You know that old saying, “time is money”? Well, it’s especially true if you’re running a profitable business. If you’re optimizing your time, you’re ultimately optimizing your profit. So how do you unlock the door to time management that supports cost-effective, efficient operations, improved productivity, and increased profits? You just need the right key: project-based timekeeping.
Project-based timekeeping is a key component of job costing. Job costing consists of the methods you use to account for and track material, labor, and overhead to set pricing for your products and services. If you are not aware of the actual expenses involved in production, down to each employee’s time and the allocated portion of rent and utilities, you may be overspending on a product’s production, not setting your pricing to meet expenses, or missing out on profits. You may also be vulnerable to over or understaffing for a particular service if you are not aware of the exact costs incurred based on how your employees are spending their time. By adopting project-based timekeeping, you can answer the age-old question: Where does all the time go?
Where does all the time go?
We are all social by nature and have personal lives, so many employers are generous enough to support occasional watercooler conversation and allow employees to take a moment to step away for a personal phone call. However, especially if your employees self-report their hours, you need to monitor for time theft. You want to ensure no one is intentionally taking advantage of your generosity.
Let’s say you have a full-time, hourly employee who is paid $20 an hour and works 40 hours a week. If that employee spends one hour each day on social media, they are being paid for 5 hours of work each week that they never performed. That means, over a 50-week work year, that employee’s time theft amounts to 250 hours, and you’re paying $5,000 a year for work that wasn’t performed. And that’s just one employee! Time theft can add up quickly and have a significant effect on your bottom line.
Because we’re all human and make mistakes, you also want to ensure no one is making unintentional time entry errors. Maybe an employee forgot about being an hour late on a Monday or leaving an hour early on Friday. In either case, you’re paying the cost for your employee’s mistake, their hourly pay rate for an hour in which they performed no work.
Employees are not always the only guilty party. Time theft also occurs when an employer underpays an employee based on the hours that employee worked. Because this violates the Department of Labor’s employer requirements, even inadvertent errors could leave an employer subject to costly fines.
Understanding where the time goes has a lot to do with transparency as well. If you know what task your employees are working on, you can determine if their time is being spent wisely, if they are taking too much time in one area or another, or if they are using an outdated process. In turn, you may consider setting quotas or time frames to encourage employees to achieve goals, providing additional training in areas where the most time is spent, or working to implement a more efficient process.
Project-based timekeeping is particularly essential in the professional services industry. These businesses, such as a CPA firm, law firm, or a marketing agency, sell time and expertise, so they must track their time down to the minute so that any billable time can be charged to their clients accordingly.
With project-based timekeeping, employers have visibility across their employees’ activities, which can help them reduce time theft, improve employee productivity and accountability, lower the cost of wages paid for unperformed duties, and increase profits.
How’s my driving?
All businesses specialize in something. Generally, that’s what they would consider the “money maker.” But you may be surprised by the profit and potential behind other product or service offerings. Project-based timekeeping allows you to identify the pure profit or loss from any given job. It provides businesses with a “progress report” on their products and services, so they can adjust for changes and trends.
Ultimately, the products and services that are most profitable are feeding your business. So, how do you feed it back? Make sure you aren’t focusing solely on what you think you sell the most of, but rather on what actually brings in the most profit. Once you know more about your profit trends, you can identify opportunities to improve efficiency and productivity in that area.
Let’s say you own a manufacturing business that specializes in packaging for processed food. With project-based timekeeping, you may uncover trends showing that eco-friendly packaging is outselling your previous best-seller. Because you have not been manufacturing this product as long as your traditional packaging, you may also find that time to market is slower in this area. By reviewing employee time by project, you can determine your focus, whether it be additional employee training, improving process efficiency, or investing in new equipment.
In the construction industry, contractors must be certain they are accounting for everything required to complete the service without putting themselves at risk. A construction bid could go sideways if you do not account for building material inflation, labor, and the hours it could take to complete the project. Contractors must closely monitor materials being used in a given project, account for overhead costs, and account for general and subcontracted labor.
Job costing provides historical and real-time data that is crucial when estimating future costs. Project-based timekeeping is an essential part of staying on budget, managing cash flow, and estimating job costs. So, it’s a critical element of assessing profitability before bidding on new jobs. If you provide a quote or a job of $10,000, you want to be sure you don’t come in over budget. And if you do, you need a detailed record, down to the last hour worked, to account for any additional charges.
Is your overhead over your head?
When you’re setting pricing for products and services or billing your clients, are you also thinking about overhead expenses, such as rent, utilities, postage, office supplies, parking fees, and equipment depreciation? Fixed overhead costs can be significant, which means they can also take a substantial bite out of your profit margins if they’re not factored into your fees.
Fairly allocating overhead by project may seem like a daunting task for specific industries; however, that’s where a predetermined hourly overhead rate can help. A manufacturer could calculate the predetermined overhead rate for a product based on labor costs by dividing the estimated total overhead by estimated total labor hours. For example, if your estimated total overhead cost is $160,000, and your estimated total labor is 1600 hours, your predetermined overhead rate for the product is $100 per hour of direct labor. To look at things from another angle, if a contractor determines a predetermined overhead rate of $60/hour, and a job takes 100 hours to complete, that job would have $6,000 in applied overhead billed to the client.
Contact Commonwealth Payroll & HR
Our project-based timekeeping add-on is available for our HR & Benefits isolved service package, which provides comprehensive human capital management with technology that allows for a convenient focus on the entire employee lifecycle and promotes employee self-service. The add-on is also supported by our Emerging with Time (EWT) service. This wholly configurable package allows employers to track and approve time worked and time off and provides other employee and job-related information.
At Commonwealth, we are here as much or as little as you need us, whether it’s through one of the plans above or our Core or Premium service packages. Whatever your needs are, we can provide your business with scalable solutions to help you meet your most HR, payroll, employee time management, and compliance needs.
We invite you to take our self-assessment and view a product demo. And if you’re ready to learn more, contact us today.
*The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information is for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information. This article contains links to other third-party websites provided only for the convenience of the reader.