Learning how to calculate work hours is an essential skill that all managers need.
It doesn’t matter if your business outsources payroll or does it in-house, knowing the basics can help you create better schedules, control your labor budget, and keep your team happy and engaged.
In this article, we discuss the five steps necessary for successful payroll and see how these steps apply to a hypothetical employee.
Work Hours Defined
Before you sit down to calculate work hours, it’s crucial to understand exactly what numbers you’re crunching and how important those numbers (and the records on which they appear) are to your business.
In the case of your employees’ time at work, it’s not an arbitrary definition that differs from one business to the next. The federal government actually sets the standard.
The United States Department Of Labor (USDOL) defines work hours as:
[The] time an employee must be on duty, on the employer premises, or at any other prescribed place of work.
And because the USDOL is the one doing the defining, it applies to every business that sets up shop in the United States. Work hours, then, are the same for businesses of all sizes and types, no matter where they’re located.
The important thing to keep in mind about all this is that time cards (in whatever format you adopt) are legal documents. That means they can be used in legal proceedings as evidence.
The IRS can also ask you to produce records of time worked going back as far as two years to ensure that you were and are compliant with local, state, and federal labor laws. That’s why it’s important to keep accurate records and retain those records for at least two years.
How To Calculate Work Hours
The best way to learn how to calculate work hours is to watch it being done and then go do it yourself. We can help with the first part.
For the purposes of this exercise, we’ve created a hypothetical employee named Katie.
Katie works at a restaurant where her primary responsibility is acting as hostess, for which she is paid $15 per hour. Sometimes, though, Katie fills in as a server when someone calls in sick. For this job, she is paid $10 per hour (this becomes important in step four).
Armed with employee and pay-rate information, it then becomes a matter of setting policies and procedures that govern the way you handle the numbers involved. After that, it’s just a matter of using those numbers to do a bit of simple math to figure out each employee’s paycheck.
1) Choose The Way Your Business Will Track Time
Setting up an effective method to calculate work hours starts with choosing the way your business will track time.
At the most basic, there are three ways to do so:
- A written sign-in sheet
- A clock that prints the time on paper time cards
- A computer-based tracking system
That said, there are systems available that combine different aspects of each method to better suit the needs of your business.
For example, imagine that you chose a system that includes paper time cards for the employees and a time clock that both prints on the card and stores the information in a computer database for easy payroll processing.
In our hypothetical situation, Katie would walk into the break room, retrieve her card, and insert it into the time clock. The unit would then record 9:00 a.m. on her paper card and in the master database as the time she arrived at work.
2) Set A Time Format
Setting the time format that your business uses may not seem like an important decision at first, but it can have a big impact on the way you calculate work hours later on. The two most common time formats are standard and military.
Standard time format is what you see when you look at most clocks: the time from one to twelve. Recording standard time requires the addition of “a.m.” or “p.m.” to differentiate between morning and afternoon.
Military time counts the morning hours just like the standard format (e.g., 7:24 a.m., 9:11 a.m., 11:47 a.m., etc.). But after 12:59 p.m., military time begins counting by adding an hour to twelve.
For example, 1:00 p.m. in standard format would be 13:00 in military time. You’ll notice that you don’t need the “p.m.” to indicate afternoon as you do with standard time format. That’s because the other one o’clock (in the wee hours of the morning) is written 01:00.
Why is this important? Because choosing military time makes figuring out the hours worked extremely easy if you have to do it manually. We’ll use Katie as an example.
Let’s say Katie clocked in at 9:00 a.m. (standard format) and clocked out at 5:00 p.m. You’re going to have to do some roundabout math to calculate the hours worked since you can’t simply subtract one number from the other in this case.
Now, let’s say that Katie clocked in at 09:00 (military format) and clocked out at 17:00. Calculating the hours worked becomes simply a matter of subtracting nine from 17 to get eight. So, Katie worked eight hours that day.
3) Set Up A Rounding Policy
Very rarely will all of your employees clock in and out precisely on the hour. There are going to be some people early and some people late. This is where a rounding policy becomes crucial.
The United States Department of Labor recommends that businesses calculate work hours in fifteen-minute increments. Employee time from one to seven minutes rounds down, while time from eight to fourteen minutes rounds up.
For instance, if Katie clocks in at 08:58 and clocks out at 17:02, she’s worked for eight hours and four minutes. That would round down to a straight eight hours.
If, however, Katie clocks in at 08:58 and clocks out at 17:10, she’s worked for eight hours and twelve minutes. That would round up to eight hours and fifteen minutes.
4) Separate Work Time Into Categories
In some industries, like the hypothetical restaurant business mentioned at the beginning of the How To Calculate Work Hours section, employees can work different jobs at different pay rates.
Remember, Katie works as a hostess for $15 per hour but sometimes fills in as a server for $10 per hour. When this occurs, it’s important to separate each block of time into the different pay rates so you can pay Katie accordingly.
For example, during one week, Katie works 25 hours as a hostess and 15 hours as a server. Because your business pays different rates for those jobs, it will directly affect your calculations, your labor budget, and the final paycheck that Katie receives.
It becomes a legal issue when you fail at this step, so, if it applies to your business, we recommend prioritizing sorting work into categories so that everything is calculated correctly.
5) Calculate Work Hours For The Week
Now, it’s time to calculate work hours.
In this example, she worked only one position — hostess — for the entire week. As such, here’s the data for those seven days:
Monday: 10:00 to 17:00 (7 hours)
Tuesday: 08:55 to 17:00 (8 hours — the five extra minutes round down)
Wednesday: 08:58 to 17:02 (8 hours — the four extra minutes round down)
Thursday: 08:59 to 17:10 (8.25 hours — the 11 extra minutes round up)
Friday: 09:00 to 17:00 (8 hours)
Adding all of this up, Jane worked a total of 39.25 hours as a hostess. Next, simply multiply those hours by her hostess pay rate of $15 per hour.
Here’s how it breaks down:
Total Pay = 39.25 hours x $15 per hour
Regular Pay = $588.75
All that’s left now is to write or print the check.
Calculate Work Hours Faster With Software
Want to calculate work hours faster and have a general idea of what your labor budget looks like before you actually crunch the numbers? Harness the power of the Inch software to make everything from scheduling to time tracking to task management easier and more streamlined.
With Inch, you can create the best workflow possible, get a sense of the hours your employees are going to work beforehand, and still have time to focus on other tasks that drive your business forward.
The app also gives you and your employees the ability to perform a wide variety of tasks from smartphone, tablet, laptop, or desktop, including:
- Working from a shared task list
- Getting clarity on work that needs to be done
- Receiving voice-assisted reminder notifications
- Clocking in and out of tasks at different locations
- Completing work assigned to them
- Communicating with managers and each other
Whether you need help setting up when each team member will work or what tasks they will perform, Inch gives you unprecedented control over an inherently complicated process and makes it easier than ever to calculate work hours for your team and your business.
For more free resources to help you manage your business better, organize and schedule your team, and track and calculate labor costs, visit TryInch.com today.