Charles Read, CPA, USTCP, IRSAC
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It is estimated that a company that does not use time clocks overpays the hours worked by about 10%, and that is a lot. There are a number of types of time clocks. Let’s look at a few.
Manual Punch Time Clocks
This is the classic factory time clock that we see punched in the old movies. Picture a line of workers taking a paper time card and inserting it into a gray box with a clock face on the front. If you think these are no longer used, you would be wrong. These kinds of clocks are still sold and there are lots of companies that still make punch cards for time clocks. Google it and you will be surprised.
The card is taken by the employee whose name is on the top of the card from a rack and dropped into the time clock when they start work, to punch in. The time clock stamps the time on the paper card in a sequential fashion from the first punch of the week (or other period) till the last punch of the week. The employee replaces the card in a similar rack on the other side of the time clock, to allow the line of workers to flow smoothly as they pass through and punch their time cards in the most efficient fashion. At the end of the shift, or possibly to account for a break time, the employee goes through the line in reverse to punch out and put the card back in the original rack in the appropriate slot. The slots in the rack are often labeled to make it easy for each employee to find their individual card, particularly if there are a large number of employees.
Many times, the procedure is overseen by a foreman or other company employee. This is to make sure that everyone punches in/out and nobody punches an additional card for another employee who is not present. This is called buddy punching.
Sometimes the clock will be available for only a couple of minutes before a shift to a couple of minutes after a shift, to keep employees from punching early or late. There are cases in which the time clock may be locked before and after the punching timeframe to prevent anyone from tampering with or removing a timecard.
Any problems with the punches are corrected in writing by a supervisor, right on the timecard itself, and initialed by the supervisor.
The cards are collected at the end of the week and turned over to the payroll department. All of the time is then calculated by hand by subtracting the in-punch from the out-punch. Then, all the times for the workweek are added and totaled, normally right on the card. This facilitates the audit process if there is a question. The employee punches their own time on their own time card. If the punches are then subtracted and added correctly there is no dispute regarding the hours that the employee worked.
After the hours are calculated by hand, the hours are moved on to calculating pay.
Timesheets are nothing but a manual clock without any of the timekeeping properties of a time clock. You are solely relying on the staff to be both conscientious and honest. They should fill in the timesheet when they come and go. Trying to fill it in at the end of the week is an exercise in futility. Can you remember the exact time you left and came back from lunch on Monday when you fill out your timesheet on Friday? I couldn’t.
Five minutes here and there, no big deal, right? Five minutes a day for 250 working days is over 20 hours a year. That is several hundred dollars at a minimum that the employer is giving away, unknowingly. It also encourages less honorable employees to fudge their time even more, because they get away with it. It encourages other employees to do the same thing because they see their fellow workers doing it and prospering from it. Timesheets have all the weaknesses of time clocks and more, and few of the advantages.
Electronic Time Clocks
Electronic time clocks are newer and more efficient. There are a number of different types of electronic time clocks. Some use a plastic card such as a credit card with a magnetic stripe that identifies when an employee swipes a card to punch in and out. There are others where the employee punches in his assigned number to punch in and out. There are others that are handled by software on a computer network, where the employee enters a password to punch in and out.
The upside of these is that most are connected to a computer and the punches are automatically subtracted out and then added to get a total for the pay period. That information is used to calculate pay. Many times, they are actually connected to the payroll system so the hours are not re-entered into the payroll system; they are there automatically or get uploaded to the payroll system. All this saves time and errors of manual processing.
These systems do not prevent buddy punching, however. A worker can give his card or password to a friend to punch them in or out. A staff member can leave early and give his card or password to a friend to punch them out, even though they may have gone to a ballgame or the beach.
Biometric Time Clocks
Biometric is the latest method in clocking time. In 2007, Pay by Touch introduced biometric technology for the first time. These clocks use the staff members’ own bodies in one way or another to institute the time punch. They vary and can use hand geometry, voice, facial recognition, iris patterns, or other unique characteristics of the staff member that cannot be duplicated or shared. This eliminates buddy punching completely. Many providers now offer mobile apps and websites to collect time more efficiently.
Salaried Employees’ Time
You need to track salaried employees’ hours/days worked by type and circumstances. Their paid time off needs to be recorded to make sure they don’t take days off with pay that you as the employer have not authorized. You need to track the Section 45S qualified time so as to claim your tax credit at the end of the year.
No matter what system you use, there will always be corrections, for example, for people who forgot to sign in, sign out, or other issues. Your supervisors need to be vigilant about the timekeeping under their watch and make sure their corrections are real and not just fanciful suggestions from employees who would cheat their employer if they could. The people entering the time should not be the people approving the time. The people approving the time should not be the people entering time into the payroll system. The approval process is, of course, where unscrupulous supervisors can enter ghost punches for their ghost employees
In addition, no matter how you collect time, you need to make sure that the equipment and/or software is protected so that it cannot be tampered with without notifying management that such tampering has happened.
Ensure your timekeeping clocks are integrated with your payroll processor to reduce errors and increase efficiency.
Learn more about integrated timeclocks here