Labor Cost Management: How to Track and Control Every Dollar

As a small business owner, you have a lot on your plate. From managing employees to keeping up with customer demand, there are many aspects of running a successful business that require your attention.

One area that can’t be overlooked is tracking labor. Tracking labor is the process of monitoring employee hours worked and pay received. This can include tracking time worked, calculating payroll, and generating reports. 

For construction businesses in particular, finding the best way to track time in construction can make a significant difference in both compliance and profitability.

Accurately tracking labor can provide your business with valuable insights into the productivity of crews and help identify areas for improvement. By understanding how employees are spending their time and how much they’re being paid, you can make data-driven decisions to optimize business operations and increase profitability.

In this article, we’ll explore the methods, benefits, legal requirements, challenges, and best practices for tracking labor. This article will provide you with valuable insights and practical tips for optimizing your tracking labor process. 

So, let’s get started. 

Methods of Tracking Labor

Your method for tracking labor must be effective and efficient if you want to track employee hours accurately. Three common ways to track labor include using software-based solutions, time clock systems, and manual time tracking systems.

Software-based solutions are popular for their efficiency and ease of use. 

Many businesses use software to track employee hours, work schedules, and time-off requests. A time clock app with GPS takes this a step further by also verifying where employees are clocking in from, which is particularly valuable for field and construction teams.

This method can save time and reduce errors by automatically calculating hours worked and flagging any discrepancies. 

Time clock systems are a popular, but less convenient way to track employee hours. 

These systems can be standalone machines or software-based solutions. They require employees to clock in and out, either by swiping a card, using a fingerprint, or entering a code. 

Time clock systems offer a reliable way to track employee hours, and some integrate with payroll and HR software. 

Manual time tracking is a traditional method that requires employees to record their hours worked on paper or in a spreadsheet. 

This method can be time-consuming and prone to errors, but it is still used by some small businesses. It can be an inexpensive way to track labor, especially for businesses that don’t have many employees.

You should carefully consider the method of tracking labor that best fits the needs of your business. Each method has its pros and cons, and businesses should choose the one that best fits their unique circumstances. 

Method	Pros	Cons
Software-based solutions	✅ Automation reduces errors and saves time ✅ Easy to use and integrate with other HR systems ✅ Scalable for businesses with many employees ✅ Offers mobile and GPS tracking options	❌ Can be expensive to implement and maintain ❌ Employees may require training ❌ Requires reliable internet connection
Time clock systems	✅ Provides reliable time tracking data ✅ Integrates with payroll and HR software ✅ Encourages punctuality and attendance	❌ Can be expensive to purchase and maintain hardware ❌ Employees may need training ❌ Can be prone to malfunctions and errors
Manual time tracking	✅ Inexpensive and easy to implement ✅ No need for additional hardware or software ✅ Can be used offline	❌ Prone to errors and time-consuming to manage ❌ Can be difficult to track changes and edits ❌ Offers little visibility into employee attendance ❌ Difficult to scale

Benefits of Tracking Labor

Tracking labor has numerous benefits for businesses. Let’s take a look at some of the most impactful ones below.

1. Improves Payroll Accuracy

By tracking labor, businesses can calculate employee pay with ease.

This is especially important for businesses that pay employees hourly, as even small discrepancies in hours worked can lead to significant payroll errors. 

By using automated software or time clock systems, businesses can automatically calculate hours worked and easily flag any discrepancies.

Bonus Tip: Tracking labor can also save time when processing payroll. Instead of manually calculating hours worked, labor tracking systems can automatically calculate pay, generate payroll reports, and even integrate with payroll software. This is a major win for construction back-office administrators managing payroll across multiple job sites.

2. Reduces Labor Burden 

Labor burden refers to indirect costs associated with employing workers, such as taxes, benefits, and insurance. By tracking labor, businesses can better understand their costs and identify ways to reduce labor burden. 

For example: If a business is consistently overstaffed, it may be able to reduce labor burden by cutting back on hours or hiring fewer employees.

Tracking labor can also help businesses identify areas where they can improve efficiency and reduce labor costs. 

For example: If a business is consistently understaffed during certain times of the day or week, it may need to adjust its scheduling to better meet demand. By doing so, they can avoid paying overtime to employees or hiring additional workers.

3. Increases Accountability

By tracking labor, businesses can hold employees accountable for their work hours and make sure they’re meeting their job responsibilities. Without a reliable system in place, businesses are also more vulnerable to time theft, which can quietly inflate labor costs over time.

This is also important for businesses that pay employees hourly or have a remote workforce. Software for tracking labor or time tracking systems can provide businesses with data on when employees clocked in and out, how many hours they worked, and if they took any breaks. 

This information can be used to identify areas where employees may need additional training or support, or where policies may need to be adjusted.

Bonus Tip: In addition to promoting accountability among employees, tracking labor can also improve employee satisfaction. By providing employees with a transparent view of their work hours and pay, businesses can build trust and improve employee morale.

4. Allows for Better Productivity Insights

Tracking labor can provide businesses with better insights into the productivity of their workforce. Dedicated employee productivity tracking takes this a step further, giving managers data on task-level efficiency, not just hours clocked.

By analyzing labor data, businesses can identify areas where employees may be spending too much or too little time, or where some tasks may be taking longer than expected. This is especially true in field operations, where robust construction tracking gives managers visibility they simply can’t get from a spreadsheet.

For example: A business may discover that certain employees are consistently spending more time on a task than others. The business then identifies a lack of training as the root cause of the issue, so they take steps to provide better training and guidelines for that task.

By tracking labor, businesses can also identify areas where they may need to hire additional staff to reduce the workload on existing staff.

What Better Labor Tracking Looks Like in Practice

The benefits above show up immediately on the bottom line when a business makes the switch from manual to software-based labor tracking. Mainsail Painting, a locally owned painting company based in Cape Cod, Massachusetts, learned this firsthand.

When Vinny Gondim and his wife started the business, they tracked labor and job costs on paper. It worked when the team was small, but as they grew to 15 painters working multiple job sites in a day, the cracks started to show. Small rounding errors accumulated over time, billing became imprecise, and Vinny had no reliable way to see exactly how much each job was actually costing him.

After switching to Workyard, Mainsail gained the real-time labor visibility they needed. Vinny could track exactly where each employee was working, how many hours they’d logged, and what each job was costing — allowing him to bill clients accurately and make smarter staffing decisions.

Read the full Mainsail Painting case study to see how moving from paper-based to software-based labor tracking helped them scale their business profitably.

Legal Requirements for Tracking Labor

Businesses are required to comply with a number of labor laws when tracking labor. In this section, we’ll explore a few of the laws that may apply to your business.

Minimum Wage and Breaks

Minimum Wage

As of May 2023, the federal minimum wage in the United States is $7.25 per hour. 

However, some states and cities have higher minimum wage rates. Businesses must pay employees at least the applicable minimum wage rate for all hours worked.

So, it’s essential to record hours worked correctly and make sure that employees are not working off the clock. 

This includes time spent performing tasks like setting up equipment, attending meetings, or responding to emails outside of regular working hours. 

Break Laws

Many states have laws that require employers to provide employees with rest and meal breaks. These laws vary by state, with some states requiring a specific length of break and others requiring a certain number of breaks based on the length of the workday.

So, businesses must provide employees with required breaks and record those breaks. 

Bonus Tip: In addition to federal and state laws, your business may be subject to collective bargaining agreements or employment contracts that dictate requirements for tracking labor. You should review all applicable laws and agreements to remain in compliance with all legal requirements.

Overtime Pay

Businesses must also comply with overtime regulations when tracking labor. 

Overtime regulations are in place so that employees are fairly compensated for working beyond their regular work hours.

Under federal law, non-exempt employees must be paid one and a half times their regular rate of pay for any hours worked beyond 40 hours in a workweek. If you want a deeper look at tracking overtime accurately and staying compliant across different states, that guide covers the full picture.

Exemptions from Overtime Pay

Certain employees may be exempt from overtime pay requirements, such as executive, administrative, and professional employees who meet specific job duties and salary requirements. 

However, businesses still need to check that employees meet all requirements for exemption and properly track their hours worked.

Record-Keeping Requirements

In addition to minimum wage, break laws, and overtime regulations, businesses are also required to comply with record-keeping requirements.

Record-keeping requirements are in place to regulate businesses in maintaining accurate records of employee hours worked and pay received.

Under federal law, businesses are required to maintain records related to employee pay and hours worked. These records must be kept for at least three years, which is why having a reliable timesheet reporting system is so important. These record must contain the following:

• Employee name, address, and social security number
• Dates of employment
• Hours worked each day and week
• Total pay earned each pay period
• Any deductions from pay

Complying with Legal Requirements

Complying with the legal requirements of tracking labor can be time-consuming, especially for businesses with a large workforce. 

Software for tracking labor or time tracking systems can help businesses maintain accurate records and keep them in compliance with all legal requirements.

Your business should stay up to date on any changes to the legal requirements that apply to you and adjust your methods when necessary.

Challenges of Tracking Labor

While tracking labor can provide many benefits for businesses, it can also present a number of challenges. 

Resistance from Employees

Employees may resist tracking labor for a variety of reasons, such as concerns about privacy, fears of being micromanaged, or a lack of trust in their employer. Being transparent about employee privacy rights and what data is actually collected can go a long way in easing those concerns.”

Resistance to labor tracking can lead to inaccurate data, which can ultimately impact a business’s operations and profitability.

To address resistance from employees, businesses need to communicate the benefits of tracking labor and address any concerns that employees may have. This can include the following. 

• Provide training on methods of tracking labor so employees understand how their time is being tracked and how it will help them.
• Assure employees that tracking labor is not a tool for micromanagement, but rather a way to optimize workflows and improve operations.
• Make sure that labor tracking methods are in compliance with all legal requirements and are transparent to employees.
• Provide opportunities for employees to provide feedback on methods of tracking labor and address any concerns or issues they may have.

By addressing employee resistance to tracking labor, businesses can build trust with their employees and take comfort in knowing that their labor data is reliable. This can ultimately improve operations and profitability while promoting a positive work environment.

Difficulty in Implementing New Systems

Implementing a new system for tracking labor can be challenging, especially for businesses that have been using manual tracking methods or outdated systems. 

Some common challenges include: 

• Difficulty in selecting the right software for tracking labor to meet their specific needs.
• Complexity in integrating new systems with existing systems, such as payroll or accounting software.
• Inadequate training on new labor tracking methods or software

To address these challenges, you should carefully evaluate the needs of your business and select a system that aligns with your goals and objectives. You should also provide adequate training on new systems and communicate the benefits of tracking labor to your employees.

It can also be helpful for businesses to work with a third-party vendor or consultant who specializes in labor tracking and can provide guidance and support throughout the implementation process.

Potential for Errors in Labor Tracking Data

Errors in data can lead to significant consequences for businesses like inaccurate payroll calculations and, as a result, legal action.

To minimize the potential for errors in labor tracking data, businesses can:

• Regularly review data for accuracy and identify and address any discrepancies or errors.
• Use software or systems that are reliable and regularly maintained.
• Comply with all legal requirements related to labor tracking, such as minimum wage, break laws, overtime regulations, and record-keeping requirements.

By taking these steps, businesses can reduce the potential for errors in labor tracking data and stay in compliance with all legal requirements. It’s important for businesses to remain vigilant and proactive in monitoring data so that it stays accurate.

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Best Practices for Tracking Labor

For a business to make sure that labor tracking is accurate, efficient, and compliant, it should implement best practices that promote transparency, consistency, and accountability. 

1. Set Clear Policies

Clear policies and procedures for labor tracking can help businesses ensure that employees understand how their time is being tracked and what is expected of them. This can include:

• Establishing clear guidelines for when and how employees should report their hours worked.
• Outlining any legal requirements related to labor tracking, such as minimum wage, break laws, overtime regulations, and record-keeping requirements.
• Defining any consequences for noncompliance.
• Communicating policies and procedures to all employees and providing training as necessary.

By setting clear policies and procedures, businesses can promote consistency and transparency while ensuring compliance with all legal requirements. Businesses should regularly review and update their policies and procedures to stay up to date with changing business needs and legal requirements.

2. Leverage Technology

Technology can be a powerful tool for businesses looking to optimize labor tracking. By utilizing technology in their approach, businesses can:

• Reduce the potential for errors and inaccuracies in data.
• Automate time-consuming tasks, such as calculating payroll and generating reports.
• Increase transparency and visibility into labor data, allowing businesses to identify trends and opportunities for improvement.

There are a variety of technology solutions available to businesses, including some of the methods we mentioned above:

Labor tracking software, which are software-based solutions that automate the labor tracking process and provide real-time data on employee hours worked and pay received.

Time clock systems, which are automated systems that allow employees to clock in and out of work electronically, streamlining the labor tracking process and reducing the potential for errors.

Mobile apps, which allow employees to track their hours worked and submit timesheets electronically, providing greater flexibility and convenience.

Check out this article for more information on how to implement a time tracking app. 

3. Train Employees on Accurate Time Tracking

Accurate time tracking is essential for ensuring that employees are paid fairly and that businesses comply with legal requirements.

By providing training and support to employees, businesses can make sure that they understand how to accurately track their time and are comfortable using new methods or software.

To make sure of this, businesses can provide training on the following topics:

• The importance of accurate time tracking for payroll and compliance with legal requirements.
• How to report hours worked, including any rules or guidelines related to clocking in and out of work or tracking breaks.
• How to use softwares or systems, including any unique features or functions that employees will be using.
• How to identify and address any errors or discrepancies in data.

Training can be provided through a variety of channels, like in-person sessions, online tutorials, or written materials. 

Businesses should provide ongoing training and support as needed so that employees are comfortable and proficient with labor tracking methods and software.

How Workyard Can Help

One solution that businesses can use to streamline their labor tracking process is Workyard. 

Workyard is a software solution that offers a variety of features and benefits to help businesses efficiently track hours worked and pay received.

Features of Workyard

1. Workyard allows employees to clock in and out of work electronically, providing accurate and real-time data on hours worked.

2. Workyard automatically calculates overtime based on legal requirements and business policies, helping businesses stay compliant with labor laws.

3. Workyard’s mobile app allows employees to track their hours worked and submit timesheets electronically, providing greater convenience and flexibility.

4. Workyard integrates with payroll software to automate payroll calculations and reduce the potential for errors or discrepancies. For example, syncing with QuickBooks timesheets lets you move approved hours directly into payroll without any manual re-entry.

5. Workyard offers a variety of reporting features to help businesses analyze labor data, identify trends and opportunities for improvement, and comply with record-keeping requirements.

Benefits of Workyard

1. Workyard provides real-time data on employee hours worked and pay received, reducing the potential for errors or discrepancies in data.

2. Workyard automates time-consuming tasks, such as calculating payroll and generating reports, reducing administrative burdens and costs.

3. Workyard helps businesses comply with legal requirements, such as minimum wage, break laws, overtime regulations, and record-keeping requirements.

4. Workyard provides greater visibility into labor data, allowing businesses to identify trends and opportunities for improvement and communicate more effectively with employees.

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The Bottom Line on Tracking Labor

Labor tracking is a crucial aspect of running a successful business. 

It ensures that employees are paid fairly, legal requirements are met, and businesses have valuable insights into the productivity of their workforce. 

By using software like Workyard, businesses can overcome challenges and reap the benefits of more accurate and efficient labor tracking. 

In today’s fast-paced business world, staying ahead of the competition requires staying on top of your labor tracking. By using software, businesses can gain a competitive advantage by making data-driven decisions, optimizing their operations, and improving their bottom line.

So if you’re a small business owner or manager looking to improve your labor tracking process, consider investing in software like Workyard. With its user-friendly interface, comprehensive features, and ongoing training and support, Workyard is the perfect tool to help businesses track labor accurately, efficiently, and compliantly.

Sign up for a free trial of Workyard today!