Are you still using pen and paper timesheets to track attendance? It’s time to climb off your dinosaur and look around. It’s 2018, and the use of antiquated timesheets in your attendance management and payroll calculations is costing you money. It also has the potential of costing you much more if you don’t stay ahead of regulatory compliance demands.
For the love of time and money
Pen & paper has one advantage going for it. It’s cheap. Pen, 50 cents. Paper, 5 cents. But accurate payroll is priceless. The American Payroll Association shows an error rate of between 1-8% of total payroll in companies that use traditional timesheets, and 43% of shift workers admit (in independent surveys) that they engage in various types of time theft. More optimistic surveys claim 19 percent of employees (1 out of 5) have participated in some form of time theft, which can cost companies up to 7 percent of their gross annual payroll.
That’s why tens of thousands of companies in the US have made the switch from manual timesheets to digital time tracking solutions. Not convinced? That’s ok. Below you’ll find everything you need to know to help you make the decision on switching (or not) to a digital time tracking solution.
Table of contents:
- Growing those margins
- Managing the middle
- Don’t forget the little guy
- The risk of staying behind
- Making the time clock switch
Growing those margins
As an owner or business manager, your primary goal is growing that bottom line. Marketing, good customer service, and a professional team are your tickets to success. However, sometimes, when we focus too heavily on growth, we fail to notice our payroll leaking money through numerous “holes” lining its outdated pipes. Switching to computerized attendance can make a big difference for a small business.
1. “Buddy punching” prevention
Buddy punching is a time theft technique that relies on workplace relationships and “covering” for one another. Employees who clock in and out on each other’s behalf can balloon your payroll. According to the American Payroll Association, over 75% of companies lose money from buddy punching, with buddy punching accounting for approximately 2.2% of gross payrolls.
If you have 20 employees with an average payroll of $50K then buddy punching alone is costing you $22,000 a year!
In an ideal world, employees personally fill in their arrival and departure times on their timesheet. But we do not live in such an ideal world. Time tracking methods that rely on an “honor” system (like paper timesheets and punch-clocks) are the ones usually abused.
In comes time tracking and time clock software. One of the major advantages time-clock software has over outdated attendance tracking techniques, like ye olde pen and paper, is in limiting employees’ ability to punch in for a coworker. Some of you might prefer to take the hit from buddy punching rather than confront your employees.
So let’s make the cost of buddy punching more real: You know that new car you wanted to buy but couldn’t afford to?! That’s thanks to buddy punching. You know that family vacation you wanted to go on but didn’t?! Thank you buddy punching. If you worry that you’re going to hurt company morale just throw or a company picnic. Heck, take the team to Disneyland, you’ll still save money.
2. No more rounding up
With a minute here and a few more there, employee “time theft” averages out to at least ten minutes per employee, per day, according to the American Payroll Association (APA).
A recent diagnostic assessment analysis conducted for a 6,800 employee manufacturer revealed rounding-rule abuse cost of over 1.3% of total wages paid.
Unlike humans, computers don’t round things up when recording time. So when an employee punches in or out using time-clock software, they have to make an extra effort to steal those precious minutes. Far more of an effort than they would make rounding up times when manually entering the information.
Remember our company from the previous section (20 employees with avg. $50K salary)? That same company would lose another $13,000 annually on rounding up. In case you’re not following, we’re at $35,000 per year lost to rounding up and buddy punching alone. But wait…
3. Lower error rates
You can’t eliminate 100% of the mistakes, but reducing payroll mistakes helps the bottom line more than you may suspect. Especially if you consider that on average, Americans workers say they must notice an overpayment of a staggering $463 before alerting their employer to the mistake.
It happens more frequently than you think, acccording to the IRS, 33% of employers make payroll errors, and the American Payroll Association claims that these errors range between 1-8% of total payroll. Roughly, 40% of small businesses incur an average of $845 a year in IRS penalties for mismanaged payroll entries.
Back to our company from the example. A 20 employee company, with an average salary of $50K, can lose an additional $80,000 annually due to errors, not including the IRS fine.
So, to sum up. A 20 employee company is likely to lose $115,000 annually due to buddy punching, rounding up, and other payroll errors.
4. Accuracy pays
The accuracy and cost-effectiveness of your time tracking methods don’t start and end with reducing employee cheating and typos. When it comes to businesses that bill customers by the hour, accuracy in time reporting can be crucial for business reputation.
Providing clients with down-to-the-minute reports of the time they pay your company for can go along way in establishing trust and making a brand.
5. New opportunities await
Time tracking software can offer more than just error avoidance and added accuracy. Software time-clocks and accurate recording of hours for payroll calculations can bring in new opportunities and manage them better. For example, the DOL demands that all federal contractors provide weekly payroll reports for the manpower employed by contractors on government projects.
Managing the middle
Digitizing your attendance tracking and management systems doesn’t only affect the margin by improving accuracy, adding opportunities and giving cheaters a hard time. Time clock software can save your team managers, supervisors, and especially HR payroll managers a lot of time and through that, save some more money.
1. The endless payroll thread
If you ask human resources or team managers what their least favorite part of payroll is, odds are good that they’d start with the fun job of chasing down employees to hand in or confirm their timesheets.
By using software instead of a dried tree pulp to keep track of attendance, the process can be made faster, more accurate, and less time-consuming for everyone involved. The right time tracking software will automate and organize the process of confirming timesheets so you can finally take that vacation you’ve been pushing back.
2. The power of transparency in business
In the services industry, most businesses try to create a relationship of trust with clients and prove themselves highly reliable. Service providers charging by the hour can gain quite a few points with their clientele by providing accurate data rather than handwritten estimates. With software time-clocks, you can invoice clients directly from the system, providing swiss standard accuracy with minimal time invested in endless calculations.
3. Be in the know
As your business grows, keeping track of piling expenses and balancing your sheets becomes increasingly important. Simply guesstimating what your overall payroll run will be at the end of the week or month isn’t going to cut the mustard anymore.
Unlike paper sheets in the hands of your employees or on the wall in the office, software time-clocks can give you an accurate payroll balance in real-time. When you can easily run reports on various time periods you can better understand what your future payroll will look like and plan ahead like the good boy scout you always knew you could be.
4. Quick response to unexpected overtime
Nobody wants to be that boss who is constantly checking up after everyone. It’s tedious, inefficient, creates distrust, and makes everyone feel like big brother is always watching. Checking an employee timesheet to discover unauthorized overtime days or weeks after it has been clocked-in is unpleasant but, more important, it’s costly.
Online time-clock software solutions can prevent such unpleasantness by notifying you as soon as an employee goes into overtime. In many cases, you will discover they simply forgot to clock out, and avoid an unpleasant conversation about unauthorized overtime with said employee.
5. Time and place
Normally, when an employee is sent out into the field or to a client site, their communication with supervisors is done by phone. You can roughly tell where a tech or representative started working by simple asking them where they are. Alternatively, you can use a mobile-based software time-clock that adds a geolocation signature to attendance records, and lets you know when your employees actually arrive at the client site.
Don’t forget the little guy
Software time-clocks have numerous advantages over pen and paper for employees as well. While some employees resist the transition they are usually quick to see the advantages and make the switch to online time tracking once they are presented with the how a digital time clock can actually benefit them.
1. Paid right (and) on time
Timesheet corrections, emails, phone calls and the time wasted finalizing that timesheet to be paid – employees do not enjoy that. Moreover, these unpleasant activities will often come at the expense of work hours, quickly becoming an exponential kind of a problem. Getting to that Holy Gails – the approved timesheet – faster by using software attendance management can help prevent delays in payroll. It can also make the process of timesheet correction and approval as easy as liking a photo on Instagram.
2. Empowerment through transparency
Paycheck surprises are only fun when they’re positive. At least for employees. They can be unpleasant when you’re planning a household budget around your income. Online attendance solutions give your employees always-on access to payroll estimates and summaries of hours worked. Such transparency helps mutual trust a sense of reliability in the employee-employer relationship.
The risks of staying behind
You don’t need to be a physicist to know a simple law of nature – an object at rest stays at rest. All you need to do is take a look at employees crawling back from a break. The problem with lagging isn’t only that it reduces effectiveness and profitability of a business, but also prevents a business from adjusting to market demands and conditions.
1. The costs of ink and paper
Printing a timesheet is cheap. The damage it can do isn’t. The higher your annual payroll, the more of it you lose to errors, time theft, and unplanned overtime. The calculation is quite simple – if your annual payroll is 1,000,000, according to the most optimistic of estimates, 5% of that evaporates into thin air. That’s fifty grand you can invest in a more accurate and comfortable time tracking solution that can lower monetary losses in payroll in future years and as your business grows.
2. Keeping up with law & order
Federal and state labor and tax laws, as well as the paperwork involved, are one of my least favorite things about managing a business. But it’s not only about how annoying and tedious it is, it’s also about how dangerous it can be to mess it up.
For example, The Fair Labor Standards Act (FLSA) requires businesses to keep accurate records of employee work hours but lets the owners choose their own method of timekeeping. It also demands you keep attendance documentation for at least two years, easily available for government representatives’ inspection. In addition, by keeping accurate historical records of employee attendance and payroll, you can protect yourself from legal action from disgruntled employees unjustly claiming they were underpaid.
Staying on top of regulatory compliance demands can be a daunting task, made even more challenging by a pile of papers that are easy to misplace, destroy and falsify.
Making the time clock switch
Once you’ve made the decision to switch the hard part is already behind you. Now, you just need to decide on a few basic guidelines for choosing the time clock software that is right for you and you can find them here: “8 Money Saving Tips for Choosing a Free Online Time Clock”.