IpSo_'s Journal: How Your Business Can Save $6500/Year...

If you run a small business, you probably have a hidden expense that's eating your time, and your business's money: Tracking employee time and productivity.

When businesses are small, traditional practice is to use some sort of manual time keeping system to log employee hours. Each employee fills out a paper time sheet, the payroll administrator goes over the time sheets, cuts the checks, handles the deductions and government paperwork, and deals with requests for time off, overtime and vacation days.

As businesses grow and add employees, this manual system becomes more and more cumbersome. The steps to automation start out small - an automated punch clock and pre-printed time cards, and a rapid switch from manual time keeping to using a spreadsheet.

But even this level of automation requires manual re-keying of data, and as the number of employees grows, the more demanding the needs are for your time and attendance and payroll systems. A lot of businesses end up "trapped" with a legacy system, usually cobbled together out of several different parts, perhaps even with custom programming in the mix.

Payroll accounting is a repetitive and aggravating task which takes up valuable administrative personnel who could be serving your business in other revenue generating capacities. Even with all the automated steps described above, payroll calculation errors account for nearly 10 billion dollars in assessed fees and lawsuits annually in the United States alone. Some estimates say that one in four employers make regular and habitual payroll errors, mostly dealing with withholding or insurance deductions. Others say this estimate is undercounting the problem, and that as the tax code gets more arcane, it will only get worse.

The single most common cause of payroll errors is, well, human errors. Especially in systems with paper based punch clocks or manual time cards, human error (as simple as transposing digits or double entering figures) can be very costly, and cause the need to do adjustment checks or entire correction payroll runs. Most payroll errors are in the range of 1-8%, and even at 1%, when multiplied over several employees, adds up to tens of thousands of dollars of lost revenue.

Human error gets compounded when paper time cards get smudged, coffee gets split on them, employee's "buddy punch" for each other or they just record their time inaccurately. Couple this with the time spent to verify results, and the time spent doing payroll accounting (an average of 7 minutes per time card per employee), and you'll see that a lot of this could be eliminated if you had an automated time and attendance system with integrated payroll processing functionality.

In addition to paying for itself in saved time and reduced error rates, an automated time and attendance and payroll system provides your management team with accurate information about which employees are in on time, and how many man hours (and dollars) are being spent on each part of a project, an important part of cost accounting and project management.

Furthermore, if you ever need to run a labor audit, an automated system gives you total hours worked per employee per day on a project, in real time. A fully automated system also helps prevent "buddy punching" and other tricks that employees can use to cover one another's tardiness or absenteeism. These systems give you the real time data needed to manage your personnel.

Ultimately, using time and attendance software with integrated payroll functionality gives you a streamlined and more efficient set of business practices, which is obviously a benefit to your bottom line. From a manager's perspective, these software packages allow you to look at attendance records by employee, money spent by project, as well as other important information about how your operation runs, all from a simple web browser interface.

These systems can even be used to let your employees do "self service" of several routine human resource related tasks - checking their time sheets, getting access to pay stubs, even arranging shift swaps or schedule changes, all from their web browser at home or at work.

Given the cost of payroll errors, most automated time and attendance and payroll solutions will pay for themselves in under a year by saving time for staff and reducing payroll errors. Indeed, if you assume a business with 20 full time employees averaging 10 dollars an hour - say a retail business - a 1% error rate translates into roughly $6500 dollars a year, which in most cases is much more then the software costs itself.