How to Track Employee Hours: A Small Business Guide
Quick Answer
Pick one method every employee uses, such as a time clock app, kiosk or web punch clock. Have employees clock in and out for every shift and unpaid meal break, and have managers review and approve timesheets every pay period. For hourly, non-exempt employees, federal law requires accurate records of hours worked each day and each week. Keep time cards for at least 2 years and payroll records for 3.
Tracking employee hours sounds simple until payday. A missed punch, a lunch that was auto-deducted but never taken, or a handwritten timesheet that doesn't add up can turn into overpaid wages, underpaid overtime or a wage claim. The good news is that a small business doesn't need a complicated system. You need one method everyone uses, a few clear rules and a quick review before payroll runs.
This guide compares the six common ways to track hours, explains what federal law requires you to record, and walks through setting up a system that holds up when an employee or the Department of Labor asks for records.
Note: This is general information, not legal advice. Some states have stricter recordkeeping, rounding or break rules than federal law, so check the rules where your employees work.
What Federal Law Requires You to Track
Under the Fair Labor Standards Act (FLSA), employers must keep accurate records for every non-exempt employee. The U.S. Department of Labor says no particular form or method is required: "Any timekeeping plan is acceptable as long as it is complete and accurate." The records must include:
| Category | What to record |
|---|---|
| Employee details | Full name, Social Security number, address, occupation, sex, and birth date if under 19 |
| Time | The time and day the workweek begins, hours worked each workday and total hours each workweek |
| Pay basis | How wages are paid (per hour, per week, piecework) and the regular hourly rate |
| Earnings | Total straight-time earnings and total overtime earnings for the workweek |
| Adjustments | All additions to and deductions from wages |
| Payment | Total wages paid each pay period, the pay date and the period covered |
For employees on a fixed schedule, the DOL allows you to record the standard schedule and note only the exceptions, such as a day the employee stayed late. In practice, most employers find it simpler and safer to have everyone clock in and out.
How Long to Keep Time Records
| Record | Keep for at least |
|---|---|
| Payroll records | 3 years |
| Time cards, work schedules and wage rate tables | 2 years |
| Records of additions to or deductions from wages | 2 years |
Many states require longer retention, and the IRS says to keep employment tax records for at least 4 years after the tax is due or paid, whichever is later, so many businesses keep everything for at least 4 years.
6 Ways to Track Employee Hours
| Method | Best for | Pros | Cons |
|---|---|---|---|
| Paper timesheets | Very small teams with simple schedules | Free and familiar | Easy to fill in from memory, hard to read, must be added up by hand |
| Spreadsheet timesheets | Teams that already live in Excel or Google Sheets | Free, totals calculate automatically | Still self-reported after the fact; formulas break; no real-time view |
| Punch card time clock | A single location with set shifts | Real punch times | Buddy punching, lost cards, manual math |
| Time clock kiosk (tablet) | Shops, restaurants, warehouses, clinics | Exact punches at one shared device, PIN or photo verification | Needs a device at each location |
| Mobile time clock app | Field crews, home care, cleaning, multi-site teams | Clock in from the job, optional GPS location | Employees need a phone; set clear rules on location data |
| Web or desktop punch clock | Office and remote employees | Clock in from any browser | Needs a computer at the start of the shift |
Most businesses end up with a mix: a kiosk at the front counter, a mobile app for anyone who works off-site and a web punch clock for the office. What matters is that all of them feed one set of records.
Step-by-Step: Set Up Time Tracking
1. Decide Who Needs to Track Time
All hourly, non-exempt employees need accurate hours, because their pay and overtime depend on them. Many employers also have exempt employees track time for project costing or PTO, even though their pay doesn't change with hours.
2. Choose One Method
Pick the method that fits where people actually work. If half your team is in the field, paper timesheets in the office won't work. Avoid letting each manager use their own system. Two systems mean two sets of numbers and a reconciliation every payday.
3. Write a Short Timekeeping Policy
Put the rules in writing and have employees acknowledge them. A one-page policy is enough:
Timekeeping
Non-exempt employees must clock in at the start of each shift, clock out and back in for unpaid meal breaks, and clock out at the end of each shift using [the Updoot app / the front-desk kiosk]. Do not perform any work while clocked out. Never clock in or out for another employee.
If you miss a punch or make a mistake, notify your manager the same day so it can be corrected. Managers review and approve timesheets by [day] each pay period. All time worked will be paid.
4. Set Rules for Breaks
Federal law doesn't require breaks, but short breaks of about 5 to 20 minutes that you do give must be paid. A meal break can be unpaid only if the employee is completely relieved of duty. The cleanest approach is to have employees clock out for unpaid meal breaks instead of automatically deducting 30 minutes. See are lunch breaks paid for state rules.
5. Decide on Rounding (or Don't Round)
Federal rules allow rounding punches to the nearest 5 minutes, tenth of an hour or quarter hour, but only if it averages out over time so employees are paid for all the time they actually worked. Rounding that always favors the employer isn't allowed, and some states are stricter. Paying to the minute avoids the issue entirely. Our time clock rounding guide and 7-minute rule explainer walk through the math.
6. Review and Approve Every Pay Period
Before payroll runs, a manager should review each timesheet for missed punches, unusually long shifts, missed meal breaks and overtime. Fix errors with a note explaining the change, and have the employee confirm. A payroll report that totals regular and overtime hours by employee makes this a few minutes instead of an afternoon.
7. Keep the Records
Store approved time records where you can find them by employee and pay period for at least the retention periods above. Digital systems handle this automatically; with paper, file timesheets by pay period.
What Counts as Hours Worked
Tracking hours only works if everyone agrees on what counts. For non-exempt employees, hours worked generally include:
- All time on duty at the workplace, including setup and closing tasks.
- Short rest breaks of about 5 to 20 minutes.
- Training, meetings and lectures, unless all four of these are true: they're outside normal hours, attendance is voluntary, they aren't directly related to the job, and the employee does no other work during them.
- Travel between job sites during the workday. See travel time pay.
- Work done off the clock, such as answering texts or emails after a shift, if the employer knows or should know about it.
- Waiting time when the employee is "engaged to wait," such as standing by for a delivery, and on-call time the employee must spend on the employer's premises.
Hours worked generally don't include a normal commute or a bona fide meal period when the employee is completely relieved of duty.
Common Time Tracking Mistakes
| Mistake | Why it's a problem | Fix |
|---|---|---|
| Auto-deducting lunch | If employees work through lunch, you're not paying for time worked | Have employees clock out and in for meal breaks |
| Letting employees fill in timesheets at the end of the week | Memory is unreliable and totals drift | Use real-time punches |
| Editing punches without a note | No record of why time changed | Require a reason and employee confirmation for every edit |
| Ignoring off-the-clock work | Unpaid work is a common source of wage claims | Tell employees not to work off the clock, and pay for it if they do |
| Rounding that always favors the employer | Not neutral over time | Round neutrally or pay to the minute |
| Buddy punching | Paying for time no one worked | Use PINs or photo verification. See buddy punching |
Tracking Hours for Remote and Field Employees
Remote and field employees need the same accurate records, but you can't see them clock in. A mobile or web time clock solves most of it. Set a few clear expectations: clock in when you start working, not when you start your commute; clock out for unpaid breaks; and report any work done outside scheduled hours. If you use GPS or location features on a mobile time clock, tell employees exactly when location is captured and why, and check the GPS tracking laws in your state.
How to Calculate Hours From a Timesheet
If you're adding up hours by hand, convert minutes to decimals before you multiply by the pay rate.
| Minutes | Decimal hours |
|---|---|
| 15 | 0.25 |
| 30 | 0.50 |
| 45 | 0.75 |
| 6 | 0.10 |
| 20 | 0.33 |
Example: An employee clocks in at 8:02 a.m., out for lunch at 12:00 p.m., back in at 12:31 p.m. and out at 5:04 p.m. Morning: 3 hours 58 minutes. Afternoon: 4 hours 33 minutes. Total: 8 hours 31 minutes, or about 8.52 hours. At $20 an hour, that's $170.33 for the day. Across the workweek, any hours over 40 for a non-exempt employee are paid at time and a half under federal law; some states, such as California, also have daily overtime. See overtime laws by state.
How to Handle Missed Punches
Missed punches are the most common time tracking problem. A simple, consistent process keeps them from turning into pay errors:
- The employee reports the missed punch the same day, with the actual time.
- The manager confirms it against the schedule, a coworker or another record, such as a register login.
- The manager edits the punch with a reason, such as "forgot to clock out, confirmed with closing checklist."
- The employee confirms the corrected time when approving the timesheet.
Employees can use a short message like this:
Hi [Manager], I forgot to clock out yesterday. I left at 5:35 p.m. after closing. Can you update my punch? Thanks.
If one employee misses punches every week, treat it as a training or policy issue. Don't simply stop paying for unrecorded time; if you know they worked it, it must be paid.
Time Tracking by Industry
| Industry | What to watch | Best setup |
|---|---|---|
| Restaurants | Split shifts, tip credits, meal breaks, side work after close | Kiosk at the host stand or back office, with break tracking |
| Retail | Opening and closing tasks, early arrivals, overtime during holidays | Kiosk or mobile app tied to the schedule |
| Construction and trades | Travel between job sites, multiple projects per day | Mobile app with job codes and optional location |
| Healthcare and home care | Overlapping shifts, travel between clients, on-call time | Mobile app with notes for each visit |
| Offices and remote teams | After-hours email and messaging, PTO | Web punch clock and PTO tracking |
Questions to Ask When Choosing a Time Clock
- Can employees clock in from where they actually work, such as a kiosk, phone or browser?
- Does it track unpaid breaks as clock-outs instead of auto-deducting them?
- Does it log every edit, with who made it and why?
- Does it flag overtime and missed punches before payroll?
- Can it export hours to your payroll provider?
- Does it prevent buddy punching with PINs or photos?
- What does it cost per employee as you grow?
For a side-by-side look at options, see our time clock comparison for small business.
How to Approve Timesheets Quickly
A weekly or per-pay-period review shouldn't take long if you look at the right things in the right order:
- Scan for missing punches first; they cause the biggest errors.
- Look for shifts that are much longer or shorter than scheduled.
- Check that unpaid meal breaks were actually clocked.
- Review overtime and confirm it was worked and approved.
- Approve, and let employees know their hours are final.
Doing this every week, even on a biweekly payroll, keeps problems small and fresh in everyone's memory.
Paper vs. App: Is It Worth Switching?
For two or three employees on a fixed schedule, a printed timesheet can work. Once you have shifts that vary, more than one location, people in the field or overtime every week, the time spent adding up timesheets and fixing errors usually costs more than an app. The bigger benefit is protection: digital punches with a full edit history are much stronger records than handwritten times if hours are ever disputed. If you're still on paper, our free printable timesheets are a solid starting point.
Track Hours in Updoot
Updoot's employee time clock works as a mobile app, a front-desk kiosk and a web punch clock, all feeding the same timesheets. Employees clock in and out for shifts and breaks, managers approve timesheets in one place, and the payroll report totals regular hours, overtime and PTO for each pay period, with every edit logged.
Sources
- U.S. DOL: Fact Sheet #21, Recordkeeping Requirements Under the FLSA
- 29 CFR 785.48: Use of time clocks (rounding)
- U.S. DOL: Breaks and Meal Periods
- 29 CFR Part 785: Hours Worked
- U.S. DOL: State Labor Offices
- U.S. DOL: Fact Sheet #22, Hours Worked Under the FLSA
- IRS: How Long Should I Keep Records?