Tracking employee work hours accurately sets the foundation for smooth payroll. When you calculate hours correctly, paychecks go out without a hitch, and your team knows exactly what to expect on payday. Get it wrong, though, and you’re looking at frustrated employees, compliance headaches, and a cascade of payroll problems you didn’t see coming.
Why does accurate hour tracking matter so much? Compliance tops the list. Every region plays by different labor law rules, and keeping up with all of them can feel overwhelming. Tracking hours creates a clear record that keeps you and your employees on the same page about wages—no confusion, no surprises.
Hour tracking also helps reduce errors caused by miscommunication and miscalculations of hours worked. Errors cost employers money, time, and damage to their reputation.
Managing employees who work from multiple locations requires even greater attention to detail because labor laws vary depending on location. For example, some countries allow for extended overtime, while others do not. Additionally, proper calculation of regular hours, overtime hours, and paid hours off can prevent costly fines and penalties for non-compliance.
This guide covers the most commonly used time tracking methods as well as provides you with step-by-step instructions for calculating hours worked, including regular hours, overtime hours, and paid hours off.
What are the most common methods for tracking work hours?
There isn’t one ideal method to track employee hours. A company’s choice depends on its size, its industry, and whether it has many remote employees. Most companies have transitioned away from manually recording hours in a logbook to tracking hours through technology like apps or online platforms.
Below, we outline the three most common methods for tracking hours and the pros and cons of each:
Manual entry
The least complicated approach is to have employees manually enter their start and end times in either a paper log or a spreadsheet. This may be an acceptable method for a small company with a high level of trust between employees and management.
However, entering hours manually brings several disadvantages. The most serious are the potential errors made by employees and “time theft.” Additionally, someone still needs to review the entries and calculate the total hours worked, which requires additional time to ensure accuracy.
Timesheets
A common practice in professional services like consulting and project-based contractor models is to document hours on a timesheet (whether hardcopy or digital) to demonstrate hours worked for a client or a particular project. Many timesheets require a manager’s approval before payroll processing.
Time-tracking software
Software applications, such as Toggl, Harvest, Clockify, or QuickBooks Time, remove the manual process of tracking hours. With hour tracking software, employees simply click a “start” and “stop” button when they begin and end a task. The app automatically tracks the hours worked.
Many of these programs allow you to tag projects, generate reports, and integrate with your payroll system. Hour tracking software is particularly beneficial for remote teams and/or freelancers who may work in multiple time zones and need to have all hours recorded in one location.
Clock-in/clock-out systems
These systems are physical or digital terminals where employees punch in and out. Think biometric scanners, punch cards, or kiosks at the entrance to a warehouse or retail floor.
They’re popular in industries like hospitality, manufacturing, and retail, where shift work is the norm. The system logs hours automatically and can enforce shift schedules or flag late arrivals.
How to calculate total hours worked
Now that you’ve selected a method to track your employees’ working time, you’ll convert the raw clock-in and clock-out data into actual working hours. The math here is easy to follow.
Step 1: Capture in-time and out-time
First, document the start and end times of each employee’s shift. Let’s use a typical 9-to-5 example where an employee clocks in at 9:00 a.m. and clocks out at 5:30 p.m. That’s eight hours and 30 minutes, not including breaks.
Step 2: Account for breaks
Not all breaks are considered paid hours. An unpaid break, such as a 30-minute lunch, needs to be deducted from the overall hours worked. A paid break, which is usually a 5-10 minute rest period, would be included.
It’s worth noting that local labor laws are critical to this process. While some countries mandate paid break time, other countries allow employers to make these decisions based on individual company policies.
Step 3: Convert time to decimal format
Most payroll systems use decimal hours rather than hours and minutes. Therefore, if an employee works 5 hours and 30 minutes, that can be converted to 5.5 hours. To convert hours to decimal format, simply divide the number of minutes worked by 60.
For example, an employee working 45 minutes has worked .75 hours (45 ÷ 60 = .75).
Step 4: Sum up daily hours to create weekly/monthly totals
Once you have the total hours worked per day, add up those numbers to create your total weekly or monthly hours. Based on the example above, an employee who works 8 hours per day from Monday to Friday has worked 40 hours during that week.
Example calculation
Let’s walk through another scenario of tracking daily hours:
Day: Tuesday
Clock-in: 7:30 a.m.
Clock-out: 4:00 p.m.
Unpaid lunch: 1 hour
First, calculate total time between clock-in and clock-out: 8.5 hours (7:30 a.m. to 4:00 p.m.).
Next, subtract the unpaid lunch: 8.5 hours - 1 hour = 7.5 hours.
Total hours worked: 7.5 hours.
How to calculate overtime
Overtime is where things get a bit more complex. In the U.S., non-exempt employees typically earn 1.5 times their regular hourly rate for any hours worked beyond 40 in a week. That’s the federal standard under the Fair Labor Standards Act.
But state laws can add their own rules. In California, “Employees working more than 8 hours in a day or 40 hours in a week must receive 1.5 times their regular hourly rate,” says Shawn Larry, HR and Workplace Investigator at California Labor Solutions.
Alaska and Nevada have similar daily thresholds. If you’re managing teams across multiple states or countries, these variations matter.
Here’s how the math works. For example, if an employee has worked 46 hours in a given week, they have worked 40 hours at their normal hourly rate, and the last 6 hours are considered overtime.
Total weekly hours: 46
Regular hours: 40
Overtime hours: 6
To determine how much overtime pay the employee will receive, take the 6 hours and multiply them by 1.5. Then, multiply that number by the hourly rate. For instance, if the employee is paid on an hourly basis at $20.00 per hour, their overtime rate would be $30.00 per hour ($20.00 x 1.5). Thus, the 6 hours of overtime would equate to $180 in overtime pay ($30.00 x 6).
Calculating all this manually is time-consuming, especially when the employee(s) are subject to varying schedules, and/or when numerous employees are working variable shifts. Using time tracking software with built-in overtime capabilities can streamline the process. Once you establish the overtime threshold, your software will automatically flag the overtime hours.
How to factor in breaks and meal periods
There are two types of breaks (and this type of distinction is essential for payroll).
Paid breaks (short rests) are usually 5-20 minutes in length. They’re considered work hours and are included in one’s overall hour totals.
Unpaid meal breaks (longer breaks) are 30-60 minutes in length. These are not considered work hours; however, there is a caveat. The employee cannot answer emails or take phone calls, etc., during their break, or the break may have to be paid according to most labor laws.
In addition to local regulations regarding break times (the amount of time an employee is required to work before receiving a paid break), some jurisdictions also regulate whether the employer is required to pay the employee for a meal period.
For example, in some jurisdictions, an employer is mandated to provide an employee with a meal break at a certain point in their shift. In other jurisdictions, the employer has the option to pay the employee for the meal break based on its own policies.
In turn, when determining which break policy to apply to your employees, you need to know the specific labor laws for each jurisdiction in which your employees work. Having one policy for all locations could create compliance issues. To track break entitlements correctly during payroll, your time-tracking software needs to apply relevant break policies for each location automatically.
Why accurate time calculation matters for compliance
Accurately recording employee hours is required by state and federal labor regulations. The amount of regulation varies widely by location, and there are serious consequences for non-compliance, including hefty fines, audit costs, and resources spent on defending lawsuits that harm your company’s image and bottom line.
Proper time-tracking of employee hours will protect you from:
- Wage and hour violations. Labor law violations (underpayment of wages and/or incorrect overtime calculations) may result in significant penalties and back pay for lost wages.
- Legal disputes. Employees who feel underpaid or denied overtime compensation may seek litigation to recover the alleged loss; documentation of employee hours is often used as evidence by both parties in court/arbitration proceedings.
- Audit requirements. Government agencies can request documentation of employee hours for several years. If your documentation is incomplete or inaccurate, it will likely raise red flags, resulting in additional review of your company’s employment practices.
- Cross-border complexity. Tracking employee hours across multiple countries can be complex due to varying overtime limits, break policies, and record-keeping requirements. A compliant time-tracking system should adapt to the changing regulatory environment without adding unnecessary administrative burden.
As your workforce expands globally, so does the risk posed by non-compliant time-tracking systems. Time-tracking methods that meet the compliance requirements of one country may not meet those of another. A compliant tracking system must provide the ability to track hours according to each country’s regulations without requiring excessive administrative effort.
FAQs: Calculating hours worked
Even with the right tools and processes in place, questions about tracking hours come up regularly. Here are answers to some of the most common ones.
What’s the easiest way to track hours for a remote employee?
The best way to keep track of hours for an employee working remotely is by using cloud-based time-tracking software. This allows the employee to log hours anywhere and automatically sync them with your payroll system; and most importantly, many have mobile apps, which enable employees to log hours on their phone, computer, tablet, etc. Additionally, look for platforms that provide report exporting capabilities (reports), so you can review hours logged and ensure compliance with state and federal labor laws.
Are employers required to track salaried employees’ hours?
For the most part, no, specifically exempt employees, who are generally salaried employees paid a set amount of money per week or month, regardless of how many hours they work. However, tracking hours may be beneficial in some jurisdictions for compliance purposes or simply to manage paid time-off. In many countries, there are specific record-keeping requirements for salaried employees, so make sure to check your local regulations.
How do I calculate hours worked if the shift crosses midnight?
Add the time before midnight to the time after midnight. For example, a shift from 10 p.m. to 2 a.m. equals 4 hours total. Some time-tracking systems handle this automatically, but manual calculations require you to split the shift at midnight and add both portions together.
Can I round employee time entries?
You can round time logs, but you must do so in a fair manner. In the U.S., the Department of Labor permits rounding to the nearest five, 10, or 15 minutes as long as all of the employees are rounded to the same time interval and does not favor one type of employee over another (i.e., does not favor management). Rounding to favor the employer (i.e., always rounding down) could result in wage and hour law violations.
Simplify time tracking for payroll accuracy
Calculating work hours correctly protects you from potential lawsuits and fines from government agencies, helps build trust between you and your employees, and ensures your employees receive their correct pay. By removing the guessing from calculating hours worked for overtime, breaks, and compliance reporting for multiple jurisdictions, you can create an efficient process for paying your employees.
When you’re managing a global workforce, these details multiply fast. Pebl’s platform handles payroll, compliance, and time tracking for international teams so you can focus on building your business instead of wrestling with spreadsheets and labor laws. Interested in learn more? Get in touch.
This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided “as is,” and no representations are made that the content is error-free.
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Topic:
HR Strategies
