You can reimburse employees tax-free for their business expenses only if those expenses are ordinary and necessary. The contract notwithstanding, it would be difficult to convince a tax auditor that renting a Ferrari was an ordinary and necessary expense. Employees first scan into a time and attendance system. Then they scan into a manufacturing system, which tracks the time they spend working. Employees who don't scan in the first time are paid strictly on their scans into the manufacturing system.
Some employees spend time setting up a machine before scanning in.
It may be. The FLSA doesn't dictate any special method of time-keeping, but the burden to be accurate falls on you. Moreover, employees must be paid for their principal activities, even if these activities occur before or after a workday. It seems that employees must be paid for this prep time. If the prep time is compensable, it must be added to employees' regular working time.