Timesheet management is the process of recording, reviewing and approving the hours employees work. Accurate timesheets are essential for correct payroll processing, compliance with working time legislation and controlling labour costs.
Why Timesheets Matter
| Purpose | Detail |
|---|---|
| Payroll accuracy | Ensures employees are paid correctly for hours worked, including overtime |
| Legal compliance | Demonstrates compliance with the Working Time Regulations 1998 |
| National Minimum Wage / NLW | Proves total pay ÷ total hours ≥ minimum wage |
| Holiday accrual | Calculates holiday entitlement for irregular hours workers (12.07% of hours worked) |
| Project costing | Allocates labour time to specific projects or clients |
| Overtime management | Tracks hours above contracted working hours |
| Absence tracking | Records sickness, statutory sick pay periods, holiday and other leave |
Legal Requirements
Working Time Regulations
Under the Working Time Regulations 1998, employers must ensure workers do not exceed an average of 48 hours per week (calculated over a 17-week reference period, unless the worker has opted out in writing). Employers must keep records that are adequate to show compliance and retain them for 2 years.
National Minimum Wage Records
Employers must keep sufficient records to demonstrate NMW/NLW compliance for 3 years. For hourly-paid and piece-rate workers, this requires accurate records of hours worked.
EU Working Time Directive (Retained Law)
Following the CJEU ruling in CCOO v Deutsche Bank (2019), there is a requirement to have a system capable of measuring daily working time. While the UK has departed the EU, the ruling influenced UK practice, and employers are expected to record working hours to demonstrate compliance.
Methods of Recording Hours
| Method | Suited For | Advantages | Limitations |
|---|---|---|---|
| Paper timesheets | Small teams, simple schedules | Low cost, no technology needed | Manual data entry, error-prone |
| Spreadsheets | Small to medium businesses | Flexible, easy to customise | No real-time tracking, version control issues |
| Clocking-in systems | Shift workers, manufacturing, retail | Automated, accurate | Hardware cost, not suited for remote workers |
| Online/cloud software | All business sizes | Real-time data, integration with payroll, mobile access | Subscription cost |
| Mobile apps | Remote workers, field-based staff | GPS tracking, photo verification | Requires smartphones, data privacy considerations |
Timesheet Process
A typical timesheet workflow:
- Employee records hours — daily or per shift, noting start time, end time and breaks
- Employee submits timesheet — at the end of the pay period (weekly, fortnightly or monthly)
- Manager reviews and approves — checks hours against schedules, overtime authorisation and absence records
- Payroll processes approved hours — calculates gross pay, overtime, statutory pay and deductions
- Records are retained — for at least 2 years (Working Time Regulations) or 3 years (NMW)
Overtime and Timesheets
Timesheets are essential for tracking overtime, which has direct payroll implications:
| Overtime Type | Detail |
|---|---|
| Guaranteed overtime | Contractually required and included in regular pay calculations |
| Non-guaranteed overtime | Offered at the employer’s discretion but must be worked if offered |
| Voluntary overtime | Employee chooses whether to work it |
Overtime rates and conditions should be specified in the employment contract. For holiday pay calculations, regular overtime (both guaranteed and non-guaranteed) must be included in the 52-week reference period calculation.
Timesheets and Payroll Integration
Accurate timesheets feed directly into PAYE payroll:
| Timesheet Data | Payroll Calculation |
|---|---|
| Regular hours | Gross salary |
| Overtime hours | Overtime pay at the applicable rate |
| Absence hours | SSP, SMP, unpaid leave |
| Holiday hours | Holiday pay calculation |
| Total hours | NMW/NLW compliance check |
Modern payroll software can import timesheet data directly, reducing manual entry and the risk of errors. The approved hours flow through to:
- Income tax and NIC calculations
- Pension contribution calculations
- Student loan deductions
- RTI submissions to HMRC
Agency Workers and Timesheets
For agency workers, the employment agency or the hirer (depending on the arrangement) is responsible for recording hours. The hirer typically approves timesheets, and the agency processes payroll. Under the Agency Workers Regulations 2010, agency workers are entitled to the same basic working conditions (including pay) as comparable direct employees after 12 weeks in the same role.
Timesheets and Accounting
Labour costs recorded through timesheets feed into the employer’s accounting records:
| Account | Source |
|---|---|
| Wages and salaries | Total hours × hourly rate |
| Overtime expense | Overtime hours × overtime rate |
| Project labour costs | Hours allocated to specific projects |
| Work in progress | Labour time on unbilled client work |
| Accrued wages | Approved hours not yet paid at period end |
For businesses that bill clients based on time (such as consultancies and professional services), timesheets directly determine revenue recognition and project profitability.
Common Timesheet Errors
| Error | Impact |
|---|---|
| Missing break deductions | Overpayment of hours; potential NMW compliance issue |
| Unapproved overtime | Unexpected payroll costs |
| Late submissions | Delayed payroll processing; employees paid late |
| Incorrect project codes | Misallocated labour costs; inaccurate project profitability |
| Rounding errors | Systematic over- or underpayment |
| Not recording all working time | NMW/NLW non-compliance risk |