The Employer’s Guide to Time Tracking

Kim Porter

Tracking hours is a pretty simple concept: It involves recording information about when your employees clock in, take breaks, and leave for the day. At a more advanced level, business owners may analyze that information to control project costs and plan for upcoming budgets. 

You need to keep track of these details when paying employees by the hour, though you could benefit from knowing how your salaried workers spend their time, too. 

Here’s a quick guide to why time tracking is important, ways you can go about it, and some of the pros and cons of using time tracking software.

Why time tracking is important

At its most basic level, time tracking gives you an idea of when your employees are working. But it’s important for other reasons, too:

Ensures you calculate pay correctly

When you know exactly when your workers arrive and leave, they get paid correctly for the hours they work. This keeps morale strong and builds trust between you and your workers. 

Precise tracking also cuts down on time theft, which may happen when an employee does things like take a long lunch break, inflate their work hours, or leave for the workday early. Even when it’s a few minutes here and there, it adds up when employees are paid for time they’re not working. Time theft may cost you hundreds or thousands of dollars each year.  

Allows you to follow state and federal laws

Monitoring work hours ensures your business is following Fair Labor Standards Act protocol, which says all businesses are legally required to track time for their hourly employees. You can choose the tracking method as long as you record wages, overtime, and hours worked on a daily and weekly basis. 

Tracking time helps you stay compliant with other payroll laws at the federal, state, and local levels. For instance, your business may need to provide paid time off, a break for meals, and overtime pay. 

Helps you plan for future projects

When you’re creating budgets and schedules or planning for future projects, it helps to know how long it takes to complete specific tasks. This information can help control project costs and ensure you have the right resources to complete the job. 

Options for tracking employee hours

You’ve got several options for tracking hours, and each comes with its own pros and cons:

  • Manual time tracking: The easiest and cheapest option is having your workers record their in and out times on a paper timesheet or an electronic spreadsheet. While manual tracking may work for very small teams or in some service-based industries, it can be time-consuming to calculate pay and is more vulnerable to human error.
  • Time clocks: A time clock is a device that records start and end times for hourly employees. This could be a good method if your workers don’t have regular access to their desktops or smartphones and you want to track hours precisely. But you won’t be able to track time for each specific task.
  • Geofencing: With this option, your employees download a smartphone app that can track their physical location. You’ll receive alerts when the employee enters and leaves a prespecified job site. Geofencing works well if you have a field service team (like construction workers) or traveling employees. 
  • Time tracking software: This type of software helps you record employees’ start and end times automatically, and they often come with many features. This option has the flexibility to work with any type of team, though it may be more expensive and come across as invasive to some workers.

Benefits of time-tracking technology

Time-tracking software programs offer plenty of benefits. They may: 

  • Boost productivity: Time tracking allows your employees to take ownership of their workload and understand how long it takes to complete each task. This may even lead to improved worker motivation.
  • Eliminate buddy punching: You can require employees to use unique login credentials, biometric data, and GPS tracking capabilities to clock in and out. This can help prevent buddy punching, where one worker clocks in or out for a colleague who isn’t actually at work.
  • Help estimate project costs: When you know how long it takes to complete core tasks, you can better plan for future projects. This helps you create accurate budgets, schedules, and quotes. Some software programs even provide instant reports to check whether time spent matches what you quoted for. 
  • Can be used with any team member: Time tracking software offers flexibility because it can be used with hourly workers, full-time employees, temporary staff, and freelance contractors. 
  • Offers extra features: Many software programs allow you to do things like track and tag time spent on specific projects, create reports, and manage employee PTO requests.
  • Reduces payroll errors: Using software minimizes the human errors that come with tracking hours on manual timesheets. 
  • Improves compliance: Tracking hours is the best way to know when employees are working, so you can be sure you’re following payroll laws on the local, state, and federal level.

Best practices for time tracking

If your business plans to track employee hours, here are some key practices to implement:

Use automated time-tracking software

Manual time tracking can lead to errors, which impacts employee pay, tax withholding, and anything else connected to payroll. Using software instead can help you calculate and process payroll automatically while following any regulations and changes. 

Classify workers correctly 

Correctly categorizing employees vs. contractors is important because different payroll and tax laws apply to each type of worker. Misclassifying an independent contractor for an employee, or vice versa, can expose your business to liability and can be costly to both the employee and the business. 

Create clear guidelines

Having a time and attendance system makes payroll easier to manage. Your employees should know things like how to clock in and out, whether they need to track breaks and mealtimes, and how to record overtime and time-off requests. Train your employees, managers, and HR staff on how to use the software, and identify a person or a team who can field questions on the go.

Track hours every day

 You may need to track hours every day for accurate reporting and compliance reasons. And at the end of a pay period, you’ll need to submit payroll withholdings and reports in a timely manner. These tasks can get complicated if your employees aren’t tracking their work hours on a daily basis and recording them for each pay period. Once you have the data, tracking software helps you keep up with compliance automatically.

Kim Porter Kim Porter covers personal finance topics for AARP The Magazine, Bankrate, U.S. News & World Report, Reviewed, Credit Karma, and more. When she’s not writing, you can find her training for her next race, reading, or planning her next big trip. Twitter | LinkedIn
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