But pretty soon, you realize how confusing and time-consuming calculating time can be.
How many hours is 9:33 a.m. to 5:17 p.m. or 8:23 a.m. to 4:41 p.m.?
Do you round up or do you round down?
If hearing these questions make your head spin and you find yourself asking these questions over and over again during each payroll period, here are some tips to help stay on top of the payroll game.
How to Calculate Payroll Hours DIY
Calculating payroll hours doesn’t have to be stressful as long as you understand the fundamentals of how payroll works. This means knowing how to calculate time and the labor laws associated with it. Not knowing the basics or not complying with the laws, however, can cost you money or worse, your business.
First, let’s talk about how to calculate time.
Calculating By Quarters
To simplify payroll, some businesses choose to round their employee’s work time to the nearest quarter of the hour. If you do this, you must follow the Fair Labor Standards Act about rounding up time.
Since there are 15 minutes in every quarter of an hour, the act states that if a person worked one-to-seven minutes of it, their time will be rounded down. And if the person worked eight-to-14 minutes of it, their time will be rounded up.
To demonstrate, if a person clocked out at 3:12 p.m., the employer must round it up to 3:15 p.m. Or if the person clocked in at 8:05 a.m, it’ll be rounded down to 8:00.
Under no circumstances is the employer ever allowed to round an employee’s work hour to the nearest hour. This is illegal and you can lose your business if you are found guilty of it.
Calculating By the Minute
If you prefer a more accurate way of calculating payroll hours then you will want to use this ‘calculate by the minute’ method instead.
In order to calculate hours by the minute, you need to convert minutes to decimals. To do this, simply take the number of minutes a person worked and divide it by 60.
For instance, if there are 45 minutes on a timesheet then you need to divide 45 by 60 and you’ll get .75, which means the person worked. 75 of an hour.
Although this method takes more work, it will give you a more accurate total of the number of hours a person worked. Some employers prefer this method because it saves them money in the long run and ensures their employees are paid fairly.
Federal and State Labor Laws
In addition to calculating time, you also need to understand how federal and state laws play a part in how much you have to pay each employee.
For instance, in some states, employees are required to take breaks and employers are required to pay for their breaks. Or if a person worked overtime or on federal holidays, they have to be paid more.
Furthermore, different employers can also have a different working status such as “veteran”, “disabled”, or “foreign workers” which can all have an impact in the amount of pay they’re entitled to.
No matter how big or small your business is, you are not exempt from these laws.
Although many small businesses prefer to calculate payroll hours by themselves in order to save money, there are many tools on the internet nowadays that can make the task easier. Many of them are also free.
The CalcuNation hourly wage calculator lets you put in the employee’s pay rate, the number of hours they’ve worked, the number of overtime hours they worked and gives you the sum of their pay.
On the Clock
This website converted every minute of the hour to decimals for quick reference.
Bureau of Labor Statistics
Visit their website for information and forms on state tax withholdings.
The United States of Department of Labor
Every state has different labor laws for different professions and work status. Make sure you’re complying with the rules.
There are some great phone applications that can help you calculate payroll hours on the go. Check to see which one works best for you.
According to the Fair Labor Standards Act, all employers must hold onto their employees’ payroll records for at least three years. This includes any information pertaining to payroll. Essential information you should have for each employee in their payroll records are:
- Phone number
- Social Security number
- Start date with the company
- Pay rate
- Pay period (weekly, biweekly, semimonthly, or monthly)
- Whether exempt or nonexempt
- W-4 withholding allowances
- Benefits information
- Payroll deductions
All employees are also entitled to pay stubs for each pay period.
All payroll records must be securely stored away. Payroll documents contain confidential and sensitive information that should not be accessible to anyone except the people handling payroll.
If you keep electronic records of payroll information, the same rule applies. Make sure all the files are password protected and backed up in case of computer malfunctions. Look into cybersecurity to protect yourself and your employers from hackers that are out to steal identities and confidential information that can seriously hurt your business.
Lastly, make sure you organize all payroll records for each employee into individual folders to ensure nothing will get mixed up. This will also make filling out forms much easier for you later on.
Learning how to calculate payroll hours accurately and timely is your responsibility as an employer and keeping payroll records securely and neatly is a must to run your business smoothly.
Your employees work hard and trust you to keep proper documents of their wages. Even if you decide to outsource your payroll responsibilities, you should have a good understanding of how payroll calculations work.
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