Employers have quite a bit of leeway when it comes to preparing payroll for their employees as long as the method they use is effective and fair. Many small business owners choose to prepare payroll by themselves both to save money and to maintain better control and oversight. When preparing payroll by yourself, you may choose to do it completely by hand or to use a spreadsheet and you may choose to calculate hours and minutes worked by either rounding minutes into quarters of an hour or by converting minutes into decimals. Alternatively, you might consider using a payroll software program to save yourself time and energy.
Rounding Exact Minutes to Quarters
If you're doing payroll completely by hand, it can be difficult to keep track of and calculate hours and minutes worked with total accuracy. Instead, you might find it easier to round the exact minutes to quarters of an hour, which is the largest fraction of an hour that you can legally round to for payroll purposes.
The most important thing to keep in mind when using this method is that while you can legally round minutes to quarters of an hour, you cannot just round down or you will violate the Fair Labor Standards Act. Instead, employee time from one-to-seven minutes should be rounded down, but eight-to-14 minutes should be rounded up to the nearest quarter of an hour.
For example, if John worked from 8:46 a.m. to 5:28 p.m., including a paid lunch, his boss could round his hours to 8:45 a.m. to 5:30 p.m. This means that he worked eight hours and 45 minutes for the purposes of payroll, rather than the exact eight hours and 42 minutes he actually worked. This eight-and-three-quarters of an hour would then be multiplied by his hourly wage, so if he earned $20 per hour, he would have earned $175.
Converting Minutes to Decimals
If you are looking for a more accurate method to convert minutes for payroll, you might want to use a 24-hour clock and then convert minutes to decimals rather than rounding them to quarter hours. Converting minutes to decimals for payroll can be done automatically if you are using a spreadsheet by creating a formula that divides the number of minutes by 60. If you are doing payroll by hand, you can either refer to a payroll time-conversion calculator or you can just divide the minutes by 60 manually. Use this method to easily subtract the employee's time-in from their time-out.
For the example above, you would change John's 8:46 a.m. to 5:28 p.m. hours to 8.77 and 17.47, respectively. Subtract 8.77 from 17.47 and you get 8.7, which you would then multiply by his wage, which would give you a total of $174.
Using Payroll Software
While most small business employers still calculate payroll by hand and will rely on these two methods to accurately calculate minutes for payroll, a software program can do the work for you. These programs have a built-in payroll time conversion calculator and can automatically calculate the wages an employee earned based on their total regular and overtime hours. The software can also take care of taxes, garnishments, W-2s, bonuses and other complex payroll issues.
While many employers prefer to do payroll by hand until they hire enough employees to justify payroll software, they don't need to. There are many free and inexpensive payroll programs for those concerned about the cost of transitioning to a software option.