How to calculate hours worked in 7 steps (and why it's important)

Tracking employee hours may seem like a basic task, but it has a big impact on your business. Inaccurate time tracking can lead to payroll errors, which directly affect your bottom line and employee satisfaction. In fact, a QuickBooks Time survey revealed that 44% of small business owners struggle with timesheet errors. 

Whether you’re managing a small crew or a growing team, the right approach to time-tracking makes all the difference. In this guide, you’ll learn step-by-step how to calculate employee hours worked, avoid common pitfalls, and choose a time tracking system that fits your business. 

Jump to:

• How to calculate hours worked: Step-by-step instructions
• What are hours worked?
• Why calculating hours worked is important
• How to track employee hours
• 4 common mistakes to avoid when calculating hours worked
• How to stay compliant with FLSA and state laws
• Best tools to simplify employee time tracking
• Streamline your time tracking process

How to calculate hours worked in 7 steps

Calculating employee hours doesn’t have to be complicated. With the right method and a few simple steps, you can track time accurately, avoid payroll mistakes, and stay compliant with labor laws. 

But before you can calculate hours, you need a reliable way to track them. Pick the method that fits your team best:

• Manual timesheets: Great for small teams or low-tech setups, but easy to misplace or miscalculate
• Time scheduling templates: Helpful for tracking shifts and filling in actual hours worked each day
• Time tracking apps: Employees clock in and out from their devices, and hours are recorded automatically
• Digital time clock: A physical clock that logs time using badges, keypads, or biometrics

Whether you’re doing it by hand or using software, the key is to be consistent and accurate. 

Follow these steps to calculate hours worked for each shift, day, and week. This guide works for both hourly and salaried nonexempt employees. You can also use this paycheck calculator.

1. Set a start and end time

Ask employees to record the exact time they begin and end their shifts, including any split shifts or off-site work. This gives you the raw data needed for accurate calculations. Be sure to include times for clocking out and back in during unpaid breaks.

2. Set a rounding policy

The FLSA (Fair Labor Standards Act) allows rounding time to the nearest 5, 10, or 15 minutes, but it must be fair and consistent. Never round in a way that always benefits the business.

Example:

If an employee clocks in at 8:03 a.m., and you round to the nearest 15 minutes, you would round down to 8:00 a.m. If they clock in at 8:08 a.m., you would round up to 8:15 a.m.

3. Convert time to military time

Military time (24-hour format) makes it easier to subtract hours and avoid confusion with a.m./p.m..

Examples:

• 1:00 p.m. = 13:00
• 4:30 p.m. = 16:30
• 9:15 a.m. = 09:15

4. Convert minutes to decimals

After subtracting start and end times, convert the minutes to a decimal for easier math. Divide the number of minutes by 60.

Example:

7 hours and 30 minutes = 7.5 hours (30 ÷ 60 = 0.5)

5. Subtract start time from end time

Once times are converted, subtract the start time from the end time to get total hours worked for the shift.

Example:

• Start: 08:00
• End: 16:30
• Total: 8.5 hours

6. Subtract unpaid time for breaks

Take out any unpaid break time to avoid overpaying. Most unpaid meal breaks last at least 30 minutes.

Example:

• Total shift time: 8.5 hours
• Unpaid break: 0.5 hours
• Hours worked: 8.0 hours

7. Complete a table of weekly hours

Add up each day’s total to get weekly hours worked. You can use a timesheet template or a free online calculator to speed up the process.

This step helps you check for overtime, confirm totals, and keep clean records for payroll and compliance.

What are hours worked?

“Hours worked” includes all the time an employee spends doing job-related tasks. It doesn’t just cover time at a desk or on the clock—it includes anything the employer allows or requires someone to do for work. Knowing what counts as hours worked helps you stay compliant with labor laws and avoid costly mistakes.

The Fair Labor Standards Act (FLSA) says employers must pay for all time an employee is “suffered or permitted to work.” That includes:

• On duty: Time at the workplace, even during short breaks.
• Remote work: Time spent checking email or taking calls at home.
• Off-the-clock work: Tasks done before or after a shift, like cleaning or setup.

This also means you can’t ask someone to stay late or come in early without pay. Commuting and unpaid meal breaks (usually 30 minutes or longer) don’t count as hours worked.

Understanding how different types of work schedules fit into hours worked can help you apply the rules correctly, especially when it comes to pay and benefits.

Full-time work

There’s no federal rule for full-time hours—employers define it in their own policies. Most consider 30 to 40 hours per week as full-time. This matters because full-time status often affects benefit eligibility and ACA requirements.

Some states add extra rules. For example, in New York, full-time public workers must work 35 hours a week to qualify for certain benefits. Always check your state’s laws.

Part-time work

Part-time workers usually work fewer than 30 hours per week. They may have flexible schedules but often receive fewer benefits than full-time employees. For example, they might not qualify for health insurance or paid time off.

Still, part-time employees must be paid for all hours worked, and they can earn overtime if they go over 40 hours in a week.

Overtime work

Overtime kicks in when nonexempt employees work more than 40 hours in a week. You must pay them at least 1.5 times their regular rate.

Example: If an employee earns $20/hour and works 45 hours, the 5 extra hours are paid at $30/hour, for a total of $100 in overtime pay.

Some states have stricter rules. In California, daily overtime starts after 8 hours in one day. And not all salaried workers are exempt—job duties and income level matter.

Why calculating hours worked is important

Tracking hours worked isn’t just about running payroll—it’s a key part of managing your team and staying compliant. When you calculate hours correctly, everyone benefits.

Avoid over- or underpaying employees

Employees expect to be paid fairly for their time. If hours are miscounted, it can lead to underpayment, overpayment, or delayed checks. Accurate tracking helps you build trust and avoid costly payroll mistakes.

Get better insight into employee productivity

Knowing how your team spends their time can help you spot patterns, plan better schedules, and improve job costing. It’s also easier to see who may be overworked or where time is being lost.

Maintain legal compliance

The FLSA and state labor laws require you to keep accurate records of hours worked. If you miss overtime or forget to log off-the-clock work, you could face penalties. Tracking time the right way helps you stay in the clear.

How to track employee hours

Accurately tracking employee hours helps you run payroll smoothly, follow labor laws, and avoid disputes. Whether you’re managing a small crew or a large team, the right method depends on your business needs. Here are the most common ways to track time—and how they compare.

Manual timecards

Manual timecards are simple and cost-effective, but they come with risks. Employees write down when they start and finish work, usually on paper or a spreadsheet.

This method works for very small teams or jobs with limited tech access. But it’s easy to make mistakes or forget to log hours. It also takes longer to review and can lead to payroll errors.

Mechanical time clock

A mechanical time clock stamps the time on a card when an employee clocks in or out. It’s been around for decades and still works well for businesses with set schedules.

The downside? Cards can get lost or damaged, and managers have to total the hours by hand. That opens the door to mistakes or even time theft.

Electronic time clock

An electronic time clock uses a keypad, badge, or fingerprint to log time. It records hours automatically and stores them digitally, making tracking easier and more accurate.

This option cuts down on manual work and helps prevent buddy punching. But it still requires physical access, so it may not be the best fit for remote teams.

Time clock software

Time tracking software like QuickBooks Time lets employees clock in and out from their phone, tablet, or computer—wherever they’re working. It records hours in real time and automatically syncs with payroll.

With features like GPS tracking, job codes, and scheduling tools, QuickBooks Time makes it easier to stay compliant and boost productivity. It’s a flexible solution for both on-site and remote teams.

4 common mistakes to avoid when calculating hours worked

Even small errors in tracking time can lead to payroll issues, employee frustration, or compliance problems. Here are some of the most common mistakes to watch for—and how to avoid them.

1. Forgetting to subtract breaks

Not all breaks are paid. Most meal breaks (usually 30 minutes or longer) are unpaid and should be subtracted from total hours worked. If you forget to do this, you could overpay employees and misreport hours to the Internal Revenue Service (IRS).

2. Not rounding correctly

The law allows you to round time, but only in small, fair amounts—usually to the nearest 5, 10, or 15 minutes. Always round both clock-in and clock-out times the same way. Rounding that always favors the employer can lead to legal trouble.

3. Misclassifying employee status

Mixing up exempt and nonexempt employees can cause major wage issues. Nonexempt employees are entitled to overtime pay, while exempt employees are not—based on their job duties and salary level. Nonexempt workers must be paid for all hours worked, including overtime. Always check job duties and salary levels before deciding someone is exempt.