Most of us believe we’re fairly good at recognizing costs. We see a product on the store shelf, and with one quick glance at the price tag, we instantly know how much it costs.
Or do we?
Every transaction also carries hidden costs. In some cases the hidden costs can far outweigh the obvious out-of-pocket price. Sadly, we are not as good at recognizing these hidden costs as we are more obvious expenses.
Because these hidden costs are not out-of-pocket, it’s easy for them to also slip out of sight and out of mind. But when we don’t take them into account, we may end up making decisions that ultimately cost our company big money.
Take, for example, time and attendance tracking.
Consider the fictional “PennyWise Corp.”, a company that currently uses handwritten time sheets to track employee time. The payroll supervisor tries to convince the company owner to purchase an automated time and attendance system that includes biometric verification and automatic data export to their payroll system.
The supervisor tries to make the case for the system. But the company owner likes to think of himself as “frugal.” He balks at paying $700 for a solution that (in his opinion) includes a lot of fancy bells and whistles his company doesn’t need. He thinks the handwritten time sheets are plenty good enough. He says, “No.”
The problem: he’s overlooking several hidden costs. His decision will actually cost his company a lot of money.
The cost of time spent
To begin, he’s overlooked the hours every week spent by the payroll department in reviewing, totaling and auditing the time sheets. They also have to track down employees who have not filed their sheets on time, and make sure supervisors review and sign off on the time sheets so they can be processed. Then they have to key the time sheets in to the payroll system and check to make sure everything was keyed correctly before they can process payroll.
The American Payroll Association (APA) has estimated that it takes five to six minutes per card to total and audit a manual time card. And as we all know, time is money. That’s a lot of time spent on clerical labor that could better be put toward more productive tasks.
Instead, a computerized time and attendance system would automate and streamline those tasks. Employee work time would be automatically calculated, supervisors could review and approve time sheets right from the computers on their own desks, and data could be exported to the payroll system with no more keying required. The system would accomplish in minutes what it takes hours do to now, slashing the hidden cost of payroll processing time.
The cost of errors
It’s worth noting the APA estimates a 1% to 8% clerical error rate when totaling hours manually. Errors can also creep in when manually keying hours in to payroll.
When a PennyWise Corp. employee complains his paycheck is not correct, it takes time for payroll to research and (if necessary) correct the error. This is another hidden cost of deciding to stick with a manual system.
An automated system will calculate employee standard hours and overtime hours in a matter of seconds, then export that data directly to the payroll system. This virtually eliminates math and keypunch errors.
PennyWise Corp. could avoid the hidden cost of correcting those errors — and as a bonus, their employees may be happier, too. (No one likes to be shorted on their pay due to a clerical error!)
The cost of “time theft”
Another hidden cost of manual systems is what is sometimes referred to as “time theft.” The APA estimates up to 10 minutes per day per employee is lost due to tardy arrivals, early departures and long breaks or lunches.
Of course, this “theft” isn’t always intentional. When employees fill out a manual time sheet, the temptation is to simply fill in the standard arrival and departure times every day. Employees believe these estimated times are “close enough.”
At PennyWise Corp., the majority of manual time sheets claim the employees arrive precisely at 8:30am every morning, take exactly one hour for lunch — no more, no less — and leave at precisely 5:30pm every afternoon. Sadly, those times almost never reflect the actual arrival and departure times. Employees simply record time that way out of habit and convenience.
Of course, people tend to remember the times they came in early or stayed late. But memory is often not so reliable when it comes to recalling those times they slipped in a few minutes after the starting bell, cut out just a few minutes early or took a few extra minutes running errands at lunch. The result: the organization ends up paying for time the employees weren’t actually working.
It may not seem as though a few minutes a day would make that much difference. But just 10 minutes a day can translate into over 30 hours per employee each and every year! This translates into thousands of dollars PennyWise is paying each year for time employees are not working.
An automated time and attendance system records the employees’ arrival and departure times automatically with the swipe of a badge, a click of the mouse, a swipe of the finger or a quick glance in to a facial recognition screen. Workers don’t have to remember or estimate their time.
More accurate recording of start and stop times reduces the hidden cost of “time theft.”
The cost of risk
The final hidden cost the owner at PennyWise Corp. has neglected to take in to account is the cost of legal risk.
Wage and hour has for several years now been one of the fastest-growing areas of litigation. The federal Department of Labor is also emphasizing compliance audits. Whether it’s the DOL knocking on the door looking to open an audit, or a lawsuit from a disgruntled employee, either way it will be time-consuming and expensive.
Accurate, complete time records can be crucial in defending against a wage and hour claim, or in minimizing the amount of the award if the company is found to have underpaid an employee. Inadequate or missing records in and of themselves can be reason for an additional fine or penalty.
Of course, handwritten time records are acceptable under the law. But the more accurate machine-recorded time of an automated time and attendance system — especially one that features biometric verification — provides much stronger proof of actual hours worked.
Electronic records are easier to store, take up less space and can be easier to search. An automated time and attendance tracking system could save PennyWise Corp. a lot of money if they’re ever sued or investigated for possible wage and hour violations. In fact, the presence of these accurate, complete records may even help discourage some lawsuits in the first place.
A Wise Investment
By now it should be clear. By only considering the out-of-pocket expense of purchasing a more modern automated system and not taking into account the hidden costs of maintaining the existing manual process, the owner of PennyWise Corp. has actually cost his company a lot of money.
What about your organization? Is your current time and attendance tracking solution helping you maximize efficiency, accuracy and profits? Or are you incurring one or more of these hidden costs every day?
If you’re interested in seeing how an automated time and attendance system might benefit you, check out our handy Savings Calculator. Then contact your local time and attendance dealer or visit our product catalog to choose your new time tracking solution.
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