How To Calculate Payroll For Hourly Employees

Managers in the 20th century often served as their own payroll hours calculators. That meant extensive time spent manually number-crunching using paper, pencil, and a calculator or one of those old adding machines.

Thankfully, technology has advanced enough that many managers now have software to do the math for them. Even with these advances, it’s still essential to know what goes into the process of calculating each employee’s work hours for the pay period.

In this article, we’ll discuss the steps involved in running your own payroll hours calculator, give you tips for making it more accurate and pain-free, and then introduce you to technology that does all the math for you.

(If you’re brand-new to the payroll process and need to go over some of the basics of doing payroll yourself, this blog might be a helpful place to start.)

Payroll Hours Calculator

If you decide you’d prefer to crunch the numbers yourself rather than using software or another tool, here’s everything you need to know about calculating payroll hours for your team.

1) Calculate Total Hours Worked

The first step in the payroll hours calculating process is to add up the total hours an employee worked during your business’s pay period.

There are two common ways to do this: with actual time or rounded time.

Actual Time

Using actual time to calculate the total hours worked means using the exact numbers recorded on the employee’s timesheet (either digital or the paper kind), down to the minute.

For example, imagine that your employee, Miranda, has turned in the following time card for the workweek:

Monday: 9:00 a.m. to 5:15 p.m.
Tuesday: 8:55 a.m. to 5:05 p.m.
Wednesday: 9:05 a.m. to 5:09 p.m.
Thursday: 8:58 a.m. to 5:02 p.m.
Friday: 9:03 a.m. to 5:07 p.m.

With that information, you would first determine how many hours she worked each day.

Monday: 8 hours 15 minutes
Tuesday: 8 hours 10 minutes
Wednesday: 8 hours 4 minutes
Thursday: 8 hours 4 minutes
Friday: 8 hours 4 minutes

Depending on how you feel about long-form addition, the easiest way to find the total hours worked for the week is to add up all the hours and then add up all the minutes.

Hours worked
8 + 8 + 8 + 8 + 8
–––––––––––––––––
Total hours worked = 40

Minutes worked
15 + 10 + 4 + 4 + 4
–––––––––––––––––
Total minutes worked = 37

So, Miranda worked a total of 40 hours and 37 minutes for the pay period.

But we aren’t finished yet. You can’t use that number to calculate gross pay because it’s not in decimal format. We’ll get to that in step two. Now, we’ll show you another way of calculating total hours worked: the rounded time method.

Rounded Time

Calculating an employee’s time on the clock using the rounded time method involves rounding the time up or down to give yourself cleaner numbers to work with.

But be careful: There are strict federal laws that govern the practice, and mistakes can lead to trouble for your business, not to mention your employees feeling cheated if their time is miscalculated.

Here are the basic rules:

You can round to 15-minute intervals of an hour (i.e., X:00, X:15, X:30, and X:45)
Time values of one minute to seven minutes above those intervals are rounded down
Time values of eight minutes to 14 minutes above those intervals are rounded up

Recorded times such as 9:07 a.m., 9:22 a.m., and 9:37 a.m. are rounded down to the nearest 15-minute interval (9:00 a.m., 9:15 a.m., and 9:30 a.m., respectively).

Recorded times such as 9:08 a.m., 9:23 a.m., and 9:38 a.m. are rounded up to the nearest 15-minute interval (9:15 a.m., 9:30 a.m., and 9:45 a.m., respectively).

Now, let’s see how this looks in practice by using our trusty employee Miranda’s example timesheet:

Monday: 9:00 a.m. to 5:15 p.m.
Tuesday: 8:55 a.m. to 5:05 p.m.
Wednesday: 9:05 a.m. to 5:09 p.m.
Thursday: 8:58 a.m. to 5:02 p.m.
Friday: 9:03 a.m. to 5:07 p.m.

When we apply the rounded time method to Miranda’s time card, we get:

Monday: 8 hours 15 minutes
Tuesday: 8 hours 15 minutes (minutes rounded up from 10)
Wednesday: 8 hours (minutes rounded down from 4)
Thursday: 8 hours (minutes rounded down from 4)
Friday: 8 hours (minutes rounded down from 4)

When we add all those numbers together, the total hours worked for the pay period (using rounded time) comes out to 40 hours and 30 minutes.

Great! That’s a nice round number. But just like the actual time method above, you can’t use that number to calculate gross pay. You have to convert it to decimal format first.

2) Convert All Time To Decimal Format In Your Payroll Hours Calculator

Whether you use the actual time or rounded time method, you should now have the total hours and minutes your employee worked for the pay period. But there’s one more step before you’ll know how much to pay.

Because the wage you pay your employees is based on increments of one hour, you’ll have to convert their total time to decimal format before multiplying it by their wage to calculate gross pay.

To convert from minutes to a decimal, divide the minutes by 60 or just refer to the handy chart above.

So, for example, if we use Miranda’s actual time worked (40 hours and 37 minutes), it would convert to 40.62 hours. If we use Miranda’s rounded time worked (40 hours and 30 minutes), it would convert to 40.50 hours.

With those decimal equivalents in hand, you’re ready to calculate the wages to pay for regular hours worked and overtime hours worked.

Tips For Calculating Payroll Hours

1) Use 24-Hour Time Format

Standard time format is what you see when you look at most digital clocks in the States. The hours range from one to twelve, and “a.m.” or “p.m.” differentiate between morning and afternoon.

(Did you know a.m. and p.m. stand for “ante meridiem” and “post meridiem,” respectively? That’s Latin for before and after midday.)

Twenty-four-hour time (a.k.a. military time) counts the morning hours just like the standard format (e.g., 7:24 a.m., 9:11 a.m., 11:47 a.m., etc.). But after 12:59 p.m., 24-hour time keeps the hours rolling up to 24. For example, 1:00 p.m. becomes 13:00.

You’ll notice that you don’t need the “p.m.” to indicate afternoon as you do with standard time format. That’s because the other one o’clock (in the early hours of the morning) is written 01:00.

Wondering why we’re telling you all this? Because using a 24-hour time format makes calculating hours worked (including overtime) much easier if you choose to do it manually.

For example, let’s say Miranda clocked in at 9:00 a.m. (standard format) and clocked out at 5:00 p.m. You’re going to have to do some roundabout math to calculate the hours worked because you can’t simply subtract one number from the other.

Now, let’s say that Miranda clocked in at 09:00 (24-hour format) and clocked out at 17:00. Calculating the hours worked becomes a simple matter of subtracting nine from 17 to get eight. Miranda worked eight hours that day.

2) Set A Rounding Policy

Very rarely will every one of your employees clock in and out precisely on the hour. There are going to be some people early and some people late. This is where a rounding policy comes into play.

As we mentioned earlier, the U.S. Department of Labor recommends keeping track of hours worked in fifteen-minute increments. Before calculating payroll hours, determine if you will use a rounding policy and what that will look like.

Automate Your Payroll Hours Calculator

If all of this sounds like a lot of work to you, we couldn’t agree more. Serving as your own payroll hours calculator takes up a lot of your valuable time.

We think your time is better spent managing and growing your business. That’s why we built employee time tracking and reporting into our software to simplify your payroll process.

With Sling, you set the rules that govern work-hours time tracking (e.g., rounding or no rounding), and the app does the rest for you.

As employees record their time using the integrated time clock, Sling crunches the number in the blink of an eye. That means less work for you and more accurate data for figuring out the final paycheck.

It also means that work hour data is available anytime you need it — at the beginning of a pay period, in the middle, or right before the end. Such insight helps you better control labor costs and keep your business in the black.

And that’s just the tip of the Sling iceberg!

We mentioned the integrated time clock and the built-in payroll hours calculator, but our software also offers such advanced features as:

All of that and much more in a powerful software suite whose components work seamlessly together to provide the most comprehensive workforce management and payroll hours calculator available.

Want to see it for yourself? Try Sling for free today!

For more free resources to help you manage your business better, organize and schedule your team, and track and calculate labor costs, visit our blog page.

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This content is for informational purposes and is not intended as legal, tax, HR, or any other professional advice. Please contact an attorney or other professional for specific advice.

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