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Employees Pocket More Than Their Paycheck – Where the Extra Dollars Go

No matter if it’s intentional or not, employees can drain the payroll budget either by deliberately manipulating timesheets or by making innocent mistakes.

A small business can circumvent the issue by having an accurate system in place to record and store timekeeping data. Many, if not most, small businesses allow their employees to jot down their hours on an excel spreadsheet and email it over to the payroll person. While this may work sometimes and for some employees the method is not fool proof and leaves ample room for mistakes and fraud.

Timekeeping Fraud

Innocent Mistakes

Coming in late but penciling in on schedule Rounding for easy entry and calculation
Leaving early but penciling in on schedule Misplacing time sheets
Buddy punching (friends punching in for friends) Forgetting hours worked at the end of the week when filling in the timesheet
Clocking in from home before starting shift Forgetting to clock out, fixing it a week later
Not working at all Calculation errors
Fabricating expenses Incorrectly estimating expenses

Adding it up

Nearly every person is subject to committing one or two of these “mistakes.” Add one or two of these up over time and over the entire workforce and there could be some serious payroll losses.

  1. Padding the time sheet: 5 minutes This concerns both innocent or subconscious rounding in ones own favor as well as deliberate adding of minutes before and after a shift. 5 minutes is a common increment used in time rounding. Even though it may occur with every clock punch, we’ll just add it in once for the day.
  2. Buddy punching: 15 minutes Some employees might add as much as an hour but let’s assume your employees aren’t quite so bold. They have their friend punch in for them 15 minutes before their shift.
  3. Clocking out at home: 15 minutes Without security safe guards in place, employees can clock out after they’ve already kicked up their feet.
  4. Wasting time on the clock: 1 hour A couple of 15 minute Facebook sessions before and after lunch adds up. It could be deliberate or an employee may not realize how much time they’re really wasting.
  5. Fabricating or incorrectly estimating expenses: Any amount Repetition and multiple offenders make this a pretty costly problem.
  6. Calculation errors: Any amount The amount lost due to errors is unpredictable but has the potential to be quite high.
  7. Forgetting one’s hours: Any amount This could range anywhere from a few minutes to a few hours.

The Damage

Let’s say a company employs 5 people who make, on average, $10/hour. Since we now know that employees don’t have to be dishonest to take home a swollen paycheck, we can assume that each employee is responsible for some kind of time sheet error. Leaving entries 5, 6, and 7 off our calculations, notice we still could be losing about an hour and a half per employee per day. This loss amounts to $75/day or $2,250/month just for not having a rigorous time tracking system in place.

Resolution: A Timekeeping System

Adopting stringent timekeeping rules will help preclude payroll losses. The best way to do this is through online timekeeping software, like, designed with all of the pitfalls in mind. The software should be user-based, and online so that the administrator can monitor usage anytime and from anywhere. The system should have location and identity security features such as IP restrictions and biometrics. These will help stave off buddy punching attempts and all of the various methods of time padding. A project or task tracking program can also be helpful in deterring employees from wasting their working hours. When employees are aware that their day is monitored or analyzed they are less likely to waste time on the clock.

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