Why Every Charlotte Business Should have a Time and Attendance System
Posted by Michael Beauchemin on Mon, Apr 15, 2013 @ 01:15 PM
We work with many small businesses and are amazed at the number of Charlotte, NC small businesses that do not use an employee time and attendance system or how an automated timekeeping system can save them money.
We will break down the many benefits of using a system into two articles. The first will cover how much, even a small company with as few as 10 employees, can save by using a timekeeping system. The second article will cover how an automated timekeeping system helps you comply with regulatory wage and labor laws and why it will be increasingly important with the implementation of the Patient Protection Affordable Care Act (Healthcare) to have a system to track time for your employees.
Why an Automated Timekeeping System
According to the American Payroll Association (APA), companies can save 2-percent of gross payroll costs each year if they automate their time and attendance process. Many small businesses continue to use a manual process to track time. They do this using a manual time sheet, Excel spreadsheet or a mechanical timeclock. Many of these companies understand the power and savings of automation, as they have already invested in technology and automation for other parts of their business.
Manual timekeeping processes are tedious and often error-prone. Many are archaic processes that require an administrator to collect handwritten timesheets, transcribe the data into an Excel spreadsheet or some other software application and in some cases reenter it into a payroll software data entry page.
This process leaves open the opportunity for “padding” the hours by your employees, transcription and data entry problems and additional time required by your payroll administrator to collect and enter the data. Finally, overpaying payroll wages will cause you to incur additional payroll taxes and larger worker compensation fees.
Cost Savings with an Automated Employee Time Tracking System is Big
There are four ways you can save with a timekeeping system:
1. As an Employer you will not pay your employees for hours they do not work. Do you know how many of your employees show up five, ten, fifteen minutes late? How many leave early? How many say they will make up time but never do? How about those who take an extra five minutes during a break? With an automated time and attendance tracking system, they only get paid for the hours worked and not phantom hours.
2. It cuts down on the time required for the payroll administrator to prepare payroll. No longer will your administrator have to distribute timesheets, collect them, manually enter them into a spreadsheet and/or reenter them into a payroll software entry screen. The payroll reports are immediately available. With a few edits payroll data would be ready for payroll processing.
3. Payroll errors are reduced. Often times with a manual time tracking system, employees are over or under compensated for their time. Any employee that feels they were under compensated or shorted hours will immediately make it known to the payroll administrator. This causes additional administrative costs (time required to correct issue, reissue checks and will cause you to incur additional payroll charges from your payroll processor). The employees that are over-compensated will more than likely not notice or not bring it to you attention, unless it is such a significant difference and realize you will notice.
4. Social Security and Medicare taxes and Worker Compensation fees are tied directly to your payroll wages. As wages for your payroll increase so do payroll taxes and worker compensation charges. Payroll taxes are 7.65% and worker compensation fees can add 2.5% or more to your total payroll cost. Reducing payroll wages will reduce your payroll tax obligations and worker compensation payments.
How Much Can I Really Save with A Time and Attendance System?
Here is a conservative example of how much a company with just 10 full time employees can save:
The company has 10 full time employees that get paid an average rate of $15 per hour. Weekly compensation per employee is $600/week and annual compensation is on average $31,200 per employee.
Total payroll for the company is $312,000 (10 employees multiplied by $31,200 per employee).
The payroll administrator requires 2.5 hours every other week to track down, collate and enter the time in a spreadsheet and other payroll data entry applications.
Savings from Item 1 (Overpaying employees for hours not worked)
Let’s be conservative and assume it is on average only 5 minutes per day per employee that come in a few minutes late, leave a few minutes early or take a few extra minutes at lunch or during a break. Many employees will do this without realizing it. Five minutes is truly below the radar and even the best employees may not even know it is occurring.
Five minutes per employee add up to an extra 50 minutes (0.83 hours) of pay per day. This works out to be an extra $12.50 per day, $62.50 per week or an additional $3,250 per year. If you have 20 employees you can double this cost, for thirty employees increase it by a factor of 3, etc. If it averages more than 5 minutes per day per employee than the cost to you is even greater.
- Annual Savings of Not Overpaying = $3,250/year
Savings from Item 2 (Payroll Administration Cost)
If the manual process requires your administrator to spend 2.5 hours every other week to distribute, collect, collate and enter data to prepare payroll for processing and you can reduce that down to 0.5 hours you realize a savings of 2 hours per pay period.
If the administrator is being paid $20 per hour the savings is $40 every other week or an annual savings of $1,040
- Annual Savings | Payroll Admin Reduction = $1,040/year
Savings from Item 3 (Error Rate Associated with Manually Managing Payroll)
The American Payroll Association estimates that there are between 1% and 8% processing errors for payroll. Assume that your payroll processing errors is only 2% – on the very low side because you have a good administrator. With an annual gross payroll amount of $312,000 and an error rate of 2% the total cost to you is 2% multiplied by $312,000 or $6,240.
- Annual Savings | Eliminating Payroll Errors = $6,240
Savings from Item 4 (Savings from Social Security and Medicare taxes and Worker Compensation Charges)
If you add up the savings listed above you would save an additional 7.65% plus whatever additional worker compensation charges you pay. Even if you are paying a 2.35% workers comp rate the workers comp rate of 2.35% plus the 7.65% in payroll taxes add up to 10% in additional tax savings.
The total savings listed above is $10,530 ($3,250 + $1,040 + $6,240 = $10,530)
Multiply these savings by 10%. The additional savings is $1,053
- Annual Savings | SS, Medicare Workers Comp = $1,053
Adding the $1,053 to the other savings above ($10,530) equals a total savings of $11,583.
- Total Estimated Annual Savings = $11,583
Are you a small business owner that can use an extra $11K?
What will an Automated Timekeeping System Cost?
The good news for an employer is not nearly as much as you think especially considering the cost savings it provides. For example our system for a small employer with 10 employees can be implemented for less than $50 per month. Sounds like an easy decision to make – an investment of $600 per year to save over $11,000 per year. The savings are even more dramatic with more employees and/or the employees you have are abusing your current attendance and tardiness policies.