Let’s Do the Math.
Automation reduces repetitive manual tasks found in manual payroll systems. These manual systems require time card collection, correction & calculation. All of those tasks have to be overseen by a payroll manager. Manual systems lead to errors, and reduce productivity. If these mundane tasks can be eliminated or shortened, employees have more time to improve the company as a whole.
Today, we’ll be doing a simple exercise with data from the American Payroll Association (APA) to demonstrate the savings and return on investment from automating payroll.
Quick Figures for the Payroll Automation Exercise
Let’s start with a quick look at a pretty typical business. Here, we’ll be using some statistics provided by the American Payroll Association, as well as some conservative estimates.
- How many employees currently punch in and out on a time clock? In our example, we’ll use 500 employees.
- What is their average hourly rate? $16.00.
- What is the payroll managers hourly rate? $16.00.
- How many minutes does it take to review and total each time card? We’ll use 3 minutes (the APA estimates 7 minutes).
- What is the hourly rate of the person reviewing the time cards? $16.00.
- What percent of the calculation of time cards is inaccurate do to improper rounding, calculation errors, transposition errors and improper application of payroll rules? 2% (the APA estimates between 1% to 8%).
- How many standard hours do your employees work in a pay period? 40 hours.
- How much time per employee do you lose each day due to: long lunches, early departures, breaks, supervisor rounding, tardiness, and incorrect totaling? 20 minutes (the APA estimates 49 minutes per employee per day).
Automation Saves Money for Time Card Audits
Studies have shown that manual calculation of time cards takes approximately 7 minutes per card each pay period. In our conservative estimates, we’ve assumed it only takes 3 minutes per card. Automation will reduce that to 1 minute per card or even less. By switching to an automated system, you’ll be saving at least 2 minutes per card if not more.
- 2 minutes saved per card × 500 cards = total savings of 1000 minutes each day.
- Total minutes saved in a regular work week = 5000 minutes.
- Total minutes saved in a regular work week / 60 minutes = 83.3 hours saved weekly.
- Payroll managers rate × hours saved weekly = $1333.33 weekly savings.
- Monthly savings (4.33 weeks × weekly savings) = $5773.33.
- Yearly savings (52 weeks × weekly savings) = $69333.33.
Lost Time Can Be Recovered with Automated Time & Attendance
Lost time (or time theft) savings consists of wages recaptured by the systems rounding and restriction capabilities. The average weekly theft (long lunches, tardiness, etc.) is 49 minutes for each employee according to the APA. Here, we’ve estimated a conservative 20 minutes.
- Daily lost productivity = 20 minutes / 60 minutes = 0.33 hours.
- 0.33 × average employee rate = $5.28 in wages overpaid daily.
- Multiply by 5 days = $26.40 in wages overpaid weekly.
- Multiply by number of employees = $13,200.00 in total wages overpaid weekly.
- Multiply by number of weeks in an average month (4.33) = $57,156.00 in total wages overpaid monthly.
- Total wages overpaid weekly × 52 weeks = $666400.00 in total wages overpaid yearly.
Automatic Time and Attendance Eliminates Errors
Studies have shown inaccuracy in the calculation of totals to be between 1% and 8%. In our examples, we have used 2% error factor to be conservative. Using automated time and attendance eliminates errors and adds to your savings.
- Number of employees × average hourly rate × average hours worked weekly = total weekly payroll expense: $320,000.00.
- The total weekly savings from the elimination of errors is the total weekly payroll expense × the 2% human error factor:
- Weekly payroll × 2% error factor = $6400.00 in weekly savings.
- Weekly savings × 4.33 weeks in an average month = $27712.00 in monthly savings.
- Weekly savings × 52 weeks = $332800.00 in yearly savings.
Total Savings Summary
- Weekly audit savings = $1333.33.
- Weekly error savings = $6400.00.
- Weekly wages recaptured = $13,200.00.
- Add the above three numbers to find the per weekly payroll savings, $20,933.33.
- Weekly savings × 4.33 weeks in an average month = $90,641.33 in monthly savings.
- Weekly savings × 52 weeks in a year = $1,088,533.33 in yearly savings!
Automating the time and attendance process for your employees with integrated punch clocks can save your organization hundreds of thousands of dollars each year.
We’ve outlined several different ways automated time and attendance saves you money. First, automated systems reduce time card audit time and the system saves employee labor time. Next, they eliminate the wages paid to employees taking long breaks or lunches or showing up late. Lastly, an automated time and attendance system eliminates human error, adding to your savings.
How Much Can Your Company Save?
- 10 Employees: About $4,000 per year.
- 25 Employees: About $10,000 per year.
- 50 Employees: About $20,000 per year.
- 100 Employees: About $40,000 per year.
- 500 Employees: About $200,000 per year.
- 1000 Employees: About $400,000 per year.
And that’s based on conservative estimates!
As proof, we encourage you to calculate your own return on investment and note how the much money the average company loses in profits through inefficiency without the automated process.
1) Reducing Time Card Audits
An automated time-tracking payroll process reduces the amount of time an auditor spends calculating time card data, thereby enabling him or her to focus on other areas of the job. The American Payroll Association estimates that a payroll employee spends about 6 minutes calculating the data on a time card. And that time really adds up.
Audit Time Savings
|Number of Employees||25||50||100||500||1,000|
|Minutes Saved Per Time Card*||5||5||5||5||5|
|Total Hours Saved Weekly||2.08||4.17||8.33||41.67||83.33|
|Wages for Payroll Clerk||$20||$20||$20||$20||$20|
* Studies from the APA show that manual totaling of time cards takes approximately six minutes per card. An automated system will reduce the process to just one minute or less.
2) Recapturing Wages
Another factor to consider when calculating the return on investment for an automated employee time and attendance system is to look at the amount of wages that are recaptured after being taken by employees who take long breaks or come in late. An automated employee time tracking system has the capability of monitoring breaks and ensures the correct time is calculated. The APA estimates that the average employee time theft is about 49 minutes a week, which translates to almost 10 minutes per work day. The following graph assumes a more conservative 6 minutes, but the savings are still astronomical.
Lost Productivity Savings
|Number of Employees||25||50||100||500||1,000|
|Lost Productivity Per Day (in Minutes)||6||6||6||6||6|
|Average Hourly Rate||$10||$10||$10||$10||$10|
|Average Wages Overpaid Daily (per Employee)||$1||$1||$1||$1||$1|
|Average Overpaid Weekly (per Employee)||$5||$5||$5||$5||$5|
|Total Wages Recaptured Weekly||$125||$250||$500||$2,500||$5,000|
|Total Wages Recaptured Monthly||$500||$1,000||$2,000||$10,000||$20,000|
|Total Wages Recaptured Yearly||$6,500||$13,000||$26,000||$130,000||$260,000|
3) Reducing Human Error
Everybody makes mistakes. That’s why automating the system helps save money from day one. Simple mistakes like mental math slips or inputting a number incorrectly upon data entry can end up costing a company thousands by the end of the year. The final method of cost savings we’ll discuss is eliminating human error present in the manual system. The APA has cited a human error rate of between 1-8%. The graph below shows an even more conservative rate: 0.25%. Even if we assume employees rarely ever make mistakes, the total savings add up fast.
Human Error Elimination Savings
|Number of Employees||25||50||100||500||1,000|
|Average Hourly Wage||$10||$10||$10||$10||$10|
|Average Hours Worked Weekly||40||40||40||40||40|
|Total Weekly Payroll||$10,000||$20,000||$40,000||$200,000||$400,000|
|Human Error Factor*||0.0025||0.0025||0.0025||0.0025||0.0025|
* Studies have shown that the inaccuracy of time calculation to be between 1% and 8%. We have used a very conservative 0.25%.
The Grand Total: Automated Time and Attendance Systems Provide a Fast Return on Investment
As you can see, small numbers add up very quickly to make big headaches if a company isn’t utilizing automated payroll systems. If you add these savings up, even a small company will see a return on investment within one year.
Contact us to see how we can tailor an automatic employee time and attendance system to fit your company’s requirements, to save you from losing time and money to inefficiency.
Experts in Timekeeping and Employee Scheduling
Acumen Data Systems is a leading provider of time clock and employee scheduling software. We help organizations manage their most valuable resources, the human kind. Acumen offers robust solutions for time and attendance, scheduling and leave management.
We believe that technology is just one quarter of the workforce management pie. Employees, policy and the environment are just as important.
Do you have questions about automated time and attendance?