Time is money. And if you aren’t properly tracking the hours employees work, time wreaks havoc on your bottom line. How do you make sure you’re doing it the right way, paying your employees the right wage, and protecting your net income from errors? Consider this your bite-sized guide to calculating hours worked.

The Big Picture

• Calculating gross wage based on hours worked is simple arithmetic.
• Calculating net pay is more complicated, as you’ll need to calculate deductions specific to your company.
• You can save time, reduce human error, and stay compliant by using time clock software to automatically calculate hours worked.

Tools for Tracking Employee Hours

The U.S. Department of Labor provides guidelines to help you track employee hours accurately. These are some acceptable ways to track time:

• Pen and paper time cards
• Mechanical time clocks
• Free time clock calculators
• Timeclock software

Let’s explore each one of these options in more detail.

Pen and Paper Time Cards

Pencil and paper might seem like an easy place to start, but it isn’t right for all businesses or workers. Time theft can be a major problem with the pencil and paper method since it’s difficult to ensure all the hours employees report are accurate.

This also can be a drain on productivity, since you or someone on your team will always need to review these time cards and add up the hours worked for every employee.

Mechanical Time Clocks

This device stamps the time and date onto a paper timecard. For this to work, the employer gives each employee a time card for the pay period. On-site employees then use the time clock to track their hours

It’s the employee's responsibility to clock in and out at the right time. They punch the time card whenever they arrive or leave work. Then, the employee tallies up hours worked, and the employee receives pay.

Free Time Clock Calculators

You can find many free online time card calculators on the internet that will calculate hours worked for you. OnTheClock offers several free time clock calculators:

• Time Card Calculator With Lunch and Overtime
• Excel Time Card Calculator
• Decimal Hours Calculator
• Military Time Calculator

Time Clock Software for Tracking Employee Hours

A more convenient option for tracking hours worked is time clock software. With OnTheClock, you get several features your business can benefit from.

• Quick and easy setup
• Automatic time clock calculations
• Advanced geolocation features
• Easy project tracking and job costing
• Send employee hours directly to payroll software
• Mobile and browser apps for simplicity

That said? We know OnTheClock may not be the right choice for all business owners. We’ll explain more in-depth about time clock software options later on in this article. But first, let’s discuss how to manually calculate hours worked.

Step 3: Calculate the time difference

To determine the length of each day worked, subtract the start time from the end time. For example, if you started work at 09:30 and finished at 17:45, the time difference would be 8 hours and 15 minutes.

Step 4: Subtract unpaid breaks.

If you had any unpaid breaks during your work period, subtract the duration of those breaks from the total time calculated in the previous step. For example, if you took a 30-minute unpaid break, subtract 30 minutes from the 8 hours and 15 minutes calculated earlier.

Step 5: Convert the remaining time to decimal format.

Convert the remaining time into decimal format for easier calculations. Our decimal hour calculator can do this for you, or you can refer to our conversion chart above. If you’re a math wiz, you can convert it yourself by simply dividing the number of minutes by 60.

Step 6: Add up the total hours worked for the pay period.

If you need to calculate the total hours worked for a specific pay period, you’ll repeat these steps for each day worked. Then, you can simply add up all the hours you calculated for the entire pay period.

Calculating hours worked is simple arithmetic. That said, if you need to calculate work hours on a regular basis, the process can become quite tedious. If you’re processing payroll for a staff of any size, manually adding hours worked quickly becomes time consuming.

If you’d like to streamline this process, modern technology can help.

How to Calculate Employee Hours Using Software

Whether you’re an independent contractor creating an invoice or responsible for the payroll of an entire company, using software to keep track of hours worked is a great convenience. There are 2 main ways to do this: you can use spreadsheet software (like Google Sheets or Microsoft Excel), or you can use an online time clock.

Tracking Hours with Spreadsheets

One of the most common ways to track hours worked is with a spreadsheet. Keep in mind that you’ll need to create multiple spreadsheets to reflect each worker, as well as each pay period. If you’re an independent contractor, you’ll create a spreadsheet for each client each pay period.

Step 1: Set up your spreadsheet.

First, you’ll need to create a new workbook — we like Microsoft Excel, but these instructions should also work for Google Sheets. To set up your workbook:

• Name the first column "Date" to track the dates worked.
• Name the second column "Start Time" to record the start time of each work period.
• Name the third column "End Time" to record the end time of each work period.
• Name the fourth column "Total Hours" to calculate the hours worked for each day.

Step 2: Enter the data.

If you’re a freelancer, we recommend that you record your working times throughout the pay period. If you’re processing payroll for employees, you’ll need to obtain this data from your workers. Either way, here’s how to fill out the spreadsheet:

• In the "Date" column, enter the dates for each workday.
• In the "Start Time" column, enter the start time for each workday.
• In the "End Time" column, enter the corresponding end time for each workday.

Step 3: Calculate the hours worked.

In the "Total Hours" column, use a formula to calculate the hours worked for each day. Subtract the start time from the end time to get the duration of work. If you’ve formatted your spreadsheet per our instructions, you can simply enter the formula =C2-B2 into cell D2. That’s because cell B2 is your start time, cell C2 is your end time, and cell D2 is the total hours worked.

Step 4: Format the total hours column

Now, we need to change how the hours worked are formatted.

• Select the "Total Hours" column (column D) and format it as a time format.
• Right-click on the column and choose "Format Cells."
• Select the desired time format (in this case, "hh:mm").

Step 5: Calculate the total hours for the pay period.

Next, we’ll use another formula to tally the total work hours for the pay period. Below the last row of the "Total Hours" column, use the SUM function to calculate the total hours worked for the pay period.

For example, if the "Total Hours" column ends at row 20, the formula for the total hours worked would be: =SUM(D2:D20).

Step 6: Save your spreadsheet.

Remember to save your file periodically to ensure your data is safely stored. It’s best to name your files in a way that helps you keep them easily organized (such as by date). Additionally, you can create different sheets or tabs within the workbook to track hours for different periods, projects, or workers.

That’s it! If desired, you can customize your Excel sheet by adding additional columns for notes, overtime hours, or any other relevant information. You can also use Excel's built-in functions and features to analyze your data further, such as calculating average hours, identifying days with the most hours worked, or creating charts to visualize your work hours.

What about tracking overtime?

One thing to keep in mind is that, if you have non-exempt workers, you’ll need to keep track of their overtime hours. The Fair Labor Standards Act mandates that overtime at a rate of time-and-a-half is paid for any hours worked in excess of 40 in a single workweek.

However, your state regulations may be different; for example, some states mandate that time-and-a-half is paid after 8 hours are worked in a single day. Other states mandate double pay as the rate of pay for overtime.

Additionally, your organization may have stricter overtime policies than what’s mandated at the federal level. Likewise, if your employees work an alternative work schedule, then overtime may need to be calculated totally differently. That’s because alternative work schedules are often compressed, allowing for shifts that exceed more than 8 hours with fewer workdays.

That said, we can provide some general insight into how to track overtime hours — just be sure to stay compliant with federal and state labor laws, as well as your employer’s policies.

Step 4: Calculate overtime hours.

To figure out the number of overtime hours, simply subtract the overtime threshold (e.g., 40 hours) from the total hours worked.

Step 5: Determine the overtime rate.

Double-check your employer’s overtime policy and/or your local labor laws to determine the overtime rate. Typically, overtime is paid at a rate of time-and-a-half. However, other pay rates, such as double pay, are also common.

Step 6: Calculate overtime pay.

Now that you have all the information, you can calculate overtime pay by multiplying the number of overtime hours by the rate of overtime pay. For example, say you’re calculating overtime at a rate of time-and-a-half for someone who worked 44 hours in a workweek. You’d multiply 4 hours by their rate-of-pay, then multiply it by 1.5.

Step 7: Calculate total earnings.

Now that we’ve calculated overtime pay, we can add the regular pay for the regular hours worked to the overtime pay for the overtime hours worked. This total represents the employee's total earnings for the designated period.

Remember, overtime calculation methods may vary based on specific labor laws and company policies. Always ensure you are familiar with the regulations applicable to your jurisdiction and consult any relevant policies or agreements.

How to Calculate Employee Hours Using OnTheClock

Calculating employee hours with OnTheClock is very simple. That’s because we automatically calculate hours worked for you. All you have to do is view them. Here’s how:

Log in as an admin.

Navigate to “Time Cards.”

Click on the name of the employee you’d like to check.

View their time card and check their total hours worked.

That’s it!

Benefits of Using Time Clock Software

If manually calculating hours worked is slowing you down, a time clock is a solid solution. Time clock software can make your life even easier by streamlining your entire payroll process. Here are some of the benefits of taking your time tracking system online.

• Accuracy and Efficiency. Time clock software ensures accurate tracking of employee hours, eliminating manual errors that can occur with paper-based or manual methods. It also streamlines the tracking process by automating time calculations, as well as reducing the time and effort required to track and manage employee hours.
• Time Savings. Time clock software saves valuable time for both employees and employers. Employees can quickly clock in and out using digital devices or even mobile apps. Employers can easily access and review employee timesheets, reducing administrative overhead and allowing them to focus on more critical tasks.
• Improved Compliance. Time clock software can help businesses stay compliant with labor regulations and ensure accurate record-keeping. It can enforce breaks, meal periods, and overtime rules based on predetermined settings, reducing the risk of non-compliance and potential legal issues.
• Enhanced Transparency. Time clock software provides transparency to both employees and employers. Employees can view their own time records, ensuring they are accurately compensated. Employers can have a clear overview of employee hours, facilitating fair scheduling, and preventing any disputes or misunderstandings regarding worked hours.
• Data Analysis and Reporting. Time clock software often comes with reporting and analytics features, allowing employers to generate comprehensive reports on employee attendance, work hours, and other relevant data. This data can be utilized for performance evaluations, payroll processing, project costing, and identifying areas for productivity improvement or cost optimization.

To sum up, time clock software offers numerous advantages, making it a valuable tool for businesses of all sizes to effectively manage and track employee hours.

Popular Time-Tracking Software Options

We might be biased, but we think OnTheClock is the best option when it comes to time tracking, especially if you’re a freelancer or small business. That’s because we’re designed to be an affordable solution with everything you need to track hours worked, stay compliant, and manage employee schedules.

That said? Our software may not be for everyone, so here are a few other options to consider:

• OnTheClock. OnTheClock is a comprehensive and intuitive time tracking solution that allows employees to clock in from any device, making it suitable for both office and remote workers.
• Toggl. Toggl is a user-friendly time tracker that offers real-time tracking, reporting, and integrations with various project management tools.
• Harvest. Harvest is robust time-tracking software that provides time and expense tracking, project budgeting, invoicing, and team collaboration features.
• TimeCamp. TimeCamp offers automated time tracking, timesheet management, productivity analysis, and invoicing capabilities.
• Clockify. Clockify is a free time-tracking tool that allows users to track time, generate reports, and manage projects and teams.
• RescueTime. RescueTime is a time-tracking app that monitors and categorizes how users spend their time to help improve productivity and time management.
• Hubstaff. Hubstaff is a comprehensive time-tracking and employee monitoring software that includes features such as GPS tracking, activity monitoring, and project management.
• ClickTime. ClickTime is a web-based time-tracking solution that offers resource planning, expense tracking, and robust reporting features for businesses of all sizes.
• TSheets. TSheets was recently acquired by QuickBooks, and it provides mobile time tracking, employee scheduling, and real-time reporting.
• Everhour. Everhour is a time-tracking and resource management tool that integrates with popular project management platforms like Asana, Trello, and Basecamp.

These are just a few of the online time clocks available. Take your time choosing the one that makes the most sense for your business needs (and your budget), and you’ll need it to maintain your records over time, in addition to streamlining your operations.

Factors to Consider When Choosing a Tracking Method

Like we said earlier, it’s important to choose a time tracking method that makes the most sense for your business needs. The following should be top-of-mind when deciding which tracking method works best for you.

Accuracy and Reliability

Look for a time tracking method that offers accurate and reliable tracking capabilities. Consider the precision of the system, its ability to capture different types of work hours (regular hours, overtime, breaks), and its reliability in accurately recording and storing data.

Ease of Use

Consider the usability and user-friendliness of the time tracking method. It should be intuitive and easy for both you as the business owner and your employees to use. Look for features such as simple clock-in and clock-out functions, clear interfaces, and ease of generating reports.

Scalability

Consider the scalability of the time tracking method to accommodate your business's growth. If you plan to expand and hire more employees in the future, ensure that the method can handle increased users and workloads without compromising efficiency or incurring additional costs.

Integration and Compatibility

Evaluate whether the time tracking method integrates well with your existing business systems or tools. Consider compatibility with your payroll software, project management platforms, or other tools you rely on. Seamless integration can streamline processes and data transfer, saving you time and effort.

Cost and Affordability

Assess the cost and affordability of the time tracking method. Look at the pricing structure — whether it's a one-time purchase, subscription-based, or offers a free version — and consider the long-term cost implications for your business. Also, take into account any additional fees, such as for support, upgrades, or integrations.

Remember to align these factors with the specific needs and requirements of your business to ensure that the chosen time tracking method fits your workflow and supports efficient time management for your small business.