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July 18, 2024
How to calculate hours worked: A step-by-step guide
Calculating employee hours worked calls for precision and patience. These error-prone computations must occur every pay period, and accuracy is paramount: pay miscalculations can lead to compliance lapses, employee churn, and snowballing costs. The direct and indirect costs to resolve a payroll error are on average $291. But calculating work hours can be convoluted because of mobile workforces, differing pay rates, overtime, and multiple time tracking methods.
Further, federal, state, and local laws layer on additional regulations around breaks, overtime, and time off. Union collective bargaining agreements (CBAs) add another level of complexity. But the consequences of compliance failures can involve legal action, fines, and reputational damage.
Fortunately, a variety of tools and methods can help accurately track and calculate hours worked. In this article, we’ll provide a step-by-step breakdown on how to calculate hours worked and touch on different timekeeping tools that institutions can use to track employees’ hours, with considerations on how to choose the best one for your organization.
How to calculate hours worked
Calculating employee hours doesn’t require a high-tech solution: by determining start and end times, converting to military time and decimals, and subtracting unpaid breaks, you can do simple math to calculate the hours an employee worked. We’ll go over each step in detail below.
Step 1: Determine start and end time
The first step is to establish when an employee started and stopped working. Some firms refer to this process as “clocking in” and “clocking out.” For example, an employee might begin working at 9:00am and finish at 5:30pm. So, their start time would be 9:00am and their end time would be 5:30pm. Employees might log these times using a punch card, timesheet, or digital time clock. We’ll discuss these different methods in more detail later.
Step 2: Convert standard time to military time
Standard time formatting makes it more challenging to calculate hours worked. Converting to military time makes calculations easier. Military time is a 24-hour clock where each hour in the day has its own number, eliminating the need to note am and pm. Converting to military time is easy: simply add 12 to all pm hours. So, 3:00pm becomes 1500 and 8:45pm becomes 2045.
For the employee who started at 9:00am and ended at 5:30pm, these hours would appear in military time as 0900 and 1730.
The table below shows the conversion from standard to military time for each of the 24 hours in a day:
Step 3: Convert times to decimals
To later calculate pay, work duration must appear as a number, rather than as hours and minutes. Because an hour is 60 minutes long, converting to decimals is simple: divide the number of minutes by 60.
For example, if an employee stopped working at 1730, divide 30 by 60 to get .5, so the end time would be 17.5.
By making this conversion, subtraction in the next step will be much easier.
Step 4: Subtract start time from end time
Now that you’ve successfully converted from standard to military time and minutes to decimals, you can subtract the start time from the end time. If the start time was 0900 and the end time was 17.5, subtract 9 from 17.5: 17.5 – 9 = 8.5.
Step 5: Subtract unpaid breaks
The next step is to subtract any unpaid breaks, and you can use the same steps listed above to calculate the length of the break. For example, if an employee’s break started at 1330 and ended at 1400, the break was 30 minutes long, converting to .5 hours. For the employee whose workday lasted 8.5 hours, subtracting a .5-hour-long break would yield 8 hours worked.
Step 6: Calculate total hours worked
Once you’ve calculated the total hours worked for each day, you can add the hours across all the days the employee within the pay period. Let’s say the employee in our example above worked for 10 days total during the pay period. For four of those days, the employee worked 8 hours, and for six of the days, the employee worked 8.5 hours:
8 + 8 + 8 + 8 + 8.5 + 8.5 + 8.5 + 8.5 + 8.5 + 8.5
4(8) + 6(8.5)
32 + 51 = 83
With this math, you now know that the employee worked 83 hours total during the pay period.
How to track overtime
Some of your employees might be eligible for overtime pay—the compensation an employee should receive for working beyond a set limit per day, week, or pay period. Depending on the employee’s pay type, compensation, and other factors like job duties, employees receive a classification of exempt and non-exempt. Only non-exempt employees can receive overtime pay.
To make matters more confusing, there are three different types of overtime pay: time off in lieu, voluntary overtime, and compulsory overtime. To learn more about how to classify employees and these different types of overtime, read our article on understanding overtime pay.
In the simplest scenarios, overtime rates become necessary when non-exempt employees work more than 40 hours in one week. In general, overtime pay is set at a rate of 1.5 times the employee’s normal rate, according to the Fair Labor Standards Act (FLSA).
However, the FLSA isn’t the only law regarding overtime. Some states, such as Alaska, California, Colorado, and Nevada, have their own overtime laws. In California, employees receive 1.5 times their pay rate for every hour worked past an eight-hour shift and double time after 12 hours. Some states have industry-specific overtime rules: in Oregon, employees in manufacturing establishments receive overtime when working more than 10 hours in one day.
When calculating overtime pay, take the following steps:
- Research applicable state and local regulations based on your firm’s operating locations and industry.
- Understand each employee’s non-exempt status, department, pay rate, locations (if they move between cities or states), and job code.
- Incorporate additional rules from CBAs.
If accurately calculating overtime pay seems daunting, consider using software to support this process to reduce potential errors.
Calculating hours worked is more straightforward with clear steps. However, ensuring accuracy is still a challenge and requires accurate time collection.
How to track hours worked?
There is no one right way to track employee hours worked, and we’ll cover four different methods. The best system for your organization will depend on your operations, types of employees, and existing technology. For more on tracking employee hours, read our in-depth review of timekeeping strategies.
Handwritten timecards
Handwritten timecards are just what the name implies: employees write on a timecard start and end times for each shift. Each employee will need to record precisely any breaks, days off, or variations from their normal schedule.
Handwritten timecards work well for small companies where all employees work from the same location. Employees can begin using a timesheet template with minimal training. However, for larger organizations with distributed employees, handwritten timecards may not match the organization’s complexities.
Spreadsheets
Spreadsheets can reduce the overhead of calculating employee hours worked. Thanks to formulas, the steps outlined above become faster with fewer mistakes. However, spreadsheets may not easily account for scenarios like blended overtime, compensatory time, and overtime thresholds. If employers are manually entering values into the spreadsheet from handwritten timecards, the amount of overhead can be immense with a high potential for user error.
Payroll software
As its name indicates, payroll software helps organizations track employees’ time as well as run payroll, potentially creating efficiency gains. However, payroll software can be more expensive, and subscriptions might include unnecessary features. Depending on your firm’s requirements, payroll software may not be able to comply with CBAs, industry-specific regulations, and state-level laws.
Time clocks and time-tracking apps
Employee timekeeping solutions fall into two categories: physical and digital. Physical versions are often time clocks where employees punch in and punch out for shifts and breaks, which work well with small, co-located teams. However, employers must still enter data from physical timecards into a digital format, often a spreadsheet or payroll program, to calculate employee hours worked and ultimately run payroll. For any organization with more than a few employees in one location, timecards quickly become too cumbersome, and any manual data entry can introduce human error.
As a result of these drawbacks, timekeeping software, such as a digital time clock, has become more popular. Employees can access digital time clocks through a website or a mobile app to clock in and out regardless of location. Additionally, digital time clocks often integrate with other parts of an organization’s time and attendance platform. These time clocks can handle the complexity of the modern workforce and automatically calculate hours worked while still integrating with payroll providers.
Automating hours worked calculations
Through the steps above, we’ve covered how to manually calculate employee hours worked, but because of the downside of this process, firms may decide not to calculate hours manually. Another option is to automate the process by connecting the various tools across scheduling, time tracking, and payroll. In practice, employees’ time tracking would integrate with software that automatically calculates hours worked and factors in pay rates, locations, regulations, and considerations like overtime pay while handling exceptions management.
Automating this process increases efficiency by decreasing the amount of time employers might spend manually entering times into a spreadsheet, running formulas, and incorporating paid breaks, time off, and overtime. These automations improve data integrity by reducing opportunities to introduce errors that might incur penalties, increase labor costs, and hurt employee engagement through paycheck mistakes.
Get started with employee timekeeping software
We’ve covered step by step how to calculate employee hours worked and reviewed several time tracking methods. When employers move to digital timekeeping and automatically calculate hours, they can realize efficiencies, increase accuracy, and govern costs.
TCP’s configurable time clocks protect time integrity by reducing errors and mitigating compliance risks. With access to real-time data, managers can actively review hours worked by employees for greater insight into their team’s overtime thresholds.
TCP offers wall-mounted, mobile, and web clocks that can integrate with other tools, from scheduling to payroll, to make your work easier. TimeClock Plus can help your team calculate your employee hours worked, no matter how complicated the math may be. Review our time and attendance best practices to make sure your process is up to date, or talk to an expert to learn how TCP can help your organization reach its operational goals, control costs, and engage employees.
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