Let’s assume the average hand-written time card overstates the time actually worked by six minutes. An employee comes in at 8:03 a.m. and enters 8 a.m. on the time card, then takes an extra three minutes at lunch.
No big deal, right? Unless you do some figuring and find that, at six minutes a day, a full-time employee annually racks up 26 hours of unearned wages. That’s more than three days of work. That’s a big hit to your bottom line.
Let’s do a little more arithmetic. Start with a salary of $12 an hour. Add the required extras – FICA, Medicare, worker’s comp – and it’s $14.67 an hour. Multiply that by 26 hours and it works out to $381.47 annually for each employee. With five employees, that’s more than $1,900.
Maybe you’re thinking: “Yeah, that’s real money, but it’s not going to seriously impact my business.” As they say on the television infomercials … “but wait, there’s more!”
The cost of wages paid for work not performed is bad enough. However, it’s dwarfed by the often-overlooked cost of services not received. What does that mean? Without getting too heavy, here’s the idea.
All business models have a figure that represents the “value” per hour of each employee. Using our example of a $14.67 per hour employee, each employee must bring in more than that amount for the business to be profitable. The “value” of an employee is simply the difference between what they’re paid and what they bring in. That difference is what pays for rent, utilities, insurance and profit. It’s what makes a business viable.
To see the true cost of lost employee productivity, consider this example.
Say that Able Remodeling Co. bills customers $72 an hour and incurs an employee wage cost of $14.67. In reality, that employee is probably doing billable work only 60 percent of the time. So we must multiply $72 by .60
(60 percent) to get an effective income production rate of $43.20 per hour. This is the average value of your employee’s service while working. It is also the cost to you of services not received when employees are not working. This amount must be added to the wages paid for misreported time because you paid the wages and received no services to offset that cost. So the real cost of that misreported time is $57.87 an hour.
Stay with me now, we’re getting down to the nitty-gritty. Using our example of six lost minutes a day, $57.87 per hour works out to more than $1,500 annually. With five employees, the hit to your bottom line totals more than $7,500. Ouch! (Doing the math on the 10-lost-minutes-per-day employee is too depressing. We’re talking five figures now — $15,894.)
It’s scary to think how much of your money is taken in such a casual way by employees who don’t even realize they’re doing it!
As an employer, you know these figures are probably conservative. In some businesses, you could double these losses due to misreported work time. In this challenging economic environment, cost control is of utmost importance. So what can you do?
Fortunately, time management solutions are available for businesses of all sizes and situations — everything from web-based punch clocks and PC-based systems to ergonomic hand readers and cell phone-based solutions that even track employee location via GPS. All of these time management solutions integrate with payroll systems to save employers time and money.
When you consider the true cost of unproductive time, it’s easy to see the payback time for such investments won’t be long. Furthermore, they’ll continue to pay off for years.