There’s no question about it: It’s expensive to run a business. One surprising thing that can save your business a lot of money? Time tracking. But the benefits of time tracking don’t just stop there: it can save you time, stress, and even help your turnover rate.
Of course, on the flip side, if you aren’t doing it right, time tracking can also cost your business a lot of money.
There are a lot of different ways to track employees’ time. And while none are wrong, per se, some methods are better than others for your bottom line.
In this article, we’ll unpack what could be costing your business if you’re still using manual methods to track your employees’ time. Dollar by dollar, we’ll walk you through how much you can save with a time tracking app and share a few tips to help get you and your small business started with time tracking software.
Let’s get started.
What is time tracking?
Time tracking refers to the practice of recording the working hours of hourly employees to ensure they’re compensated fairly and accurately. There are many different ways to track employees’ time. You can go the manual route, where employees write their hours in a spreadsheet or clock in and out using a time clock machine.
Time tracking is a great opportunity for businesses to look to technology. More and more businesses are turning to digital time tracking apps to get more accurate entries that save business owners time and money.
The cost of manual time tracking
Manual time tracking is a time tracking system that relies on the classics—paper timesheets, digital spreadsheets, or physical timecards. Employees are responsible for filling in or punching in to track their worked hours.
Managers and employers go back to verify the data from these manual entries and approve them for accurate payroll.
Manual time tracking was the standard for many years. It all started in 1888 when William Legrand Bundy, a jeweler from New York, invented the first time clock. But here’s the thing, if you’re still relying on time tracking methods from 135 years ago, you’re losing money.
Whether you feel it in your bottom line or not, manual time tracking is costing your business money. Let’s look at some ways manual time tracking costs you more than it saves you.
Businesses are losing up to 7% of their annual payroll to time theft
Time theft occurs when employees are paid for time when they’re not working. It can happen intentionally or unintentionally, but either way, it’s considered an abuse of time in the workplace.
Time theft comes in many shapes and sizes. For example, you may have a retail employee who has a friend drop by the store. They spend a significant amount of time chatting, and while customers are still served, the shelves aren’t stocked, and the floors aren’t swept. This is a prime example of time theft in a retail setting, and depending on how your employees are trained, it may be intentional or unintentional.
A survey by the American Payroll Association (APA) found that business owners lose up to 7% of their annual payroll because of time theft. It really puts a new twist on the saying “time is money,” doesn’t it?
In the United States, 75% of businesses lose money because of buddy punching
Buddy punching is another subset of time theft that is very much intentional. Buddy punching happens when a coworker is running late or misses their shift, and they ask a coworker to clock them in. It often happens so that employees can avoid getting in trouble for being late or to avoid losing their wages.
It can also happen at the tail end of a shift when an employee asks a coworker to clock them out when the shift ends so they can skip out a few minutes early for the same reasons mentioned above.
When it happens, buddy punching is a huge, unnecessary drain on employers, and it’s seen more often with manual time tracking systems. They’re simply easier to trick.
Let’s crunch a few numbers:
Let’s say your small business has ten employees with an hourly rate of $24. They each work 40 hours a week. If one employee clocks in another 30 minutes early every work day to cover for their team member, that’s $12 per day or $3,240 annually that you’re paying someone to not work.
And with buddy punching affecting 75% of American businesses, it’s time to consider alternatives to time tracking that help combat these losses.
Payroll errors are costing businesses an additional 1-8%
Finally, payroll errors also add to the ever-growing list, helping manual time tracking to rack up a hefty bill.
The same APA survey found that almost 33% of employers make payroll errors because of manual data entry. Because when your employees time track manually, you need to also manually take that data and input it into your payroll software of choice.
And whether the error is coming from your end or from an initial error on the timesheet, the result is the same: businesses are losing anywhere from 1-8% of their total payroll to avoidable mistakes.
What does that look like in action, you ask? Let’s take a look at our previous example.
For a small business with ten employees making an average of $50,000 annually, the losses can be anywhere from $5,000 to $40,000 every single year.
Thankfully, there is a better way—digital time tracking or time tracking apps.
How much money can you save with a time tracking app?
When you invest in a modern time tracking app, you can save a lot of money.
Let’s revisit our above example to show how much money you can potentially put back in your pocket when you say goodbye to manual time tracking and embrace a time tracking app that helps eliminate buddy punching, time theft, and payroll errors.
Remember, our small business has ten employees working 40-hour weeks at $24/hour. Each employee’s approximate annual income is $50,000, meaning the business spends $500,000 per year on payroll.
This small business is losing $35,000 (or 7% of its annual payroll) each year to time theft.
The business loses an additional $22,500 (the median of 1-8% of its annual payroll) annually to payroll errors.
And if we assume that they have one employee per day clock in 30 minutes before they start working, the business is losing another $3,240 annually.
That is a grand total of $60,840, or just over 12% of their annual payroll. While this is just an estimate using the average percentages reported in the past, you can start to see the impact you can have on your bottom line by using a time tracking app or digital time clock in your business.
What are the money-saving benefits of employee time tracking software?
If we haven’t convinced you yet that manual time tracking is a thing of the past, let’s look at the six benefits of employee time tracking software that can put more money back into your business.
1. You can all but eliminate buddy punching with time tracking software that uses employee photographs and geofencing
With manual timesheets and punch clocks, verifying who punched in when or where is all but impossible. Thanks to a time clock or time tracking software that requires a photo to be submitted and uses geofencing, you can rest assured knowing that when your employees clock in and out, it’s actually them doing it.
With the free time clock app from Homebase, employees clock in when they reach their workplace, and with geo-fencing, the app confirms their location and starts to record their hours. You can also use unique employee PINs as another layer of buddy punching prevention.
2. You can manage payroll leakage through notifications
Payroll leakage is the unexpected lost revenue that comes from labor-related activity. It happens when your team management solutions aren’t integrated well or when your company policies aren’t being followed.
A great example of payroll leakage happens when you have to pay out overtime. But you can avoid paying out unauthorized overtime by using an employee time tracking system that alerts you when an employee approaches overtime. This allows you to adjust your scheduling as required.
Additionally, a time tracking system that auto-clocks out your employees when they forget is another way you can control your potential payroll leakage.
3. You can say goodbye to payroll errors
When you use a time tracking app that centralizes hours and has the ability to send payroll and file taxes easily, you can significantly reduce your payroll errors. This ends up saving you time and money.
With a time tracking app like Homebase, your employees’ timesheets are converted into wages, taking into account overtime, breaks, and any time off. It makes the process of filing payroll more accurate, quick and easy.
4. You can save the environment—and a bit of money
If digital document management systems like a time tracking app were widely used across the US, it could save approximately 728,000 trees. And while the environment might not be your primary drive to use a time tracking app, it sure is a great bonus. Plus, you’ll also save money on office supplies.
You’ll be able to cut back on paper, ink, and printers, and invest the money somewhere that has the power to move the needle for your small business.
5. You’re more likely to stay compliant with labor laws
As a small business owner, you’re expected to keep up to date with local, state, and federal labor laws and regulations. Time tracking can help you stay compliant by accurately recording your employees’ worked hours, including overtime. And by using a time tracking app like Homebase, if there are any changes to state or federal legislation, they’ll automatically be pushed to your app.
You might be wondering how staying compliant can help you save money. Just ask the IRS. In 2014, they issued 6.8 million penalties totaling $4.5 billion to business owners. By staying compliant with all labor laws, you’re taking steps to avoid a considerable penalty come tax season.
6. You can automate simple and repetitive tasks in your workplace
Another benefit of time tracking apps is that you can automate the tasks you always need more time for in your workplace. From scheduling and payroll to notifying employees about shift changes, you can automate those processes with Homebase to save time and money.
Let’s say you need to create next week’s schedule, but you’ve also got to cover front-of-house duties that night. Homebase can simplify that kind of work by quickly creating schedules using templates, and sales forecasts, and get back out there to greet your customers. It’s that easy.
5 effective tips for time tracking
Now you know how your bottom line can benefit from time tracking, it’s time to explore how you can effectively track your employees’ time to save money.
1. Use an automated time tracking software
First and foremost, you need to use a time tracking software that isn’t only automated but also has other features that help make your life that little bit easier. At Homebase, our time clock automatically creates employee timesheets that easily integrate with our payroll software. All this allows you to easily and accurately track hours, reduce errors, and improve your compliance record.
2. Track hours every single day
Making time tracking a core component of your company culture is essential. With manual time tracking, it’s pretty common for employees to track their hours once a week. For example, on a Friday, they’ll sit down and write out their hours to the best of their recollection.
If you want to have truly accurate time tracking, it needs to happen every day. A higher frequency will result in better accuracy. And with a time tracking app that requires you to clock in and out, employees will quickly pick up the habit. You’ll also get alerts if they’re late or forget to clock in or out, and your employees will get auto reminders to avoid having to manually remind them. Plus, with the team communication app from Homebase, your employees can let you know if they’re need to swap a shift, or if they’re sick and can’t make it.
3. Keep things consistent
Yes, getting your employees to clock in and out every day is important. But it’s also important to follow through and have them clock in and out week after week, month after month. Beyond that, it’s also essential for your employees to adopt the same time tracking system.
It’s not particularly helpful if you’re trying to manually collate data from four different time tracking apps and input it into one central app. Make sure your time tracking policies, procedures, and expectations are clearly defined in your employee handbook and that all new hires go through proper onboarding to your time tracking system.
4. Make your instructions clear and concise
Following up on our last point, make sure that your instructions to your employees are clear, concise, and easy to understand. It can be stressful to learn new software, so making the transition as straightforward as possible for your employees will help everyone.
Make time for your employees to ask questions and get clarification if needed.
5. Make time tracking fast and simple for employees
If you want your employees to adopt your new time tracking system quickly, make sure the system is simple to use. The more complicated something is, the less likely people are to do it.
And time tracking is only successful when your entire team is on board. Look for a time tracking solution that doesn’t take too much time out of their day. With Homebase, clocking in and out is as easy as checking your email.
What is the best app for time tracking?
Homebase has the best time clock app for time tracking—and it’s free. The Homebase time clock helps you track hours and run payroll with just a few clicks. You can minimize time theft and get your labor costs under control thanks to the excellent reporting capabilities of Homebase.
The best thing about Homebase is that it’s more than a time clock. It’s an all-in-one team management solution to help you run a better business. Once you start exploring the benefits, you won’t want to turn back.
Save even more with a free time clock that frees up your time.
Track hours. Prep for payroll. Control labor costs. Save money. All in one place. Try Homebase time clock.
Benefits of time tracking FAQs
What is the real ROI of time tracking?
The real ROI of time tracking is hard to measure with a simple formula, since it’s different for every business. But the real ROI of time tracking is that it will help you save time and money for your small business.
Businesses lose 1%-8% of their annual payroll to payroll errors and an additional 7% to time theft, including buddy punching. That means you could lose as much as 15% of your annual payroll. If you spend $100,000 a year on payroll, you could lose $15,000.
Time tracking using a digital time tracking system reduces instances of time theft and payroll errors, which positively impacts that 15%.
Why is manual time tracking being replaced with digital time tracking apps?
Manual time tracking is being replaced with digital time tracking apps because they’re more effective, have less human error, and have been proven to reduce instances of time theft. Digital time tracking apps also save businesses time and money.
Which time tracking app should you use for your small business?
The Homebase time clock app is the time tracking app you should use for your small business. Homebase is designed for hourly teams and has everything you need to manage your employees and run your business effectively.
Not only does Homebase have a free time clock app, it also has a lot of other features that help keep your business running smoothly.
- Employee scheduling to help you build, optimize, and share schedules to keep your team on track and happy.
- Payroll processing to take the stress out of crunching numbers. It’s as simple as turning timesheets into hours and wages in payroll, all with one click. Homebase automatically calculates paychecks, sends direct deposits to employees, and files your payroll taxes.
- A team communication app to simplify your day-to-day communication with your team. It also gives you an easy-to-use solution to do everything from sharing important documents to finding someone to replace a shift.
- Hiring and onboarding to help you find the best candidates and effectively onboard new hires to your business in one convenient location.
- HR and compliance features are there to help you stay compliant with state and federal labor laws. Homebase helps you automate your paperwork, streamline your PTO policies, and gives you access to HR experts.