a time.
Not sure who's exempt? Our guide on how to classify employees walks through the tests, and our federal overtime salary threshold guide covers the pay levels.
Records for Exempt Employees
For exempt executive, administrative, professional and outside sales employees, federal law asks for less. You keep their basic personal details and a record of how they're paid, including any fringe benefits and perks, in enough detail to figure their total pay for each pay period. Federal law doesn't require you to track their daily hours.
State law can change that. California requires employers to keep records of hours worked and paid sick days accrued and used for at least 3 years. If you don't, the employee is presumed to have earned the maximum sick leave unless you can prove otherwise. Many employers also track exempt hours for leave, scheduling and job costing.
WATCH OUT
Paying someone a salary doesn't make them exempt on its own. The employee also has to earn at least $684 a week and do work that meets one of the duties tests. If a salaried employee doesn't meet both, track their hours and pay overtime.
What Your Employee Time Records Must Include
Federal law lists the information you must keep for each non-exempt employee. It doesn't require a particular form, so your records can be on paper, in a spreadsheet or in software, as long as they're complete and accurate.
| Record | What to keep |
|---|---|
| Employee information | Full name and Social Security number, home address with ZIP code, date of birth if under 19, sex and occupation |
| Workweek start | The day and time each employee's workweek begins |
| Hours worked | Hours worked each workday and total hours worked each workweek |
| Pay basis and rate | How the employee is paid (by the hour, week or piece, for example) and their regular hourly rate in any week with overtime |
| Straight-time earnings | Total daily or weekly earnings before any overtime premium |
| Overtime pay | Total overtime premium pay for the workweek |
| Additions and deductions | Amounts added to or taken out of wages each pay period |
| Pay totals and dates | Total wages paid each pay period, the date of payment and the pay period it covers |
Time records show the hours, and payroll records show the pay. You need both, and the numbers should match. The DOL's recordkeeping fact sheet lists every required item.
Employees on a Fixed Schedule
If an employee works a fixed schedule, you can record the schedule once and note that they followed it. In any week they work different hours, such as staying late or leaving early, you record the exact hours worked that day and that week.
TIMECLICK TIP
Keep the original clock-in and clock-out times, even if you pay from rounded or corrected totals. When you fix a missed punch, add a short note saying who changed it and why. Clean edit history makes your records much easier to defend.
You Don't Need a Time Clock to Track Employee Time
Federal law doesn't require a time clock or any specific method. The DOL says you can use a time clock, have a timekeeper track hours, or have employees write down their own times, as long as the records are complete and accurate.
If you just hired your first employee, start recording hours from day one, even if it's on paper or in a spreadsheet. You can move to software later. Here's how the common methods compare for a small business:
| Method | Good fit for | Things to watch |
|---|---|---|
| Paper timesheets | Very small teams with simple schedules | Employees often fill them in from memory at the end of the week, which leads to guesses |
| Spreadsheets | A few employees with steady hours | Typing and formula mistakes, and no clear record of who changed what |
| Punch clock | One location where everyone starts and ends on site | Paper cards to store for at least 2 years, and hours still added up by hand |
| Time clock software or app | Most small businesses with hourly staff | Takes a short setup, and you should pick one that keeps a history of edits |
Many small businesses move to time clock software once they have more than a few employees, because it adds up hours, flags overtime and stores records for you. Our guide to the different ways small businesses track employee time compares the options in more detail.
How Long to Keep Employee Time Records
Federal law sets two retention periods: 3 years for payroll records and 2 years for the records you use to calculate pay, such as time cards. Some states require more.
| Record | Keep for at least | Rule |
|---|---|---|
| Payroll records (employee details, hours totals, pay rates and wages paid) | 3 years | Federal, 29 CFR 516.5 |
| Time cards, timesheets, work schedules and wage rate tables | 2 years | Federal, 29 CFR 516.6 |
| Payroll records showing daily hours and wages paid | 3 years | California Labor Code 1174 |
| Hours worked and paid sick days accrued and used | 3 years | California Labor Code 247.5 |
| Payroll records showing daily and weekly hours | 6 years | New York Labor Law 661 and 12 NYCRR 142-2.6 |
Federal retention periods start from the last entry on the record. You can keep records at your business or at a central records office. If they're at a central office, you must make them available within 72 hours of a DOL request.
Keeping records longer than the minimum is a smart move. Wage claims under the FLSA can generally reach back 2 years, or 3 years if a violation was willful, so 3 years of time records covers the full window. Old records also help when you plan a new position, because you can see how many hours a similar role took in the past.
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Keep time records for at least 3 years, even though federal law only requires 2 for time cards. That matches the longest federal claim window and California's rule. In New York, plan on 6 years.
State Time Tracking Rules That Go Further
Federal law sets the minimum. Many states add stricter rules on what you record, how long you keep it, and breaks. When your state's rule is stricter, follow your state's rule.
California Time Record Rules
- Time records must show when each non-exempt employee starts and ends each work period, plus meal periods, split shift intervals and total daily hours.
- Meal periods must be recorded, except meal periods when all operations stop and authorized rest periods.
- Payroll records showing daily hours and wages must be kept for 3 years, at a central location in California or at the worksite.
- California pays overtime after 8 hours in a workday, so daily in and out times affect pay. Our California overtime laws guide explains the rules.
The California Labor Commissioner's guide to paydays and records covers these rules in plain language.
New York Time Record Rules
- Payroll records must show the hours each employee worked daily and weekly, plus regular and overtime hours for non-exempt employees.
- For employees who work a split shift or a spread of hours over 10, the records must also show arrival and departure times.
- Payroll records must be kept for at least 6 years.
States With Meal Break Laws
Federal law doesn't require meal or rest breaks. About 20 states do require meal breaks for adult employees, according to the DOL's state meal break table, including California, Colorado, Illinois, Minnesota, New York, Oregon and Washington.
If your state requires meal breaks, record when breaks start and end along with start and end times. Your time records are usually the easiest way to show that employees got the breaks the law requires. Our break laws by state guide lists each state's rules.
WATCH OUT
Under federal law, short breaks of about 5 to 20 minutes are paid work time, so don't deduct them. Only meal periods of 30 minutes or more, when the employee is fully relieved of duty, can be unpaid.
For other states, check with your state labor department. The DOL keeps a list of state labor offices with links to each one.
Rounding Employee Time Under Federal Law
Federal rules allow you to round start and stop times to the nearest 5 minutes, tenth of an hour (6 minutes) or quarter hour (15 minutes). The condition is that rounding has to average out over time, so employees get paid for all the time they actually work. A policy that only rounds down, or that keeps shaving minutes in your favor, doesn't meet that test.
With quarter-hour rounding, for example, a clock-in at 8:06 rounds to 8:00 and a clock-in at 8:09 rounds to 8:15, because each goes to the nearest quarter hour.
Early and late punches are a separate question. If an employee clocks in early or stays late without doing any work, you don't have to pay for that time. If they start working, the time counts, even if you didn't ask them to work.
WATCH OUT
California's rounding rules are under review. The California Supreme Court agreed in 2023 to decide whether employers can round time at all under state law in Camp v. Home Depot (case S277518). As of October 2026, the court hadn't ruled. If you're in California, paying from exact punch times avoids the question.
Tracking Time for Remote Employees
Federal wage rules apply to remote employees the same way they apply in the office. If a non-exempt employee answers email at night or finishes a task from home, and you know or should know about it, that time counts as hours worked and you must pay for it.
The DOL's guidance on telework hours says the usual way to meet this duty is a reasonable reporting procedure for unscheduled time, followed by paying for all the time employees report. You don't have to dig through computer logs to find hours nobody reported. You can't discourage employees from reporting time, though, and a "no off-the-clock work" rule only protects you if you actually enforce it.
A few habits keep remote time records accurate:
- Give remote employees a simple way to clock in and out, or to report extra time the same day.
- Tell employees in writing that all work time has to be reported, including short tasks after hours.
- Pay for reported time even if it wasn't approved in advance, and address unapproved overtime with the employee separately.
- Count short breaks of 20 minutes or less as paid time for remote employees, the same as on site.
Time Tracking Is the First Step in Getting Employees Paid
Time records are where payroll starts. Hours worked times the pay rate becomes earnings, and overtime comes from the hours over 40 in each workweek. If the hours are wrong, every number after them is wrong too.
Accurate records also protect you. In a wage dispute, if your records are missing or unreliable, a court can accept an employee's reasonable estimate of the hours they worked. That rule comes from the Supreme Court's 1946 decision in Anderson v. Mt. Clemens Pottery Co. An employee who wins an FLSA claim can recover back wages plus an equal amount in liquidated damages, along with attorney's fees and court costs.
Small gaps add up. Here's what 10 unrecorded minutes a day can cost for one employee who earns $18 an hour and already works 40 hours a week:
Unrecorded time: 10 minutes × 5 days = 50 minutes a week
Overtime rate: $18 × 1.5 = $27 an hour
Unpaid overtime: 50 ÷ 60 × $27 = $22.50 a week
Over 2 years: $22.50 × 104 weeks = $2,340
With an equal amount in liquidated damages: $4,680
The DOL takes these cases seriously. In fiscal year 2025, its Wage and Hour Division recovered more than $259 million in back wages for nearly 177,000 workers.
2026 Form W-2 Overtime Reporting and Your Time Records
The 2025 federal tax law known as the One Big Beautiful Bill Act created an income tax deduction for qualified overtime pay for tax years 2025 through 2028. Employees can deduct up to $12,500 a year ($25,000 for married couples filing jointly), and the deduction phases out above $150,000 of modified adjusted gross income ($300,000 for joint filers).
Only the federally required overtime premium counts. That's the extra half in time-and-a-half for hours over 40 in a workweek under the FLSA. Overtime paid only because of state law, a union contract or your own policy doesn't qualify, and neither does extra pay for exempt employees. It's an income tax deduction only, so you still withhold and pay payroll taxes on overtime.
For employers, the change is reporting. Starting with 2026 Forms W-2, you report each employee's qualified overtime in Box 12 with code TT. You report the full amount you paid, even if it's more than the employee's $12,500 limit. The IRS explains the details in its overtime deduction fact sheet.
Pay rate: $20 an hour, with 46 hours worked in one workweek
Overtime hours: 46 − 40 = 6 hours
Overtime premium: $20 × 0.5 = $10 an hour
Qualified overtime: 6 hours × $10 = $60
Amount added to the employee's Box 12, code TT total for that week: $60
That premium has to be figured week by week, so the W-2 number is only as good as your weekly hours. A nondiscretionary bonus or commission raises the regular rate, which raises the premium too. Our guide on how to calculate overtime pay rates shows the math, and our overtime laws guide covers the rules.
Employee Time Tracking Checklist for Employers
Use this list to check your setup:
- Record hours worked each workday and each workweek for every non-exempt employee.
- Keep the required employee details and pay information for each employee.
- Set one fixed workweek and figure overtime for each week on its own.
- Record start, end and meal break times if your state requires them, as California does.
- Round time only to the nearest 5 minutes, tenth of an hour or quarter hour, and only if it averages out.
- Give remote employees a way to report all of their work time, and pay for it.
- Keep payroll records at least 3 years and time cards at least 2 years, or longer if your state requires it.
- Track each employee's federal overtime premium for Form W-2, Box 12, code TT.
For a deeper look at audits, recordkeeping and state rules, see our employee time tracking compliance guide.
Bottom Line
If you have non-exempt employees, you're required to track their time. Record daily and weekly hours, keep the records for at least the federal minimums, follow any stricter state rules, and pick a tracking method your team will actually use every day.
Frequently Asked Questions
Quick answers to common questions. For anything else, email us at support@timeclick.com or call (435) 753-4102.
Am I required to track employee time if I only have one employee?
Usually, yes. Federal recordkeeping rules apply to each covered non-exempt employee, and even a single employee is covered if their work involves interstate commerce, such as regular calls or transactions with other states. State wage laws can apply too. Recording hours from your first employee's first day is the safest choice.
Do I have to track hours for salaried employees?
Only if they're non-exempt under federal law. A salaried employee who earns less than $684 a week, or whose job doesn't meet a duties test, is owed overtime, so you need their daily and weekly hours. For exempt employees, federal law only requires basic details and pay records, though some state laws, such as California's sick leave law, require hours for them too.
Can employees write down their own hours?
Yes. The DOL lists employee-written time records as an acceptable method. You're still responsible for making sure the records are complete and accurate, so review them each pay period.
Can I keep employee time records electronically?
Yes. Federal law doesn't require any particular form, so digital timesheets and time clock software both work. Keep the records safe and easy to produce, because the DOL can ask to see records kept at a central office within 72 hours.
Do I need to track hours for independent contractors?
No. The FLSA's time records are required for employees, and true independent contractors aren't employees. Classify workers carefully, though, because someone you treat as a contractor may legally be an employee. Our guide on how to classify employees explains the difference.
What happens if I don't keep employee time records?
If an employee claims unpaid wages and your records are missing or unreliable, a court can rely on the employee's reasonable estimate of their hours. You could owe back wages plus an equal amount in liquidated damages, and the employee's attorney's fees.
This guide is general information and isn't legal advice. For your specific situation, check with your state labor department or an employment attorney.
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