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How Paper Timesheets and Punch Cards Cost Your Small Business

By Henry Updegrave on November 15, 2018

Every business owner and manager knows that manually tracking employees’ hours isn’t fun. If you use paper timesheets, you have to pester staff to sign in and out, decipher messy handwriting, and somehow get the data to your payroll provider. Physical timeclocks mitigate some of those issues, but you’re still stuck poring over a stack of paper time cards at the end of each pay period.

Despite this, manual time tracking remains common for small businesses. Payroll provider Paychex recently surveyed over 400 small business leaders, and found that 37% were still using either paper timesheets or physical timeclocks to log their employees’ hours. That means that in a time when small businesses can use an app to recruit new employees, run personalized digital ads, and accept customer payments, over a third are still counting on paper to track and calculate what might be their biggest expense: payroll.   

Perhaps more small business owners would feel the urgency to ditch paper timesheets and punch cards if they knew that these tools aren’t just inconvenient -- they lose them time and money as well. In this post, we’re going to look at the less obvious costs of manual time tracking and show how software-based alternatives can help business owners save.

3 ways manual time tracking costs small business owners

1. Time theft and buddy punching

In a 2015 survey of hourly employees, 43% admitted to some form of time theft. How are they doing it? The most common reported method is also the most obvious one: fudging hours. 45% of employees who committed time theft said they would simply record inaccurate times when they clocked in or out. It should be obvious that paper timesheets make this easy to do. Unless a manager is standing guard -- a security measure that seems unproductive, tedious, and bad for morale -- there’s nothing to stop someone from shaving a few minutes off their arrival time or adding a few to their departure time.

23% of employees stealing time said that they did so through buddy punching. For those who don’t know, buddy punching is when an employee has a friend use their credentials to punch in our out on a timeclock, making it appear they’ve worked longer than they really have. Again, this is easy to do with most legacy timeclocks, which usually rely on an easily shared password or badge to verify each employee’s identity.

The study found that among employees who admit to stealing time, 60% do so less than a fourth of the shifts they work -- that’s the (relatively) good news. But 25% say they exaggerate time for between three fourths and all of their shifts. When asked how much time they add to a shift when they commit time theft, 41% said 11-20 minutes, 25% said 1-10 minutes, and 21% take 30 minutes or more. Even if you assume your employees as a whole are on the less egregious end of this spectrum, it’s easy to see how those extra minutes can add up to plenty of lost money. The American Payroll Association (APA) estimates that time theft costs most businesses up to 7% of their total payroll.

2. Time lost to verification and data entry

If you use paper timesheets and punch cards, then someone has to manually review them, verify that the hours are correct, and enter them into your payroll software. This means going over the schedules from each pay period line-by-line, looking at who was booked for each shift, and confirming that the timesheet reflects this. Unsurprisingly, the process can take hours.

Time verification is difficult enough for businesses like restaurants and retail shops that have roughly the same hours and shifts scheduled every day. But it’s a nightmare for businesses in industries like catering, events, and staffing, who have more complex schedules. These companies typically send staff to different client sites every day, which means timesheets are more likely to get lost or for employees to forget to fill them in. These companies also have more variation in their schedules each day, depending on how many events they have each week and which roles those events call for. These variables make verifying time and attendance even more time-consuming.

3. More potential for human error

Even the most diligent managers are bound to make mistakes if they’re reviewing hundreds of timesheet entries, comparing them to a schedule, and entering them into a payroll platform. It’s easy to miscalculate hours and pay staff either too much or too little. The APA estimates that the error rate for individuals manually processing time and attendance is between 1-8%.

The data suggests that mistakes are inevitable with paper timesheets. Frankly, the stakes are too high when it comes to payroll for business owners to accept that. Obviously, you lose money if you make a mistake and overpay an employee. But under the Fair Labor Standards Act, you can be face heavy fines if you don’t pay your employees the correct amount for the hours they work. Many states and cities have additional, stricter labor laws that come into play here too. Plus, even if you don’t end up in court, correcting an instance of underpayment after paychecks have gone out takes hours of work. And of course, your business’ reputation will take a hit if people hear that you’re underpaying staff, making it more difficult to recruit new employees.

How electronic time tracking solves these problems

The good news is that all of these issues are solvable with the right electronic time tracking solution. While these tools can vary quite a bit, the key criteria is that they:

  • Give staff a quick, easy way to clock in and out

  • Automatically store each employee’s time and attendance data in the cloud, so that you can access it from anywhere

  • Integrate with your scheduling and payroll software

It all starts with a better timeclock. Unlike with paper timesheets, it’s impossible for staff to fudge the numbers, as these devices log the exact time each employee clocks in and out. But the best solutions also let you verify each employee’s identity. For instance, some timeclocks snap a picture of staff or ask to scan their fingerprint as they clock in, making buddy punching impossible. Others allow staff to clock in from a smartphone app, but use GPS to record their location and confirm they’re actually at work. The right choice for your business depends on your staff’s daily routine, but they all share one commonality: You can rest easy knowing time and attendance is correct.

From there, verifying hours and running payroll is a breeze. Payroll managers can simply pull up each employee’s tracked hours for any time period on their computer, since the software automatically records that data in the cloud. If your timeclock solution also includes or integrates with a scheduling tool, then managers don’t even need to check time and attendance data against the schedule themselves. Your software can do it automatically, surface any discrepancies between the two, and notify the manager. Once they verify everyone’s hours, managers can take advantage of that payroll integration and export their time and attendance data as a file structured specifically for your payroll software. Like magic, payroll is ready to run in just a few clicks.

Start saving

Tracking time and attendance manually may seem like an easier, cheaper solution for a small business than buying a new piece of software and learning how to use it. But in reality, you’re costing yourself time, money, and maybe even peace of mind with such an unreliable system. The fix is easy though. Ditch the pen and paper and find a time tracking software that fits your business.

Henry heads up marketing at Nowsta: the easiest way to schedule, manage, and pay hourly staff.

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