How to Calculate Hours Worked: Formula and Examples
If you have hourly employees on the payroll (or contract employees, as they are also known), you’ll need a system in place that ensures fair and accurate payment for all time given to your organization.
In this article, you'll learn, specifically, how to calculate hours and minutes worked, and what that equates to in pay, without rounding.
Paying your staff fairly is essential for employee satisfaction, particularly when they work on an hourly basis.
Whilst it’s true that salaried employees often work beyond their contracted hours without additional pay, they are typically in receipt of an employee benefits package – and the value of these work perks is usually justification for the extra commitment.
By contrast, hourly staff are rarely awarded these benefits, so they deserve financial compensation for all time worked, down to the last minute.
Failure to give fair compensation will impact their morale. Productivity will drop, and you’ll find it difficult to retain talented workers.
Minutes aren’t just important to employees, though. They’re also important to your bottom line – especially if you’re a small business.
To understand this, we need to look at the rules related to time rounding.
The Fair Labor Standards Act (FLSA) permits employers to round time worked up or down in 15-minute increments, but there are very specific guidelines you must follow.
Between one and seven minutes should be rounded down, and between eight and 14 minutes should be rounded up.
For example, if an employee clocks in at 8:05 a.m. you must log their start time as 8:00 a.m., since it’s only five minutes into the next quarter hour.
However, if they clock in at 7:55 a.m. you can also log their start time as 8:00 a.m. since it falls in the 8–14-minute bracket.
Whilst rounding makes payroll a lot simpler in terms of the math, it can cause problems.
Employees may start to take advantage of the system, clocking in and out at times beneficial to them to receive pay for minutes they haven’t worked.
Though this is likely to be a matter of cents each time, it mounts up, particularly if there are several employees working the system.
Remember, too, that it will have an impact on your portion of Social Security and Medicare tax payments.
So, if on paper an employee’s hours are under 40 because they’ve been continuously rounded down, but in reality exceed the limit, their pay will not reflect what they are legally entitled to.
All of this makes precise calculation of hours and minutes worked a sensible option.
The following process explains how to calculate hours and minutes worked either manually or with a basic spreadsheet.
The first step is to ensure you have an accurate method of logging hours worked. This won’t only help with payroll, but will also help you prove compliance in the event of an audit by the Department of Labor (DOL).
There are a few options to choose from here:
Personal timesheets – An employee records their own start and finish times, and any unpaid breaks etc, either on a physical timecard or in digital form. These are submitted at regular intervals, typically weekly or fortnightly. If using this system, be aware that it is easily subject to employee manipulation.
Time clocks – These can either be mechanical, where a physical timecard is stamped by a machine, or electronic, where employees scan a badge or input a PIN to produce a digital record of their working hours.
Time-tracking software – This works by way of an app or website that employees log into to clock on and off. It’s a convenient option, as it will calculate time worked for you. However, it does come at a cost.
Pick the option that’s best suited to your business needs and budget.
Once you have a record of time worked, you’ll need to convert it to 24-hour clock (known as 'military time') if this has not already been done.
Afternoon hours are increased by 12 – so for example, 3:00 p.m. becomes 17:00 – and morning hours stay the same.
This makes calculations much simpler. A time log of 8:00 a.m. to 5:00 p.m. becomes 08:00 to 17:00, so it’s easy to see that this is a nine-hour shift.
Working from the timesheet now converted to 24-hour clock, calculate the total number of hours and minutes worked in the pay period, and convert it all into minutes.
First add up the whole hours and multiply by 60. If an employee worked seven hours each day for five days, this equates to 7 x 5 = 35 hours, then 35 x 60 = 2,100 minutes.
Now add up minutes worked outside of full hours. Let’s say that was 30 minutes each day. That’s an additional 150 minutes, taking the total to 2,250 minutes.
If you’re using a process like a mechanical time clock, where staff punch in and out for unpaid breaks, you can skip this step.
Let’s say that the same employee takes a 15-minute unpaid break each day. That makes 75 minutes that need to be deducted: 2,250 – 75 = 2,175.
You now have the total number of payable minutes owed to the employee.
In this step, we’re converting minutes back into hours, but as a decimal value, so you can easily multiply them by the hourly wage.
To do this, simply divide the total number of minutes by 60, since there are 60 minutes in an hour. So, 2,175 ÷ 60 = 36.25.
Your employee worked a total of 36.25 payable hours.
You can see now why conversion is essential. If we’d added up the total time using both units, we’d have 36 hours and 15 minutes. Paying the employee 36.15 times their hourly wage would be incorrect, since those 15 minutes do not represent the right portion of an hour.
Now take the total of 36.25 hours and multiply it by the hourly rate. If that rate was 15 = $543.75.
From this, you’ll need to calculate relevant taxes and withhold as appropriate.
In the process above, we converted time worked into minutes, and then back into hours as a decimal value.
Alternatively, you could add up time worked in hours and minutes and convert that instead.
Using the same example, we have 36 hours and 15 minutes of payable time. We’d divide the 15 minutes by 60 to get our decimal value of 36.25.
Your employee's timesheet shows they worked from 9:15 a.m. to 4:45 p.m., Monday to Friday, with a 30-minute unpaid lunch break each day.
First convert to military time, giving 09:15 to 16:45 hours each day.
Add up the total number of whole hours worked – 10:00 to 16:00 each day – and convert into minutes. 6 x 5 = 30, and 30 x 60 = 1,800 minutes.
Now add up the leftover minutes – 45 in the morning and 45 in the afternoon – so an additional 90 minutes each day. 90 x 5 = 450, and 450 + 1,800 = 2,250.
Now tally up unpaid break time (30 x 5 = 150) and deduct: 2,250 - 150 = 2,100.
Dividing 2,100 by 60 gives a total of 35 payable hours. If your employee earns 18 = $630**.
In this example, let’s say you have a part-time employee who works from 12:30 p.m. to 5:00 p.m., Monday to Wednesday.
The 24-hour clock gives us 12:30 to 17:00 – 4 hours 30 minutes each day, equating to a total of 13 hours and 30 minutes for the week.
Divide those 30 minutes by 60 to get your decimal value, and you have 13.5 hours.
There are no breaks to account for here, so just multiply their hours by their wage. If that wage was 12.50 = $168.75** before taxes.
Here, the employee earns $12 per hour and works from 8:30 a.m. to 6:30 p.m., Monday to Friday, with a 45-minute unpaid lunch break each day.
The total working hours are 08:30 to 18:30 – 10 hours per day, so 50 hours across the week. Multiply this by 60 to get 3,000 minutes.
Unpaid breaks account for 225 minutes (45 x 5) so we have a payable time of 3,000 – 225 = 2,775 minutes. Dividing this by 60 gives us 46.25 hours.
The first 40 hours are calculated at a rate of 12 = $480.
The remaining 6.25 hours are calculated at time and a half, so 6.25 x 112.50.
This gives a total of 112.50 = $592.50 before taxes.
Calculating hours and minutes worked is a fairly straightforward process once you have the right building blocks in place.
An effective time-tracking system, accurate calculations and a transparent approach to payroll ensure that you reward staff fairly for their time, stay compliant under employment law and do not throw away money on unproductive hours.