Tracking labor cost and time spent on a project can, ironically, be time-consuming in itself. Time tracking systems present an effective solution to this issue, with benefits such as an all-in-one interface, fewer payroll errors, and more.
Picture this: You have just started a project, and somehow, you've already gone over budget. For business owners, this situation is all too familiar, and one of the reasons that budgets may be inaccurate is due to incorrect labor cost estimates.
Time tracking allows you to have more insight into where the hours go and calculate how far off you are from hitting your budget, before it is too late.
How Do You Calculate Labor Cost?
Total labor cost depends on your industry and how you track time. It is also dependent on whether you work with employees or independent contractors.
In accounting, there is a formula for calculating labor cost: The total cost of labor equals the gross pay, plus:
- Payroll taxes
- Benefits
- Overhead
Overhead is probably the most underestimated category of these. It is important to include all aspects of the job in your overhead cost, such as uniforms or special training required.
Labor budgets should regularly be evaluated and adjusted to account for changes in employees, pay raises, and more.
What Are the Four Types of Costs?
When you run a business, it is important to understand the types of costs that you will encounter. Here are the four types of costs associated with labor cost management:
- Fixed Costs: Stay the same even as labor output changes
- Variable Costs: Can change based on factors such as labor output or rising expenses
- Direct Costs: Directly apply to the job, such as materials or direct labor
- Indirect Costs: Cannot be traced accurately to jobs, like utility and administrative costs
The Benefits of Time Tracking Systems for Labor Cost Management
Time tracking systems can make a huge difference when accurately tracking labor, as well as determining costs and staying within a designated budget. Here are some of the main advantages of time tracking relating to labor.
An All-in-One Interface
Many time tracking apps and software feature an all-in-one interface, meaning that you can view the information you need in one place, rather than having to hunt it down. Approve time off requests, check employee time sheets, and more, all within the same website or app.
Staffing and Availability Insights
When staffing jobs, it can be difficult to remember who will be working. Use time tracking systems to run reports that show availability and paid time off or vacations.
Fewer Payroll Errors
While many payroll systems have automated elements, human error is still possible, especially if you are entering numbers when you run the payroll. Time tracking software allows you to pull those numbers automatically and avoid payroll errors that could cost you time and effort to fix down the road.
Comply With Applicable Codes and Regulations
Compliance with labor laws is crucial if you want to avoid employee lawsuits or excessive fines. Time tracking apps will help you to stick to national or state-level requirements, such as tracking paid time off or maternity leave.
Overtime policies can be tricky depending on the state as well. In California, for instance, any time you work more than eight hours in a single shift, it counts as overtime, even if you have not clocked 40 hours for the week.
Accurate Project Budgeting and Billing
Accurately budgeting a project is especially important if you bill by project, rather than hourly. Giving your clients a budget beforehand creates accountability and transparency surrounding labor costs.
With time tracking software, you can run scenarios and input budget limitations to see the best solution in real time.
Frequently Asked Questions
What Are Future Predictions for Accurate Time Tracking Technology?
While there are many great time tracking solutions available on the market today, there is plenty to look forward to in the future. The most significant factor here is the advent of artificial intelligence (AI) and how to harness it to fulfill time tracking needs.
AI can potentially automate all time tracking processes, so you will not have to lift a finger. It may be able to calculate work hours by scanning application usage as well.
A key feature of AI is its ability to break down analytics and predict future trends. In the coming years, AI will likely be able to run time estimates and accurately calculate labor costs based on past information and other factors.
How Do I Prevent Employees From Clocking in Remotely?
Smartphones have presented many amazing solutions for time tracking, but one drawback is that employees can clock in and out of work from anywhere, even if they are not necessarily at the worksite. How can employers prevent this?
There are a few available solutions based on your type of business and needs. If you require employees to be on-site, an affordable fingerprint time clock is a secure alternative. With biometric identification, it eliminates the trend of "buddy punching," where employees punch in and out for their coworkers who do not come into the office.
If you still want to give your employees the power to clock in and out through their smartphones, consider geofencing. You can set parameters, where the software only allows clocking in when they are within a certain zone, such as the office or a job site.
How Can I Update Time Tracking Solutions Without Breaking Employee Trust?
The best way to improve your time tracking is to involve employees. Ask them for their input and incorporate it into your business policies, if possible.
Make sure they understand why time tracking is important regarding labor costs and overhead. Most importantly, cultivate a sense of trust by allowing flexibility and encouraging questions.
Consider Labor Cost Management for Your Company
Labor cost isn't just something you benefit from knowing; it is essential for a well-run business. With this guide, you can more easily determine labor costs and track time more efficiently, so both you and your employees benefit.
Would you like more tips and tricks for efficiently operating a business? Take a look around our website today for more advice and ideas.
This article was prepared by an independent contributor and helps us continue to deliver quality news and information.
