TIMEKEEPING AND PAYROLL BEST PRACTICES FROM A LEADER IN WORKFORCE MANAGEMENT SOLUTIONS www.mitcsoftware.com
INTRODUCTION This document is designed to provide guidance to senior executives who are considering implementing an automated time and attendance solution, are searching for a more integrated time and attendance solution, or who have implemented an automated time and attendance solution but are concerned that it is not being fully utilized. WHO SHOULD CONSIDER AUTOMATING TIME AND ATTENDANCE? An automated time and attendance solution is beneficial, if payroll accounts for more than 30% of costs or the organization operates in a highly competitive market where shifts of 1% will have a dramatic impact on overall profitability. IS JOB COSTING IMPORTANT? Tracking hours worked by job is very important in organizations where customers are billed for services carried out at that location, where payroll costs are determined by services provided at that location, or where the government has the right to closely review supporting labor records. THE IMPORTANCE OF BUDGETS Comparisons to budgets or schedules are vital components of any effective timekeeping solution. These comparisons allow management to identify and minimize the sources of cost overruns: data entry errors, overlapping shifts, attendance violations, absenteeism, overtime, unauthorized attendance, and buddy punching. PAYROLL APPROVAL Organizations should have a structured, documented payroll approval process that includes approval of payroll hours against job budgets and employee schedules. Extra steps should be taken to validate overtime. In organizations where Tracking hours worked by job is very important in organizations where customers are charged for services carried out at that location. managers are empowered to approve hours worked, the payroll department should conduct pay period audits. These audits should use hourly and payroll costs to identify potential problems or issues that busy managers may have missed. In addition, the payroll department should conduct regular periodic audits to detect frequent employee and manager offenders (identifiable by an excessive number of edits) who fail to adhere to the procedures in place. Regular audits will also detect above average overtime percentage by manager or department and the inappropriate distribution of overtime hours to preferred employees. REAL-TIME DATA Collecting time and attendance in real time facilitates the daily monitoring of hours worked against budget and schedule. In service organizations where hours worked affect billing, WWW.MITCSOFTWARE.COM 1
or where overtime is a significant cost, collection of time and attendance in real time could potentially lead to improved productivity and profits. Automated no-show alerts and check-awake calls can be incorporated into the day-to-day operating procedures. ABSENTEEISM WHEN SHOULD SCHEDULING BE PART OF A TIME AND ATTENDANCE SOLUTION? Integrating scheduling into an automated time and attendance solution yields additional benefits in organizations where schedules change frequently and overtime is a concern. Unplanned absenteeism is a significant hidden cost, causing lost productivity or overtime. An automated time and attendance solution can be used to track absenteeism as well as attendance. WHEN IS BIOMETRIC TECHNOLOGY COST EFFECTIVE? The additional hardware cost, maintenance issues and internet/ phone access become more justifiable for locations where more than 5-10 employees share the same biometric time data terminal. Alternatively, employees can pass the phone (clock in/out on one phone call), be clocked in/out by a supervisor, or use a PC to lower costs. The projected labor and time savings are only the marginal, projected additional savings come from eliminating buddy punching. Integrating scheduling into an automated time and attendance solution yields additional benefits in organizations where schedules change frequently and overtime is a concern. WHY IS INTEGRATION WITH PAYROLL AND BILLING IMPORTANT? Unplanned absenteeism is a significant hidden cost, causing lost productivity or overtime. Employee data and approved timecards should flow seamlessly between timekeeping, payroll, and billing when necessary. Otherwise, there is a possibility the data in timekeeping will be incorrectly updated, or will not be maintained in a timely manner. This means duplicate data entry will be required to keep the system in order. An integrated payroll and billing solution may require an interface with the Human Resource database to facilitate the use of automatic alerts by phone or email to employees and managers. WWW.MITCSOFTWARE.COM 2
AUTOMATED PROCEDURES All manual calculations or entries that affect payroll and billing should be embedded into the time and attendance solution. This will minimize manual entries, avoid errors and ensure the consistent delivery of accurate payroll. These procedures include, but are not limited to, rounding, multiple pay differentials based on job, shift, day service provided, holiday pays, PTO procedures, and overtime calculations and reallocations. EMPLOYEE SELF-SERVICE Hourly employees who are accustomed to using paper timesheets may miss the security that comes with having a hard copy of hours worked. In addition, employees entitled to accrue paid time off are often anxious to know their available balances. Providing internet access to employee time and attendance, PTO balances, and paycheck stubs will minimize interruptions to a busy payroll department and help to build employee confidence in the new solution. Where PTO is available to a large number of employees, including an automated PTO request and approval system will eliminate paperwork, streamline the PTO process, and prevent employees being awarded PTO without sufficient accruals. If employees have limited access to PCs, providing a PC in the lobby of the office(s) and a list of locations where free PC access is available, such as a library, will enable employees to access their records and to answer some of their own questions. All manual calculations or entries that affect payroll should be embedded into the time and attendance solution. VOICE OR TEXT MESSAGING Organizations that use the automated time and attendance solution can deliver real-time voice or text messages to remote employees from managers. These messages can relay client concerns, reduce the time and cost of management, and improve the coordination and consistency of services delivered. Organizations that use the automated time and attendance solution can deliver real-time voice or text messages to remote employees from managers. BREAKS If the organization has a policy to deduct an amount of time for an employee break, it is preferable that employees clock out/in to verify their absence. This will limit the opportunity for employees to take breaks that exceed the authorized time, and avoid claims that employees had to work through their breaks without being compensated. OVERTIME CALCULATIONS Where employees are paid multiple pay rates, using a blended or weighted calculation will often reduce the overall cost of payroll. This is important because overtime tends to occur at higher paid positions. Using a home job calculation system will automatically allocate the overtime away from where the employee usually works. This helps to identify the real source of the overtime and produce accurate reports that require minimal edits. WWW.MITCSOFTWARE.COM 3
SALARIED STAFF All staff should record their attendance. This will help to identify productivity and absentee issues that may be a major concern among salaried as well as hourly staff. This is especially important for organizations with remote locations where salaried staff attendance is an integral part of the services being delivered. AUTOMATE ACCRUALS If a large portion of staff receive accrued paid time off, automating the accrual process will eliminate time-consuming manual tasks, improve accuracy, and ensure the timely availability of up-to-date accrual balances for employees. Accruals can be based only on hours worked, ensuring that employees who are frequently late, leave early, or are absent, are not given awards equal to employees within the same group who display diligent timekeeping habits. PAYROLL FREQUENCY Biweekly payroll is generally the most efficient option for organizations. It reduces the number of payrolls each year to only 26, while avoiding some of the issues generally associated with semi-monthly payroll. The varied number of days in semi-monthly pay periods alters the gross pay received by employees, making it difficult to track which pay periods include 2 or 3 weeks for overtime purposes. Tracking hours variance to budget is simplified, because the number of days in the pay period is always the same. Difficulties with matching payroll periods to accounting periods can be overcome by using payroll/general ledger software that automates the calculation of the accruals at month and year end. PAID TIME OFF Ideally, accrued vacation, sick and personal time should be consolidated into a single balance called Paid Time Off (PTO). Consolidating PTO into a single balance eliminates several steps, complications with accrual tables, and other potential errors. This can reduce the time supervisors, payroll and human resources spend managing employee PTO by 50 percent. PTO requests and approvals should be managed as part of a time and attendance solution. Employees are able to retrieve their own PTO balance information by phone or PC, thus freeing up management and human resources time to deal with these requests. Using a home job calculation system will automatically allocate the overtime away from where the employee usually works. DIRECT DEPOSIT The printing and distribution of checks can be eliminated with direct deposit. Direct deposit eliminates several payroll-related tasks such as signing checks, preparing checks for the mail, sorting checks into distribution groups, manual delivery and deposit, the re-issue of lost or stolen checks, and detailed bank reconciliation. WWW.MITCSOFTWARE.COM 4
PAYROLL CHECKS If payroll checks are used, they should be as informative as possible to minimize payroll inquiries from employees. The employee timesheet should be included on the top stub, detailing locations, hours, dates, times, pay rates, and available PTO balances if applicable. Use the organization s website to provide employees with details of their check stub history. Payroll checks should always be stored in a secure cabinet or location. BANK RECONCILIATION This is one of the most important controls in any organization because it reveals all possible cash inflows and outflows. Using automated bank reconciliation techniques (positive pay) will eliminate important time-consuming tasks with 100% accuracy. An individual who is completely unassociated with the payroll function should complete the bank reconciliation. PAYROLL CHECK DISTRIBUTION For organizations with multiple remote locations, a policy should be in place which requires internal staff members to periodically travel unannounced to these locations and require physical identification of each employee before a payroll check is issued. Employee photos can be included in the body of the payroll check to prevent employees substituting friends or relatives. The addresses in the employee payroll file should be regularly audited to prevent payroll staff from creating fake employees or reusing terminated employees to receive and cash checks. Prohibiting the use of post office boxes for employee addresses is also an effective measure to protect against payroll check fraud. If payroll checks are used, they should be as informative as possible to minimize payroll inquiries from employees. AUDIT TRAIL All payments to employees should be entered through the time and attendance solution, including paid time off, holidays, and even retroactive pay. This will ensure a consistent audit trail between a payroll check and the associated timecards. MANUAL PAYROLL CHECKS It is recommended that organizations do not use manual checks. Manual checks cause inefficiencies in the payroll department procedures. Manual checks should only be used for entering Year-To-Date (YTD) earnings in a new payroll database. WWW.MITCSOFTWARE.COM 5
EMPLOYEE ADVANCES Many employees live paycheck to paycheck and do not have the funds to last until the next pay day. As a solution, they may request a pay advance. It is humane to comply with such requests, but it is a time-consuming task for the payroll department. If an employee quits work before earning the advance, the organization suffers a loss. If this practice cannot be disallowed, a real-time time and attendance solution can be used to pay employees early based on hours worked to date. This will ensure that there is no potential loss, avoid manual payroll checks, and provide an audit trail of time records to payroll checks. PREPAID DEBIT CARD ACCOUNTS Some employees are unable to set up bank accounts, so they may use a check-cashing service. In order to avoid having employees use these expensive check-cashing services, have employees set up a prepaid debit card account. This allows employees to make withdrawals from an ATM, rather than taking the entire amount at once from a check-cashing service. The card can be used like a debit card for purchases at participating merchants. Fees are normally applied; however, they tend to be lower than those charged by check-cashing services. All payments to employees should be entered through the time and attendance solution, including paid time off, holidays, and even retroactive pay. 401(K) REPORTING Avoid retyping 401(k) payroll deductions into a plan reporting system. Create an export file that links payroll directly to the 401(k) plan. ABOUT MITC MITC provides modular workforce management solutions and services to support all the needs of service organizations time and attendance, advanced employee scheduling, service documentation, payroll rules and reporting engine, workforce analytics, payroll and billing integration, and more. For 25 years, MITC has grown to serve over 1,500 organizations (with anywhere form 5 to 10,000 employees) in the USA, the UK, Africa, Australia, Canada, Ireland and New Zealand. They have selected MITC to help control costs, save time, improve productivity and ensure compliance. Visit www.mitcsoftware.com to learn more. WWW.MITCSOFTWARE.COM 6