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How Employee Time Tracking Can Help Your Business Save Time and Money

Payroll
Article
02/08/2019

For most business owners, paying employees can be a large operating expense.

Tracking employee time with a time and attendance system offers enhanced accuracy and can save your business a substantial amount of money. Outdated or manual time and attendance systems can result in inefficiencies, unnecessary costs, and employee dissatisfaction. With competition heating up across industries, you can't afford such expensive missteps in your operations.

Who benefits from a time and attendance system?

A highly automated time and attendance solution could benefit different roles in your organization:

Employees: How much time out of the workday/week do employees spend on their time entry? Employee productivity may increase as the effort spent entering time is focused on business-related activities instead. An automated system can serve to increase employee confidence in the accuracy of their paycheck. The use of an online system offers flexibility by providing a variety of options for tracking employee attendance, including mobile apps that also record geolocation, Also, a user-friendly dashboard supplies employees with a visual record of time and schedules.

Payroll/HR administrator: The time savings associated with eliminating manual paperwork and calculation errors is a huge win for payroll/HR administrators. Payroll is a complex process that you must always stay on top of, and it's imperative to develop an efficient process to track employee time and calculate compensation. Recent payroll statistics revealed that an estimated 33 percent of companies make payroll errors, and 40 percent of small businesses incur an average of $845 in penalties each year.

Paying an employee to process payroll also adds to expenses, with the mean hourly wage of payroll processors around $21, which amounts to $43,000 per year. Incorporating an automated time and attendance system can lessen the workload on in-house staff while minimizing payroll errors. Plus, the data captured in an online system can be a lifesaver if your business is audited.

Business owner: By showing where money is going and how time is spent, time and attendance reporting can yield quantifiable metrics that can be used to improve the way you do business. These metrics can also help management track and assess the performance of individual employees. A time and attendance system that complies with Fair Labor Standards Act regulations can alert business owners when employees are approaching overtime and when they will need to be compensated for this time. Having a detailed process for tracking hours worked and managing overtime can help your business save money, ensure your employees are paid appropriately, and comply with employment laws and health care reform. The ability to view staffing schedules and hours worked by department or individual also allows you to manage labor costs more effectively. When overtime pay increases, managers can study schedules and determining if the expense is truly needed or if job assignments can be shifted to others with more available time during the standard work day.

Integrating your time and attendance system with payroll

Integrating an automated time and attendance system with your existing payroll process yields several important results that can impact your bottom line.

  1. Time savings — Freeing up the hours spent navigating a complex time and attendance process means more time can be devoted to running the business. According to industry estimates, seven minutes is the average amount of time it takes a supervisor to manually calculate time card data for each employee per pay period. Multiply that by the number of employees (or time cards) that need to be calculated two to four times a month, and it can add up. Collecting, managing, and entering time data into a payroll system takes valuable time. An integrated time and attendance system can help cut down on these labor costs and result in greater efficiency.
  2. Reduce inefficiencies and errors — Another benefit of automated systems is the elimination of inefficiencies and errors associated with paper time card systems. No more printing out paper time sheets, transferring time sheets to employees, approving individual time sheets, and entering data into the payroll system. An integrated time and attendance solution automates the process of tracking employees as they check in and out for work, resulting in more accurate time data collection and fewer payroll processing errors. Employees using a paper-based time and attendance system often forget to complete their timesheets, causing inaccuracies when they try to remember their time several days later. Errors arise when employees start guessing what time they arrived at work, how long their lunch breaks took, and what time they left — potentially resulting in employers paying for time not actually worked. Automated time and attendance solutions can eliminate mistakes and take the guesswork out of data entry. Also, by replacing paper-based methods with a modern time and attendance system, you give employees more time to focus on their jobs, while also giving their supervisors valuable labor data so they can identify and correct productivity issues before they become unmanageable.
  3. Compliance — Complying with employment laws and time-keeping requirements is required for both large and small companies. The use of an automated time and attendance system may assist employers in doing so since it can provide consistency in time and attendance data collection.
  4. Recordkeeping — Archived time records can help a company defend itself against allegations of wage and hour violations. In addition, audit trails are accessible so managers can see when changes are made and who made them.
  5. Enhanced security — Time and attendance solutions can help control employee access to sensitive areas and monitor employee entry. Not only can such a system reduce the risk of losing valuable equipment and property, time and attendance solutions with biometric authentication can prevent the payment for small increments of lost time due to an employee's habitual lateness or "buddy punching," where one employee agrees to clock another employee in or out in their place. When a manual punch system is used, these practices invite inaccuracies and potential employee misconduct.
  6. Improved employee satisfaction — Receiving inaccurate pay on payday can be a common complaint among employees. An automated time-tracking system can help you ensure timely and accurate payment, which, in turn, contributes to improved employee satisfaction and higher morale.

Beyond the time and cost savings, an accurate time and attendance process also offers other important benefits to your business. With increased enforcement of the laws and regulations based on employee compensation for hours worked, it's more important than ever for companies to learn how to track employee time attendance properly. In fact, accurate time tracking was cited as one of HR professionals’ top challenges in the 2018 Paychex Pulse of HR Survey. Maintaining detailed, accurate time and attendance records can help you avoid overpaying for lost time, penalties, fines, and possible lawsuits.

Here are three areas of concern where you'll want to have a firm grasp of regulatory requirements when tracking employee time and attendance.

1. Paid sick leave

The push for laws mandating paid sick leave is gaining momentum nationwide, as states such as New Jersey, California, and others have established their own laws around paid sick leave.

If your state or locality enforces a sick leave law, be sure you understand how much time off is required, whether there are any caps on accrual, and what rollover policy is included. Having a quality time and attendance solution can help you ensure sick time is accrued and applied properly. It may also allow you to easily report this information to employees, which is required by some of the enacted laws.

2. Affordable Care Act provisions

The employer shared responsibility provisions in the ACA require detailed tracking of hours worked to ensure that employers are classified correctly, full-time employees are identified, and that health coverage offers are reported appropriately. It is important to note that the employer mandate is still in place, post-tax reform bill, so tracking hours is still important.

Your status as an applicable large employer is generally based on the number of full-time employees and full-time equivalent employees in the previous year. If you meet certain criteria, you may be subject to employer shared responsibility provisions, which means you must provide adequate and affordable health coverage or incur a potential penalty.

The provisions are based on hours worked and salary. You must also provide detailed reporting to the IRS at the end of the year. Much of the information you need to report comes from payroll data.

3. Overtime pay

Miscalculating pay based on hours worked can result in penalties under the Fair Labor Standards Act (FLSA) and applicable state law. For your full-time exempt employees, overtime doesn't apply. However, under the FLSA, all non-exempt employees must be paid overtime for every hour worked over 40 hours per week. If these hours aren't paid correctly, you may open yourself up to costly fines and penalties.

Calculating overtime begins with employee classification between exempt and non-exempt. According to federal regulations, an employer is not obligated to pay overtime wages when an exempt employee works more than 40 hours in a workweek. To qualify as exempt, employees generally must meet certain tests regarding their job duties outlined by FLSA regulations and be paid on a salary basis at not less than $455 per week.

Further, job titles do not determine exempt status. An employee may have an executive, professional, or administrative title, but that does not mean that they're exempt from overtime. Actual duties performed are a more important factor.

The case for accurate and affordable time tracking

Automated time and attendance solutions can assist even smaller operations looking to gain efficiencies. Here's an example:

Diane runs a small custom furniture business, where she employs 15 craftspeople at an average hourly wage of $30. The average work week is 50 hours due to strong demand for her furniture. Diane runs payroll on a weekly basis. It takes her seven minutes to calculate each time card, and she estimates that employees spend about six minutes each day filling out time cards when they otherwise could be working. She also accounts for payroll errors (3 percent is a conservative estimate).

Using these numbers, Diane is spending $35,100 a year on payroll errors, $11,700 a year in lost employee time, and $2,730 a year on calculating payroll. Add up those numbers, and Diane could be saving $49,530 each year by adopting a time and attendance system.

There are many choices available for tracking time and attendance, from manual solutions to automated services that provide you expertise and guidance. If you're unsure of how your company could benefit from an improved process, it may be time to review your current time and attendance procedures and seek help if needed. Start by calculating your own cost savings with a time clock calculator, or learning more about the ways integrating payroll and time and attendance can make your business run efficiently.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.