Accounting for Time

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Andrey Armyagov

Where does your time go?

However compensation is calculated in your organization, people's time costs money.

That's why employers need to know that their people are at work for the right hours. It's also why, in many cases, they need to know what their people are working on when they're there.

That's why factory and shop staff have to clock in and out, why lawyers and management consultants fill in timesheets, and why project managers running multiple projects allocate the proportion of their time spent on each one to different project codes.

Without an appropriate system for time recording in place, you have no way of billing for hours worked or of improving the accuracy of fixed price quotations. You can't tell which projects are profitable, and which ones you should never rerun again.

In this article we'll look in detail at the benefits of accounting for time, we'll discuss the various approaches to time recording that organizations can use, and finally we'll show you what you need to consider when deciding what type of time recording is right for you.

Why Record Time?

For Payroll

In its most basic form, workers track the time they spend at work by using a time card to "clock in" on a machine. The machine records the hours worked, and the information is sent to payroll for processing.

Clocking in is generally used in factory, retail and other environments where there is traditionally a certain mistrust of "shop floor" staff: it implies that they can't be trusted to arrive on time and work a full shift. On the other hand, the practice can protect both employees and their supervisors: by clocking in, an employee can be confident that they won't be falsely accused of late-coming, and they also know that the system will immediately pick up on any overtime payments they're due. Meanwhile, supervisors are freed from "roll call" duties, and can focus on more value-added work.

For Invoicing

Law firms, accountants, consultancies, and other professional services firms   (whose principle activity is to "sell time") need their staff to track and account for time accurately, so that they can invoice their clients correctly.

To Identify Productivity

Professional services firms also want their people to maximize the amount of time they devote to generating revenue, while minimizing the amount of time spent on administrative duties. By tracking time, they record how productive each person is by measuring the proportion of each day that he or she spends on chargeable work.

Another aspect of this relates to when work is sold to the client at a fixed price: if the consultant or lawyer doing the piece of work can do it faster (at the same quality) than a colleague who is on the same salary, they'll obviously be able to move on to the next project sooner, and earn more fee revenue for their firm. Again, time recording reveals people's productivity levels.

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Finally, recording the time spent on fixed price work allows the firm to analyze how accurate their estimating process is. If it turns out that work is regularly taking longer than expected, even when highly efficient people are doing it, this obviously eats into profits. On the other hand, if the reverse is true, businesses may lose work because their bids are uncompetitive.

To Understand Internal Costs

Even when work is not being charged out to clients, organizations need to know what different activities cost. This applies both to project-based work, and to "business as usual" activities such as accounts processing.

Time recording in these cases helps organizations identify what proportion of their costs are overheads and what proportion operational, and how this changes over time. They can calculate the full cost of a marketing campaign. Or they can assess whether a non-strategic function such as payroll might cost-effectively be outsourced.

By collecting this type of information, you're also in a better position to plan future projects. Using time-tracking data gives you a more accurate picture of how efficiently your team will perform a set of tasks.

Finally, time tracking allows you to identify trends. You can see what categories of work are being done more or less. Ultimately, the more information you gather about your organization, the better you're able to understand and manage your business.

Types of Timekeeping Systems

• Card clocking – People often think of this system first. Traditional time clocks used punch cards that were stamped with the time and date at the beginning of a worker's shift, and then stamped again at the end. Time cards were then sent to payroll to be processed each pay period.

  Today, this information is usually sent electronically, and can be tracked very accurately. There are portable systems that can be taken to different work sites – for example, in the construction industry. There are even biometric devices that use fingerprint recognition. This type of system provides added assurance that the person "clocking in" is actually in attendance.

• Time sheets –Time sheets are used to track items like attendance, break time, project time, and billable hours. They may include hourly rates and expense information. This then helps you evaluate time by worker, task, project, and client. Time sheets are very customizable, and can be tailored to meet the exact needs of your organization. They can either take the form of a spreadsheet, or a special time-tracking application that's part of the organization's accounting software.

• Computer-based time recording – These are computer applications that track the time someone spends working on specific projects or with particular clients.

  There are two categories of software. The first type allows you to switch back and forth between tasks. This way, you can track hours per project, distinguish between billable and non-billable tasks, manage absences, calculate overtime, and print reports automatically. (Wikipedia has a comparison page of some notable time-tracking systems.)

  The second type runs in the background of your computer and records exactly what you're working on each second of the day. The software operates by continuously taking screen shots, and it allows you to quickly recall what you worked on, and for how long. (TimeSnapper has a free version that you can download.)

Do You Need a Timekeeping System?

Some organizations have no choice but to use a timekeeping system. If you charge time to different clients or different projects, then you must keep track of the hours you spend. Clients often want to know that you have a reliable system in place, so that you can bill them fairly.

For organizations that have a choice, it's important for the benefits of timekeeping to outweigh the costs. Keeping track of workers and checking on what they're doing every minute of the day is not reason enough to establish a timekeeping system. If you're tracking time because of a lack of trust, then there are probably much larger issues to address.

Timekeeping systems can be expensive. There may be an up-front cost of purchasing equipment and software, and there's also the cost associated with taking time to track your time. It's therefore important to conduct a proper cost/benefit analysis   to determine whether you need a timekeeping system.

Even the simplest spreadsheet solutions take time for workers to complete on a regular basis. If you ask workers to track how they spend their time, make sure that information is used in some meaningful way. Before you ask workers to track their time, make sure that you know why you want to track it, how you'll use the information, and whether the analysis will lead to changes and improvements.