How To Use A Time Clock To Save Money On Labor Costs

As your startup grows, it is crucial to closely monitor your labor costs. That’s why many startup owners invest in automated time tracking and payroll systems to ensure accurate employee payments. This way, they can save some money on labor costs and grow their business without a hitch.

There are several automated systems for tracking billable hours, but in this article, I’ll focus on time clocks. I’ll discuss the primary factors that drive up labor costs and then show you how to use a time clock to save money on labor costs.

Let’s dive in!

Factors That Drive Up Labor Costs

Time theft

Time theft is when employees intentionally exaggerate their work hours and record more than they actually worked. For instance, an employee may clock into work an hour late but fail to record it on the timesheet. They may also fail to punch out during breaks and then extend their break time for a few minutes or even an hour.

If the business tracks work time manually, there’s no way of accurately recording those little discrepancies in time. As a result, the employees get paid for hours they weren’t on the clock.

Payroll Errors

A survey by the American Payroll Association (APA) reports that almost 33% of employers make payroll errors, thanks to manual payroll processing. Such errors can drive up labor costs by 1%-8%.

For instance, a start-up with about 20 employees on standard wage can accumulate losses of anywhere between $10,000-80,000 per year.

Buddy Punching

Buddy punching is where an employee covers up for their colleague by clocking into work on their behalf. It is illegal and unethical and according to the APA survey, it affects almost 75% of companies in the United States.

For a small start-up with about 20 employees and an average salary of $50,000, the appropriate hourly pay is about $24. That’s for a 40-hour work week.  Even if only one employee clocks in an hour early to cover for their colleague, that’s an extra $24. If the habit continues, the business could lose up to $50,000 in labor costs annually.

How Will Using A Time Clock Help You Reduce Labor Costs?

It reduces payroll leakage

As a start-up owner, I’m sure you’ve seen employees waltzing 15 minutes past the official clock-in time. You may also have some eager workers who take their sweet time to clock out. A few lost minutes here and there contribute to what we call payroll leakage, and those minutes add up quickly.This is where the online employee time clocks come in.

A clock in clock out app reduces time theft by preventing employees from clocking in early or on behalf of their colleagues. Some time clock apps even have GPS-enabled time tracking to verify clock-in locations, take photos and assign PINs to avoid buddy punching. This way, all employees get paid according to the hours they’ve actually worked.

It limits overtime

For most start-ups, especially those in the retail categories, employee overtime is pretty common. Sometimes you may need extra employees to help serve an unexpected rush of clients, or you may need your employees to stay longer to go over inventory. Whichever the reason, these unexpected overtimes also accumulate and drive up your labor costs.

In the United States, a 40-hour week is standard, so anything over 40 hours is considered overtime. All non-exempt employees who slip into overtime are entitled to a minimum of 1.5x their basic pay rate. While the extra money may be exciting for your employees, it will definitely cost your business a pretty penny.

So, how do online employee time clocks help limit overtime?

For starters, you can set your mobile time clocks to alert you when employees approach over time. This way,  you can adjust their schedule before overtime becomes a problem. You can also set the track clock to auto-clock out in case the employee forgets.

An online time clock will also help you avoid issues with employee overtime compliance. You can set overtime and break rules to comply with local, state, and federal labor laws and get notified whenever they change.

It Helps Save Money on Administration Costs

Payroll is a time-consuming and especially complicated process when done manually. There are several frustrations that arise as you try to determine the correct amount of hours worked, before paying the employees. Add sick days, bonus hours, or time off to the mix and payroll becomes a nightmare for your management team.

The American Payroll Association estimates that it takes up to 10 minutes to audit each employee’s time card. Even if your start-up has few employees, the timing will add up and drive up your overall labor costs.

This is where the time clock comes in.

On top of tracking billable hours, you can sync your time clock with other payroll systems to further streamline the process. This way, the payroll system becomes automated, saving you from using resources on unnecessary administrative tasks.

It Reduces Clerical Errors

Sometimes, even the management team that deals with payroll can make clerical mistakes that can cost your start-up a pretty penny. They may accidentally count extra hours to an employee’s timesheet, causing you to pay them more than expected. They may also fail to include extra hours like overtime, causing you to pay fines for non-compliance with state or federal labor laws.

According to the American Payroll Association, these clerical errors can increase your labor costs by up to 8%.On the bright side, you can use a time clock to reduce errors on invoices and paychecks. A time clock app will collect and calculate data accurately, thus eliminating clerical errors eating into your start-up’s budget.

It Helps in Tracking Employee Performance

The data collected using time clock apps can also significantly enhance productivity, but it must be utilized effectively. You can analyze the data from the software to know which employees need rewards and which ones need a pep talk or a little coaching. One way to do this is by comparing how much time each employee takes to complete a specific task.

For instance, if one employee takes 6 hours to finish a task that another employee took just 2 hours to wrap up, it could be a sign that the first employee might be facing some challenges. You can then talk to the employee and come up with a way to make them more productive.


As you can see, manual time-tracking systems can drive up your start-up’s labor costs significantly. So the smart move you can make for your company is to do away with the standard time tracking systems and replace them with automated systems like time clocks.

A time clock app will make your payroll processes easier, and more efficient. It will prevent data errors, time theft, and buddy punching to save you a few extra dollars. Over time, the savings will accumulate and have a real impact in helping you achieve your start-up’s bottom line.