Timecard approval is the process that allows employers and employees to sign off on time cards to ensure payroll is accurate. Employees can approve their time cards to signify completing all hours worked during the pay period. It is legal for an employer to modify a timecard before approving to guarantee accuracy. Valid reasons for employers to make adjustments to time cards during the approval process may include employees forgetting to punch in and out or if PTO was used. Any timecard modifications made by the employer must be done to reflect precise information.
According to the Fair Labor Standards Act (FLSA) and the Department of Labor, an employee must receive compensation for the time they worked. Failure to follow this law can result in hefty penalties and fines for the employer.
Learn more about paying employees for time worked here.
Timecard Approval Process and Why it's Important
Timecard approval is a valuable method to speed up the payroll process. It ensures time cards are accurate before sending them to payroll. Catching errors before submitting to payroll keeps a company’s bookkeeping records error-free for proper FLSA compliance. The FLSA requires you to keep payroll records for at least three years and time cards for two years.
Proper timecard documentation and approval are a great way to control costs. Companies will analyze budgets and employee efficiency to determine whether spending needs to increase or decrease in certain areas.
Depending on the company size and the number of hours worked, timecard approval can usually be completed easily. We have provided a step-by-step example below for your reference:
- Employees submit their timecard information for review. This can be accomplished by employees handing in their time cards if hours are manually documented or completed electronically if the employer is using modern time tracking software.
- The next step in the timecard approving process is for a manager to review hours. The manager will have the option to confirm hours or reject them and make appropriate adjustments if necessary. Some organizations may send time cards back to the employee to make adjustments themselves if it’s rejected.
- The final step is for time cards to be approved and signed off by the employer. This is a crucial step because it ensures the time data is accurate and ready for payroll.
Download a free PDF timecard approval template.
Why it’s Important for Employers to Approve Time Cards
There are many reasons why timecard approval is vital for employers. These reasons can range from avoiding legal issues, preventing costly errors, and overpaying employees.
Protection against legality issues
Since it’s required by law for businesses to keep employee timecard records for two years, proper record-keeping will prevent penalties and fines that the government may enforce. Reliable time tracking will retain records for each employee and how many hours they worked is helpful, but having a timecard approval process ensures the accuracy of hours worked before storing them. This will prevent your company from underpaying and owing back pay to employees.
According to the Department of Labor, below are methods that the FLSA provides for recovering unpaid minimum and/or overtime wages:
- The Wage and Hour Division may supervise payment of back wages.
- The Secretary of Labor may bring suit for back wages and an equal amount as liquidated damages.
- An employee may file a private suit for back pay and an equal amount as liquidated damages, plus attorney's fees and court costs.
- The Secretary of Labor may obtain an injunction to restrain any person from violating the FLSA, including the unlawful withholding of proper minimum wage and overtime pay.
Prevents costly errors & overpaying employees
Companies invest between $20-$250 per month to run payroll. The monthly cost is usually rolled into the organization’s budget, and any interference with it could result in financial disaster. Without approving time cards, an employee may be receiving additional compensation for hours they did not work. These costly overpayments will add up and start affecting a company’s budget.
For example, if an employee makes $20/hour and works 40 hours per week, this employee would be owed a gross income of $800 per week. But if the same employee’s timecard shows a total of 42 hours worked during the regular workweek, then the employee would be paid for the additional two hours. These extra hours will be considered overtime and result in the employee receiving a payment of $860 per week (if your state requires an overtime wage of 1.5 times their regular rate) since the manager did not appropriately approve the timecard.
How much this employee will be paid compared to how much they should be paid:
Regular rate: $20 x 40 hours = $800 per week
- $800 x 52 (weeks per year) = $41,600 per year
Overpay rate: $30 (overtime wage) x 2 hours = $60 per week
- $800 regular pay + $60 overtime pay = $860 per week
- $860 x 52 (weeks per year) = $44,720
The total amount per year in overpayment: $44,720 (overpay) - 41,600 (regular pay) = $3,120
Using the information above that payroll can range from $20-$250 per month, a company would expect to pay $240-$3,000 each year just for the payroll process included in their payroll budget. When the overpay amount factors into the budget, it results in a significant increase in the payroll budget, where financial disaster can happen.
How Timecard Approval Helps Employees
Employees have the opportunity to review their timecard data for accuracy, errors, and record-keeping purposes. However, many employees do not check their hours. With the help of timecard approval, employees have the opportunity to confirm accuracy.
Ensure employees are paid accurately
Employees rely on an accurate paycheck for the time they worked. More than 50% of U.S. workers have had a mistake on their paycheck. This accounts for employees being overpaid and underpaid. If an employee notices they’ve been overpaid, the employee must inform their manager.
Research indicates that just two payroll errors cause 49% of employees to start looking for another job. Timecard approval processes can reduce this percentage and lead to less employee turnover for a company.
When an employee is not paid accurately, the company may need to perform another payroll activity, resulting in additional costs to the company.
Allow employees to understand how many hours they worked
Some employees come to work and do not know the exact amount of hours they’re working. They simply punch in to start their shift and punch out when they are finished. During the timecard approval process, an employee will know exactly how many hours they worked. This comes with many benefits, such as opening up the opportunity for an employee to request additional hours if available.
Sharing time card information with employees and allowing them to understand and approve it provides good morale and transparency within an organization. Employees will never have concerns about being shortened on their hours and know how much compensation they’re owed.
Next Step for Businesses Who Don’t Use Timecard Approval
The adoption of a time card approval process is a good step for any business to take for future growth. Not only does it save money and offer a variety of benefits, but it also provides an excellent form of communication between employees, managers, and the payroll department. Time tracking technology has shifted most businesses to modern time clock software for streamlined timecard approvals instead of paper time cards. Primarily, this has to do with time clock software providing accurate timecard data, making the timecard approval process convenient and easy.
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