Electronic Time Tracking

For most manufacturing companies, people are the most important asset and represent the largest operating cost. Yet the systems used
for tracking these costs are often antiquated.

Most time is tracked using manually recorded time sheets, which are often incorrect. According to the American Payroll Association,
payroll errors average between 1/2 and 1 percent of payroll and, not surprisingly, these errors typically represent overpayment rather
than underpayment. Chart I shows the weekly cost of manually recorded time sheets based on various error factors.

Electronic time tracking doesn’t eliminate the payroll function or the need for an outside payroll service if one is used. What it does is
automate and increase the amount of information collected at the front end on the shop floor at the supervisor level. Ideally, an
electronic system gathers information at or close to the place where the work is being performed.

Implementation
Electronic time tracking can be implemented in phases-it isn’t necessary to use all of the system’s features on day one. You might
begin by installing the technology and using it strictly for punch-in/punch-out tracking to get the employees accustomed to it. This
eliminates the error-prone manual process which includes time sheets, data entry, and transmitting data to the payroll department or a
third-party service. Eliminating the manual process can create immediate savings. Typically, the savings will pay for the technology
within a year or perhaps as little as eight months.

Even in a company where there are few or no errors, the time spent entering and correcting data in a manual front-end system may
exceed the cost of an electronic system. Chart II shows the cost of employee time spent totaling time cards manually.

The next phase involves gathering more information from employees. For example, if certain employees perform multiple functions,
they can electronically change the activity code attached to their time with a simple adjustment. An employee might do welding for
three hours in the morning and light assembly for two and one-half hours in the afternoon. By allocating time to specific job numbers
or processes, it is no longer necessary to keep track manually. The time is automatically attached to the job or activity.

Benefits
Electronic time tracking dramatically improves reporting. With a manual time-keeping system, judging how well a foreman manages
employees may take weeks. But the shop manager needs feedback today on what happened yesterday or the day before.

For example, excess overtime may not be detected for weeks-too late to take corrective action. With immediate access to that
information, however, overtime can be reduced or eliminated on a day-to-day basis. Suppose a manufacturer uses ten workers and two
have already worked forty hours for the week. Assuming the manufacturer has flexibility in scheduling, workers who haven’t yet
worked forty hours can be scheduled for the next day. With a little planning, a manufacturer can flatten the work load among its
employees and reduce overtime.
Electronic time tracking may also help a company comply with union rules. For example, a union shop or a group of workers under
contract may be covered by specific rules governing how they're paid. There may be rounding rules with respect to time intervals.
They may be entitled to time-and-a-half at certain times and double time at others. Employees may be on call and the pay rate may
differ depending on when they are called. All of these variables can be incorporated into an electronic system. It isn't necessary for a
payroll clerk to match payroll records against contracts.
Managing by exception is also easier. If certain employees are continually late, the company can detect these aberrations and correct
them immediately. First and second warnings can be issued promptly without having to wait for feedback from a shop supervisor.
Another benefit is elimination of the need for shop supervisors to spend time analyzing poor reporting from the payroll department or
helping employees keep up with their record keeping.
Depending on the level of sophistication. i.e., internal versus external payroll systems. Most vendors of electronic time-tracking
technology provide painless methods of transmitting data into the right systems. Most vendors have interfaces for use with the major
payroll processing companies, such as ADP. They also have interfaces to deal with various general ledger payroll subsidiary records
so that it isn't necessary to acquire a new level of technology that doesn't fit the way a company does business.
All of the information from a manufacturer's plants is transmitted to a central database from which reports are produced. All payroll
information is transferred to an outside payroll service or the manufacturer's own payroll department from this central database.
Systems
The methods of keying in time tracking data are flexible. Bar code or magnetic stripe readers may be matched to an employee
identification badge with a photograph. Depending on the security needs of the area, the badge can be used for other purposes such as
opening doors. Employees that are not on the shop floor (e.g., service people who work outside the plant) may phone in information.
© 2009 Principa. All Rights Reserved. 14
 Electronic Time Tracking (Cont’d)
Other Applications
Suppose that an employee does light assembly beginning work on a particular kit. He or she walks over to a time device and inputs
information on this activity. This automatically informs the inventory system what parts have just been pulled to make that kit. There
is no longer a need to prepare a manual request for parts or separately key in internal orders for parts. After completing the work,
another swipe of the badge indicates that the activity is completed and an automatic record is created on how much material and labor
is attached to that kit. Standards are automatically updated for pricing and other purposes. As data is accumulated over time, the
company can develop more accurate standards. There are many standards used by manufacturers that are based on accurate, timely
payroll information. By improving both speed and accuracy, electronic time tracking can be a big help in making pricing decisions,
particularly in job shops.
Another benefit is that once employees become comfortable with the new system, they begin to feel more secure about their
paychecks. They're less worried about accuracy. They can go to the terminal and see what they just entered. They have a better
understanding of what goes into the system and they have more confidence in the payroll system.
Use in Small Companies
Electronic time tracking can work for a company with fewer than 40 or 50 employees, albeit with a smaller payback. Companies with
more than 50 employees generally find quick returns, and when there are more than 100 employees, the investment is easy to justify.
How Many Units?
In almost every installation there is one device used to displace the time clock. Additional units depend on the company's time
management strategy. If there are several basic functions, there may be a device at each location. It is important to make it easy for
employees to use the system through convenient locations, thorough training, and ease of instructions.
What Does it Cost?
The basic box (the bar code or magnetic stripe reader) starts as low as $800 to $900. More sophisticated systems that gather more
information on site, such as scheduling information, will increase the cost to $2,200 to $2,400. Software costs range from between
$500 and $1,000 up to as much as $7,500 for companies with more than 150 to 200 employees. The system operates on a variety of
platforms so additional computer hardware may not be necessary.

Chart I
The Human Error Factor
Manual Auditing of Time Cards Can Cost Thousands of Dollars Each Week
Weekly Error Factor
Payroll 1/2% 1% 2% 3% 4% 5% 6%
$10,000 $ 50 $ 100 $ 200 $ 300 $ 400 $ 500 $ 600
15,000 75 150 300 450 600 750 900
30,000 150 300 600 900 1,200 1,500 1,800
40,000 200 400 800 1,200 1,600 2,000 2,400
80,000 400 800 1,600 2,400 3,200 4,000 4,800
100,000 500 1,000 2,000 3,000 4,000 5,000 6,000

Chart II
Auditing Savings
This chart illustrates the potential first-year auditing savings using electronic time tracking. Manual totaling of time cards takes an
average of seven minutes per card.
Number of Employees
Cost of Payroll
Employee* 10 25 50 100 250 500
$5.40 $280.80 $ 702 $1,404 $2,808 $ 7,020 $14,040
6.00 312.00 780 1,560 3,120 7,800 15,600
6.60 343.20 858 1,716 3,432 8,580 17,160
7.20 374.40 936 1,872 3,744 9,360 18,720
7.80 405.60 1,014 2,028 4,056 10,140 20,280
8.40 436.80 1,092 2,184 4,368 10,920 21,840
9.00 468.00 1,170 2,340 4,680 11,700 23,400
9.60 499.20 1,248 2,496 4,992 12,480 24,960
*Cost of employee used to manually total time cards. Cost is a combination of the hourly wage, burdened by a 20 percent overhead
factor. For example: $4.50 hourly wage + 20 percent ($0.90) equals $5.40.

© 2009 Principa. All Rights Reserved. 15