Time is money. And if you aren’t properly tracking the hours employees work, time can wreak havoc on your bottom line. How do you make sure you’re doing it the right way, paying your employees the right wage, and protecting your net income from errors? Consider this your bite-sized guide to calculating hours worked.

The Big Picture

• Calculating gross wage based on hours worked is simple arithmetic.
• Calculating net pay is more complicated, as you’ll need to calculate deductions specific to your company.
• You can save time, reduce human error, and stay compliant by using time clock software to automatically calculate hours worked.

Using Hours Worked to Calculate Gross Wage

To determine an employee's wage, you’ll need to convert hours and minutes into decimal format. After that, multiply the hours worked by the hourly wage to determine the gross pay.

For example, if an employee works eight hours and 30 minutes, that’s 8.5 hours after decimal conversion. When you multiply that number by an employee's hourly wage, the result is the amount you’ll pay.

Here, you’ll find a chart to help you make minutes to decimal conversions.

Note that in order to calculate net pay, you’ll need more information than what this article is able to provide. Specifically, you’ll need to know how to calculate deductions for taxes and withholdings. You’ll also need to know how to calculate overtime and holiday pay to meet both state regulations and your organization’s policies.

Tools for Tracking Employee Hours

The U.S. Department of Labor provides guidelines to help you track employee hours accurately. These are some acceptable ways to track time:

• Pen-and-paper time cards
• Mechanical time clocks
• Free time clock calculators
• Time clock software

Let’s explore each one of these options in more detail.

Pen-and-Paper Time Cards

Pencil and paper might seem like an easy place to start, but it isn’t right for all businesses or workers. Time theft can be a major problem with the pencil-and-paper method since it’s difficult to ensure all the hours employees report are accurate.

This also can be a drain on productivity, since you or someone on your team will always need to review these time cards and add up the hours worked for every employee.

Mechanical Time Clocks

This device stamps the time and date onto a paper time card. For this to work, an employer gives each employee a time card for the pay period. On-site employees then use the time clock to track their hours

It’s an employee's responsibility to clock in and out at the right time. Each employee punches a time card whenever he or she arrives or leaves work. Then, the employee's hours worked are tallied and he or she is paid accordingly.

Free Time Clock Calculators

You can find many free online time card calculators on the internet that will calculate hours worked for you. OnTheClock offers several free time clock calculators:

• Time Card Calculator With Lunch and Overtime
• Excel Time Card Calculator
• Decimal Hours Calculator
• Military Time Calculator

Time Clock Software for Tracking Employee Hours

A more convenient option for tracking hours worked is time clock software. With OnTheClock, you get several features your business can benefit from.

• Quick and easy setup
• Automatic time clock calculations
• Advanced geolocation features
• Easy project tracking and job costing
• Payroll integration
• Mobile and browser apps for simplicity

That said? We know OnTheClock may not be the right choice for all business owners. We’ll explain more in-depth about time clock software options later, but first, let’s discuss how to manually calculate hours worked.

How to Manually Calculate Hours Worked

If you’re processing payroll for the first time ever, you may be wondering how to add up hours worked by hand. Here’s the step-by-step method for how to manually calculate hours worked.

Step 1: Determine each workday's start and end time

The first step for calculating hours worked is to note the exact time work was started and finished. If you’re processing payroll for employees, this information should be provided to you on a time card. If you’re processing this information for yourself, as an independent contractor, note the start and end times of your workdays.

Step 2: Convert the time to military time

If you are using a 12-hour clock format, convert the start and end time to the 24-hour format (or military time). For example, if you started work at 9:30 a.m., it would be 09:30 in military time. If you finished work at 5:45 p.m., it would be 17:45 in military time. Our military time calculator can do this for you instantly.

Step 3: Calculate the time difference

To determine the length of each day worked, subtract the start time from the end time. For example, if you started work at 09:30 and finished at 17:45, the time difference would be eight hours and 15 minutes.

Step 4: Subtract unpaid breaks.

If you had any unpaid breaks during your work period, subtract the duration of those breaks from the total time calculated in the previous step. For example, if you took a 30-minute, unpaid break, subtract 30 minutes from the eight hours and 15 minutes calculated earlier.

Step 5: Convert the remaining time to decimal format.

Convert the remaining time into decimal format for easier calculations. Our decimal hour calculator can do this for you, or you can refer to our conversion chart above. If you’re a math wiz, you can convert it yourself by simply dividing the number of minutes by 60.

Step 6: Add up the total hours worked for the pay period.

If you need to calculate the total hours worked for a specific pay period, you’ll repeat these steps for each day worked. Then, you can simply add up all the hours you calculated for the entire pay period.

Calculating hours worked is simple arithmetic. That said, if you need to calculate work hours on a regular basis, the process can become quite tedious. If you’re processing payroll for a staff of any size, manually adding hours worked quickly becomes time-consuming.

If you’d like to streamline this process, modern technology can help.

How to Calculate Employee Hours Using Software

Whether you’re an independent contractor creating an invoice or responsible for the payroll of an entire company, using software to keep track of hours worked is a great convenience. There are two main ways to do this: You can use spreadsheet software (like Google Sheets or Microsoft Excel), or you can use an online time clock.

Tracking Hours with Spreadsheets

One of the most common ways to track hours worked is with spreadsheets. Keep in mind that you’ll need to create multiple spreadsheets to reflect each worker and pay period. If you’re an independent contractor, you’ll create a spreadsheet for each client and pay period.

Step 1: Set up your spreadsheet

First, you’ll need to create a new workbook — we like Microsoft Excel, but these instructions should also work for Google Sheets. To set up your workbook:

• Name the first column "Date" to track the dates worked.
• Name the second column "Start Time" to record the start time of each work period.
• Name the third column "End Time" to record the end time of each work period.
• Name the fourth column "Total Hours" to calculate the hours worked for each day.

Step 2: Enter the data

If you’re a freelancer, we recommend you record your working times throughout the pay period. If you’re processing payroll for employees, you’ll need to obtain this data from your workers. Either way, here’s how to fill out the spreadsheet:

• In the "Date" column, enter the dates for each workday.
• In the "Start Time" column, enter the start time for each workday.
• In the "End Time" column, enter the corresponding end time for each workday.

Step 3: Calculate the hours worked

In the "Total Hours" column, use a formula to calculate the hours worked for each day. Subtract the start time from the end time to get the duration of work. If you’ve formatted your spreadsheet per our instructions, you can simply enter the formula =C2-B2 into cell D2. That’s because cell B2 is your start time, cell C2 is your end time, and cell D2 is the total hours worked.

Step 4: Format the total hours column

Now, we need to change how the hours worked are formatted.

• Select the "Total Hours" column (column D) and format it as a time format.
• Right-click on the column and choose "Format Cells."
• Select the desired time format (in this case, "hh:mm").

Step 5: Calculate the total hours for the pay period

Next, we’ll use another formula to tally the total work hours for the pay period. Below the last row of the "Total Hours" column, use the SUM function to calculate the total hours worked for the pay period.

For example, if the "Total Hours" column ends at row 20, the formula for the total hours worked would be: =SUM(D2:D20).

Step 6: Save your spreadsheet

Remember to save your file periodically to ensure your data is safely stored. It’s best to name your files in a way that helps you keep them easily organized (such as by date). Additionally, you can create different sheets or tabs within the workbook to track hours for different periods, projects, or workers.

That’s it! If desired, you can customize your Excel sheet by adding additional columns for notes, overtime hours, or any other relevant information. You can also use Excel's built-in functions and features to analyze your data further, such as calculating average hours, identifying days with the most hours worked, or creating charts to visualize your work hours.

What About Tracking Overtime?

One thing to keep in mind is, if you have non-exempt workers, you’ll need to keep track of their overtime hours. The Fair Labor Standards Act mandates overtime is paid at a time-and-a-half rate for any hours worked in excess of 40 in a single workweek.

However, your state regulations may differ. For example, some states mandate that time and a half is paid after eight hours are worked in a single day. Other states mandate double pay as the rate of pay for overtime.

Additionally, your organization may have stricter overtime policies than what’s mandated at the federal level. Likewise, if your employees work an alternative work schedule, then overtime may need to be calculated completely differently. That’s because alternative work schedules are often compressed, allowing for shifts that exceed more than eight hours with fewer workdays.

That said, we can provide some general insight into how to track overtime hours — just be sure to stay compliant with federal and state labor laws as well as your employer’s policies.

Manually Calculating Overtime Hours

Here is a step-by-step guide on how to manually calculate overtime.

Step 1: Determine the overtime threshold

First thing’s first, like we said above, it’s important to understand the overtime rules and regulations specific to your jurisdiction or company policy. You’ll need this information to determine the number of hours worked that exceeds the overtime threshold. For example, it could be any hours worked beyond 40 hours in a workweek.

Step 2: Calculate the regular hours worked

Next, you’ll want to add up the total hours worked during the designated period (i.e., a workweek). To do so, you can follow the steps we laid out earlier in this article. Exclude any break or meal periods that are not counted as working hours.

Step 3: Determine if overtime is applicable

Now that you’ve tallied up the hours worked, you’ll need to compare the total hours worked with the overtime threshold. If the total hours worked exceed the overtime threshold, overtime is applicable.

Step 4: Calculate overtime hours

To figure out the number of overtime hours, simply subtract the overtime threshold (i.e., 40 hours) from the total hours worked.

Step 5: Determine the overtime rate

Double-check your employer’s overtime policy and/or your local labor laws to determine the overtime rate. Typically, overtime is paid at a rate of time and a half. However, other pay rates, such as double pay, are also common.

Step 6: Calculate overtime pay

Now that you have all the information, you can calculate overtime pay by multiplying the number of overtime hours by the overtime pay rate. For example, say you’re calculating overtime at a rate of time and a half for someone who worked 44 hours in a workweek. You’d multiply four hours by their rate of pay, then multiply it by 1.5.

Step 7: Calculate total earnings

Now that we’ve calculated overtime pay, we can add the employee's regular pay for the regular hours worked to the overtime pay for the overtime hours worked. This total represents the employee's total earnings for the designated period.

Remember, overtime calculation methods may vary based on specific labor laws and company policies. Always ensure you are familiar with the regulations applicable to your jurisdiction and consult any relevant policies or agreements.

How to Calculate Employee Hours Using OnTheClock

Calculating employee hours with OnTheClock is very simple. That’s because we automatically calculate hours worked for you. All you have to do is view them. Here’s how:

Step 1: Log in as an administrator.

Step 2: Navigate to “Time Cards.”

Step 3: Click on the name of the employee you’d like to check.

Step 4: View his or her time card and check the total hours worked.

That’s it!

Benefits of Using Time Clock Software

If manually calculating hours worked is slowing you down, a time clock is a solid solution. Time clock software can make your life even easier by streamlining your entire payroll process. Here are some of the benefits of taking your time tracking system online.

• Accuracy and Efficiency: Time clock software ensures accurate tracking of employee hours, eliminating manual errors that can occur with paper-based or manual methods. It also streamlines the tracking process by automating time calculations as well as reducing the time and effort required to track and manage employee hours.
• Time Savings: Time clock software saves valuable time for both employees and employers. Employees can quickly clock in and out using digital devices or mobile apps. Employers can easily access and review employee timesheets, reducing administrative overhead and allowing them to focus on more critical tasks.
• Improved Compliance: Time clock software can help businesses stay compliant with labor regulations and ensure accurate record-keeping. It can enforce breaks, meal periods, and overtime rules based on predetermined settings, reducing the risk of noncompliance and potential legal issues.
• Enhanced Transparency: Time clock software provides transparency to both employees and employers. Employees can view their own time records and ensure they are accurately compensated. Employers can gain a clear overview of employee hours, facilitating fair scheduling and preventing any disputes or misunderstandings regarding worked hours.
• Data Analysis and Reporting: Time clock software often comes with reporting and analytics features, allowing employers to generate comprehensive reports on employee attendance, work hours, and other relevant data. This data can be utilized for performance evaluations, payroll processing, project costing, and identifying areas for productivity improvement or cost optimization.

To sum up, time clock software offers numerous advantages, making it a valuable tool for businesses of all sizes to effectively manage and track employee hours.

Popular Time-Tracking Software Options

We might be biased, but we think OnTheClock is the best option for time tracking, especially if you’re a freelancer or small business. That’s because we’re designed to be an affordable solution loaded with everything you need to track hours worked, stay compliant, and manage employee schedules.

That said? Our software may not be for everyone, so here are a few other options to consider:

• OnTheClock: OnTheClock is a comprehensive and intuitive time tracking solution that allows employees to clock in from any device, making it suitable for both office and remote workers.
• Toggl: Toggl is a user-friendly time tracker that offers real-time tracking, reporting, and integrations with various project management tools.
• Harvest: Harvest is robust time tracking software that provides time and expense tracking, project budgeting, invoicing, and team collaboration features.
• TimeCamp: TimeCamp offers automated time tracking, timesheet management, productivity analysis, and invoicing capabilities.
• Clockify: Clockify is a free time tracking tool that allows users to track time, generate reports, and manage projects and teams.
• RescueTime: RescueTime is a time tracking app that monitors and categorizes how users spend their time to help improve productivity and time management.
• Hubstaff: Hubstaff is a comprehensive time tracking and employee monitoring software solution that includes features such as GPS tracking, activity monitoring, and project management.
• ClickTime: ClickTime is a web-based time tracking solution that offers resource planning, expense tracking, and robust reporting features for businesses of all sizes.
• TSheets: TSheets, now part of QuickBooks, provides mobile time tracking, employee scheduling, and real-time reporting.
• Everhour: Everhour is a time tracking and resource management tool that integrates with popular project management platforms, like Asana, Trello, and Basecamp.

These are just a few of the online time clocks available. Take your time choosing the one that makes the most sense for your business (and budget) and use it to maintain your records and streamline your operations.

Factors to Consider When Choosing a Tracking Method

Like we said earlier, it’s important to choose a time tracking method that makes the most sense for your business needs. The following should be top of mind when deciding which tracking method works best for you.

Accuracy and Reliability

Look for a time tracking method that offers accurate and reliable tracking capabilities. Consider the precision of the system, its ability to capture different types of work hours (regular hours, overtime, breaks), and its reliability in accurately recording and storing data.

Ease of Use

Consider the usability and user-friendliness of the time tracking method you select. It should be intuitive and easy for both you, as the business owner, and your employees to use. Look for features such as simple clock-in and clock-out functions, clear interfaces, and ease of generating reports.

Scalability

Consider the scalability of the time tracking method to accommodate your business's growth. If you plan to expand and hire more employees in the future, ensure the method can handle increased users and workloads without compromising efficiency or incurring additional costs.

Integration and Compatibility

Evaluate whether the time tracking method you select integrates well with your existing business systems or tools. Consider compatibility with your payroll software, project management platforms, or other tools you rely on. Seamless integration can streamline processes and data transfer, saving you time and effort.

Cost and Affordability

Assess the cost and affordability of each potential time tracking method. Look at the pricing structure — whether it's a one-time purchase, subscription-based, or offers a free version — and consider the long-term cost implications for your business. Also, take into account any additional fees, such as those tied to support, upgrades, or integrations.

Remember to align these factors with your business's specific needs and requirements to ensure the chosen time tracking method fits your company's workflow and time management needs.

Why Small Business Owners Love OnTheClock

With OnTheClock, workers simply clock in and out. At the end of each pay period, we automatically count the hours worked for you. From there, everyone can review their time cards before sending them to your payroll provider.

If you’re an independent contractor or small business owner with less than three employees, OnTheClock is free to use. If you’re running a growing business, our software is one of the most affordable options available, complete with pricing plans designed to scale with you.

The best part? Your first 30 days of OnTheClock are free. Start your free trial now and see why we’re trusted by more than 15,000 businesses and 125,000 employees.