The Critical Link Between Time Tracking and Labor Costs

The Critical Link Between Time Tracking and Labor Costs

Keeping track of how you and your workers spend time is one of the most important things you can do in your business. Labor costs can be a large portion of expenses, and understanding how time is spent can help you manage your business better in a multitude of ways. We touched on labor costs in our recent article, “Breaking Down Direct and Indirect Costs,” and wanted to share more on the topic. Keep reading to learn more. 

Benefits of Time Tracking

There are plenty of reasons to track time, some of which we’ve listed below:

• When pricing by the hour, time tracking is mandatory; without it, you won’t be able to invoice your clients accurately.
• Documenting time spent on specific projects helps managers understand how long a task should take, when employees could benefit from training, and where processes and procedures may need improving.
• Project management systems allow users to import detailed time reports, which allows businesses to create more accurate fixed-fee pricing estimates on future jobs and customer proposals.
• For construction companies, time tracking feeds into job costing.
• For manufacturing businesses, time tracking feeds into labor reports.
• For hourly workers, time tracking is used in payroll systems so they can be paid accurately.
• Time tracking can increase accountability among team members as they become more aware of how they spend their working time.
• When time is budgeted in advance, actual hours worked can be compared to see how the budget is used and whether it was too much or too little.
• Time tracking allows managers and business owners to determine when they need to hire additional staff because the backlog has become too large.

What Is Time Tracking?

Time tracking is the recording of how you spend your time. You can use paper, a spreadsheet, or time tracking software like QuickBooks Time (formerly TSheets) to log the task you are working on and the length of time you worked on it. For example, here’s a simplistic example of a spreadsheet time log, aka timesheet, for one day:

Employees may be required to complete timesheets on a daily or weekly basis, which are then turned into their managers and payroll administrators.

Managers can take time tracking to the next level by adding hourly payroll costs as well as the employee’s hourly billing rate to gain insight into further time-tracking financial metrics.

Time Tracking Software

There are many different types of time-tracking software:

• A time clock allows employees to “punch in” when they arrive for work and “punch out” when they leave. This type of machine is mostly used for payroll in a manufacturing setting.
• Time tracking applications like QuickBooks Time allow workers with computers and smartphones to enter their time via the application. Features like biometric time clocks (i.e., requiring a thumbprint to verify the correct individual is clocking in) and geofencing (allowing employees to only clock in from certain locations) can reduce employee time theft.
• Some companies will have their time tracking function embedded into their project management, job costing, or billing system. Employees would then enter their time via those applications.

Getting Employees on Board with Time Tracking

Reporting your hours in a time-tracking system is one of the least favorite tasks of employees and requires managers to spend more time shaping their mindsets and attitudes than any software training. It’s important that employees feel that your policies don’t resemble “Big Brother” when using their time data.

For best results, let employees know how the timesheet data will be used. Allay their fears that they will not get fired or in trouble if they feel something “took too long,” which can often translate into an employee “fudging” their hours on a task where they might have made a mistake. Make sure they know they won’t be penalized in any way for what they report. In other words, remove the risk of penalty for recording their time data accurately.

Communication is key in getting employees to report their time accurately so that managers and owners can receive meaningful information. Have managers tie time tracking to an employee’s personal career goals to increase adoption and reduce resistance.

Personal Time Tracking

Time is our most precious commodity, and tracking your personal time can give you insights into how you are investing in yourself. Some really interesting questions can be considered when you have some time data for yourself.

• How much “downtime” do you need each day in order to live a productive and healthy life?
• How much time are you spending on your goals?
• Are you spending time on what you consider to be important?

Getting Started with Time Tracking

If you’re considering time tracking or would like to take your current time-tracking function to the next level, please contact us [here]. We may be able to help with integration, implementation, the accounting aspect of time-tracking, and financial metrics and reports.