The Best Timekeeping Method for Calculating Overtime

With the upcoming unknown that is the Department of Labor (DOL) Overtime Exemption update, it has become increasingly important to have an effective timekeeping system in place. If you are not familiar with the DOL Overtime Rule, it was scheduled to go into effect on December 1, 2016, but a federal judge has ruled against the regulation until further notice. You can read more about that here. At this point, we know that the overtime exemption rule has been blocked temporarily, but whether or not it will go into effect later, or will be modified, is anyone’s guess. Due to the unknown, it is best to be prepared for the changes to stay compliant. The best way to prepare yourself and your company is to track employee hours and pay based on hours worked. If you’re thinking about tracking employee hours in order to manually calculate paychecks, you’ll want to be mindful of a few things first. 

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Calculating Hours and Factoring In Overtime

According to federal law, an employee working over 40 hours during a week will receive overtime pay. By tracking employee hours you can easily stay in compliance with the law by paying those who worked over that threshold. Keeping records of these hours now could help you avoid penalties later on. Another thing to note when manually calculating time cards is that every time card you calculate will be adjusted based on the week, not the pay frequency. No matter if you pay your employees weekly, bi-weekly, semi-monthly, or etc. you will need to consider the hours worked during a given week, not during the overall pay period. This will be especially important when you’re looking at calculating those overtime hours (if any). 

It is a good idea to keep records of your time card documents if a situation arises where you would need to prove or disprove the overtime calculation and payout. If a few months down the road you have a disgruntled employee claim they did not receive overtime pay for hours worked in excess of 40, you can pull out your documentation of payment for the time worked. 

Employee Size

It is no secret that we, as humans, make mistakes. When you’re calculating time cards manually there is a large margin for error. Depending on your chosen method of timekeeping, it can be difficult to read the timestamps, whether they are printed by hand or by machine. If you have a punch card policy you may find yourself spending more time trying to read the timestamp and as a result, miscalculating hours. If you have a small business this may not be a big problem for you. However, the more employees you have, the more time it will take to run this process by hand. 

If you do choose to manually calculate your employee's time cards, it is ideal to use a software that can capture the punches for you to avoid misreading a punch. You also have the ease of being able to take the punches from the software and import them into an excel spreadsheet to eliminate transposing numbers or mistyping. Once the hours are transferred to the excel document, you can either run an addition formula in Excel or grab out your calculator to do some old fashioned addition. My advice? If you’re looking to add up your employee hours manually, do so with the help of a program like Excel. Again, this only lessens that potential margin of error. 

Converting Hours For Calculation

The easiest way to calculate your hours is to convert them to the nearest quarter-hour. You’ll start by rounding every punch to the closest quarter hour. For minutes one through seven you will round down and for minutes eight through fourteen you will round up the to the closest quarter hour. For example, if someone punched in at 7:37, you would round to 7:30. However, if they punched in at 7:38 you would round up to 7:45. Once you round all the punches in your system to the nearest quarter hour, you can then begin adding up all hours worked. 

An easy way to calculate hours worked now that all punches are in quarter hour intervals is to convert those hours into decimals for easy addition. If an employee worked for 8 hours and 15 minutes, you would convert that into decimal form. Keep in mind, every quarter hour equals a quarter of a hundredth (15 minutes equals .25, 30 minutes equals .50, and 45 minutes equals .75). So that employee that worked 8 hours and 15 minutes will have worked 8.25 hours. If they had worked for 8 hours and 45 minutes, you would convert that to 8.75 hours worked. 

EXAMPLE: Jason works for a manufacturing plant and is paid out on a weekly basis. His hours for the past week were as follows:

Monday | 8:03am to 4:38pm
Tuesday | 7:59am to 4:29pm
Wednesday | 8:08am to 4:31pm
Thursday | 8:01am to 4:40pm
Friday | 8:05am to 4:34pm

Using the method referenced above this would mean that the daily totals are:

Monday | 8.75 hours
Tuesday | 8.50 hours
Wednesday | 8.25 hours
Thursday | 8.75 hours
Friday | 8.5 hours

For a grand total of 42.75 hours worked (assuming he didn’t take any lunches). You can see this method simplifies the process by keeping consistency, which makes for cleaner and more readable calculations. 

Know Your Time Policy 

As a payroll and HR software company, we have seen many different (and elaborate) time policies throughout the years. It is very important to know your company’s time policy in order to accurately calculate an hourly employee’s time worked. If your company allows for paid breaks you will want to be sure to separate those punches from unpaid breaks. Depending on your age or industry, the law may require a certain amount of breaks to be taken by the employee every so often. If you have employees that fall into this category, you will need to know whether or not these breaks mandate payment, or if they are unpaid. This will make a big difference in your calculations. 

In the event that the breaks are unpaid, you will simply subtract that amount of time from the employee’s overall time worked. Let’s say Susan came in at 8am and punched out at 5pm. In between that time she took a 35 minute lunch break (unpaid) - so now you will find the hours worked (8am to 5pm) and subtract 35 minutes from that in order to get a true representation of her hours worked. However, if your company offers a 15 minute paid break and she used that, you will not subtract those punches from her time worked since they are paid breaks. 

Manually calculating time cards can be an effective method to compute hours worked, but keep in mind that as your business grows it may be more efficient (dollars and time wise) to invest in a timekeeping software that will calculate your hours for you.

If you’re interested in seeing how much money it's costing you to manually calculate time cards, use the free labor calculator below.