The Best Way to Track Employee Hours (Hourly & Salaried)

employee timekeeping
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Liz Strikwerda

Content strategist and corporate blogger (2000+ posts). Her work has been featured on G2's Learning Hub, Human Resources Today, Better Buys and over 500 business websites. She plays bluegrass mandolin and enjoys sailing her catamaran and hiking in the red rock wilderness of southern Utah. Connect with me on LinkedIn

Tracking employee hours correctly is essential for payroll, compliance and growth. After all, you can’t have a business without paying your employees. In addition, tracking hours allows you to bill your clients and tie employee time to specific projects. At a broader level, it helps you understand how your labor dollars are spent.

What’s the best way to track employee hours?

If you run a small business, you need timekeeping software. Sure, you could use Excel spreadsheets, but they will hold your business back. (Don’t even consider pen and paper timesheets.) Small business timekeeping software is powerful, easy to use and more affordable than ever.

How does employee time tracking software work?

Let’s discuss how a small business owner uses employee time tracking software.

The first step is to capture punches (shift start and end times). With timekeeping software, employees can punch in and out for shifts with a hardware clock, online portal or mobile time clock. The software captures the shift punches (regardless of clocking method) and tracks hours for each employee. In essence, it creates virtual “employee timesheets.” Just like paper timesheets, they include the date of punches, hours worked, overtime and other details.

Cloud-based timekeeping software is ideal for small businesses

Before cloud computing, small businesses had to buy software and install it on company servers. It was expensive and users had to manage updates and maintain the software. Most small business timekeeping software is now cloud-based (also called Software as a Service or SaaS). Cloud-based software typically uses a subscription-type pricing model. This allows small businesses on a tight budget to pay as they go. With a low monthly fee (and little or no upfront cost), cloud-based timekeeping systems are affordable for even the smallest businesses.

Why is software the best way to track employee work hours?

If you want to scale, you need to automate non revenue-generating processes. That lets you and your team focus on your core business.

Automating timekeeping has a big impact on overall efficiency. This is because it is a daily, foundational process. Companies that still use pen and paper waste countless labor hours managing timesheets, payroll and employee schedules.

Using specialized software gives you important advantages:

  1. Know when and where employees are working
  2. Save managers time on correcting and approving employee timesheets
  3. Avoid expensive unplanned overtime
  4. Establish trust between employees and management
  5. Prevent buddy punching, timecard padding and other types of hours theft
  6. Keep track of PTO accruals
  7. Generate labor data for better business decisions

How can I choose time and attendance software?

Let’s discuss how to choose the right timekeeping software in 9 steps:

1. Find the right fit

Choose a time and attendance system that can accommodate your current workforce and allow for growth. You will save yourself the hassle of having to switch systems later.

2. Understand that ROI is more important than price

Don’t be tempted by a free plan. Vendors limit functions for free time tracker apps on purpose. They expect you to upgrade to a paid plan for a complete system.

3. Get advanced mobile functions

Most timekeeping systems have a basic mobile app at a minimum. If you have several offsite employees, make sure the mobile app has advanced features for punch monitoring. These include schedule adherence and geofencing. With schedule adherence, the system restricts punches outside of authorized shift schedules. Geofencing allows managers to create a perimeter using GPS. If an employee punches in outside the fence, the software sends the manager an alert.

4. Insist on quality customer support

If your vendor doesn’t provide good support, you won’t get the most out of your software. Get answers to the following questions:

  • When is their tech support is available?
  • Is it live support or a ticket system?
  • What set-up and customization do they offer?
  • Will they help train your team members?

If possible, ask other business owners in your industry for recommendations.

5. Don’t forget analytics and reporting

Now, let’s talk about time and labor analytics. Metrics are underutilized in the small business world. If you want this key advantage, make sure your software tracks metrics and generates reports. Important metrics include overtime, absenteeism, and missed punches. More advanced systems have sophisticated productivity dashboards. It’s never been easier to start tracking metrics for data-driven insights to grow your small business.

6. Prevent expensive time theft

If you have employees who do time entries unsupervised, you are probably losing money. Unfortunately, it’s fairly common for employees to clock in early or clock out later than authorized. It’s so common, in fact, some large businesses build employee time theft into their budgets!

A biometric time clock can pay for itself quickly by reducing employee time theft. This clocking device uses a biological identifier that employees can’t share with co-workers. If you don’t have a problem with buddy punching or timecard padding, an online clock-in portal may be ideal. They are affordable and allow employees to clock in on any mobile device.

7. Integrate with existing software

The most important integration is timekeeping and payroll. First off, don’t consider software that can’t import employee timesheets data directly to payroll. Secondly, make a list of the other software you use. If you can schedule a live demo, ask about integrations. For example, you might have project management, onboarding, or scheduling software.

8. Streamline compliance

If you must comply with Payroll Based Journal or stable schedule laws, look for these tools. If you offer PTO, make sure your system can track accruals. For businesses with a variety of employee types, employee profiles can help. They classify employees, independent contractors, interns, temps, and seasonal workers correctly. Lastly, if you have over 50 employees, you’ll want Affordable Care Act compliance tools.

9. Enable employee self-management

It’s important to understand that your employees want to manage their timesheets and schedules. Self-service portals provide this and more. In a self-service portal, for example, employees can see their work schedule, time off accruals, and pay stubs. In addition, they can request vacation time and shift trades.

Furthermore, self-service portals are equally useful for managers. Managers can build schedules with templates, process timecards and approve PTO. Self-managed HR improves engagement and reduces administrative costs.

How do I set up time and attendance for my business?

Are you starting from scratch? (Congratulations on your new business!) Let’s discuss how to create a system for tracking employee work hours. Time and attendance includes the following components:

1. Create a time and attendance policy (see example policy at the end of this article)

A good time and attendance policy sets appropriate expectations from the start. Even if you only have a handful of employees, help your team establish good work habits. This will help you create a positive work culture.

Your time and attendance policy should be:

  • Formalized
  • Enforced equitably
  • Easily accessible-make sure to include it in your employee handbook
  • Compliant with wage and hour laws
  • Designed to improve the employee experience

2. Build and publish employee schedules

If you have hourly employees or part-time variable shifts, this is especially important. Just-right shift coverage ensures that your customers are taken care of – while keeping payroll costs in check. It’s equally important to try to accommodate your employees’ schedule preferences as much as possible. Schedule flexibility can help you keep your best employees. This has become even more important during pandemic-induced disruption.

3. Create a system for recording work hours

Step three is setting up the mechanics of timekeeping. The best systems include integrated software and hardware. Unified systems do it all. They capture punches and calculate employee hours, wages, and withholdings for payroll.

The specific system you choose depends on your type of business. For example, a landscaping company might use a mobile app so employees can punch in at the job site. The mobile app is connected to the main timekeeping system. That means that both mobile punches and onsite punches are all recorded in the same software.

Furthermore, a manufacturer might use facial recognition time clocks to streamline shift punching. A facial recognition clock identifies each employee in a split second as they stand in front of the device. Employees don’t need to take off their gloves to punch in a PIN or use a finger scanner.

Lastly, 100% remote companies might use a website portal. Employees can punch in for their shift using their laptop. Plus, they can tie work time to specific jobs or clients.

To learn more about time tracking needs for specific types of businesses, see  Employee Time Clocks for Small Business: The All-Encompassing Guide.

Why You Should Track Time for Salaried Employees

Is employee time tracking unnecessary for salaried employees? Nothing could be further from the truth. A timekeeping system is essential, regardless of how employees are paid.

Here’s why:

1. Attendance tracking creates employee accountability

Employee accountability is paramount for productivity and engagement. This is true for all employee types including contractors, freelancers, and telecommuters.

2. Attendance tracking is crucial for compliance

Consider Fair Labor Standards Act (FLSA), Affordable Care Act (ACA) and Family Medical Leave Act (FMLA) laws. They apply equally to all workers, regardless of the way they are paid. Automated timekeeping creates a foundation for compliance.

In addition, an automated system not only ensures accurate payroll, it automatically stores essential records. For example, schedules, PTO, overtime, and employee classifications. Keeping records that verify compliance is key to protecting your business.

3. Timekeeping is essential for overtime management

When employees have to work overtime when they don’t want to, it can lead to burnout. Not surprisingly, when you have burnout, attrition goes up. Attrition lowers morale and has monetary costs as well. Every time you have to find and train a new employee, you slow business growth.

4. Timekeeping simplifies time off requests

PTO is an important perk for attracting and retaining employees. Smart business owners make sure their team manages PTO properly. A timekeeping system makes it easy for your employees to request time off. They can request vacation time on a mobile device, anytime and anywhere. Managers approve requests in the system. This eliminates confusion about vacations and ensures that your clients aren’t shortchanged because of a PTO mix-up.

6 Key Findings About Employee Time Tracking for Small Business

  1. 49% of U.S. employees consider leaving a company after experiencing two problems with their paychecks. (ASAP Payroll)
  2. The average cost of labor every time an employee fills out a timecard is $9.37. For a company with 100 employees, that’s $937 in employee time every pay period. (Ernst & Young)
  3. Employers overpay up to 200 billable hours per year because they do not have time tracking software at work. (WorkPuls)
  4. Time theft can increase payroll 7%. (American Payroll)
  5. Automated time and attendance can decrease timecard prep from 7 minutes/card/pay period to 1 minute/card/pay period. (Finances Online)
  6. Employees who log their time at least once a day are 66 percent accurate, whereas people who log their time weekly are only 47 percent accurate, and people who complete their timesheet less than once a week are only 35 percent accurate. (Acello)

Example Time and Attendance Policy (SHRM)


The purpose of this policy is to set forth [Company Name]’s policy and procedures for handling employee absences and tardiness to promote the efficient operation of the company and minimize unscheduled absences.

Punctual and regular attendance is an essential responsibility of each employee at [Company Name]. Employees are expected to report to work as scheduled, on time and prepared to start working. Employees also are expected to remain at work for their entire work schedule. Late arrival, early departure or other absences from scheduled hours are disruptive and must be avoided.

This policy does not apply to absences covered by the Family and Medical Leave Act (FMLA) or leave provided as a reasonable accommodation under the Americans with Disabilities Act (ADA). These exceptions are described in separate policies.


“Absence” is defined as the failure of an employee to report for work when he or she is scheduled to work. The two types of absences are defined below:

Excused absence occurs when all the following conditions are met:

  1. The employee provides to his or her supervisor sufficient notice at least 48 hours in advance of the absence.
  2. The absence request is approved in advance by the employee’s supervisor.
  3. The employee has sufficient accrued paid time off (PTO) to cover the absence.

Unexcused absence occurs when any of the above conditions are not met. If it is necessary for an employee to be absent or late for work because of an illness or an emergency, the employee must notify his or her supervisor no later than the employee’s scheduled starting time on that same day. If the employee is unable to call, he or she must have someone make the call.

An unexcused absence counts as one occurrence for the purposes of discipline under this policy.

Employees with three or more consecutive days of excused absences because of illness or injury must give [Company Name] proof of physician’s care and a fitness for duty release prior to returning to work.

Employees must take earned PTO for every absence unless otherwise allowed by company policy (e.g., leave of absence, bereavement, jury duty).

Tardiness and Early Departures

Employees are expected to report to work and return from scheduled breaks on time. If employees cannot report to work as scheduled, they must notify their supervisor no later than their regular starting time. This notification does not excuse the tardiness but simply notifies the supervisor that a schedule change may be necessary.

Employees who must leave work before the end of their scheduled shift must notify a supervisor immediately.

Tardiness and early departures are each one-half an occurrence for the purpose of discipline under this policy.

Disciplinary Action

Excessive absenteeism is defined as two or more occurrences of unexcused absence in a 30-day period and will result in disciplinary action. Eight occurrences of unexcused absence in a 12-month period are considered grounds for termination.

Job Abandonment

Any employee who fails to report to work for a period of three days or more without notifying his or her supervisor will be considered to have abandoned the job and voluntarily terminated the employment relationship.

The Society for Human Resource Management 

Simplify HR management today.

Simplify HR management today.

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