How To Calculate Payroll Hours: Guide with Methods & Tools

Author: Madalina Roman

Before being a content writer, I worked in sales. In sales, you get a sales bonus every month. In some months, I noticed that my commission seemed smaller than I’d anticipated. I pushed harder and tried to make more sales for a bigger bonus. But the bonus did not increase considerably.

I decided to discuss it with my manager and ask what happened and why my bonus didn’t increase in sync with my sales. The resolution? He found that he was calculating based on an old bonus formula and sent those numbers to the HR team.

The consequences? I was disappointed and started checking every payslip ever since, as I no longer trusted the process. Your employees should not go through that, too.

Since then, I’ve managed content writing teams and learned how to calculate payroll hours diligently so I don’t make the same mistake as my former boss, and I’ll teach you all about it.

Key takeaways

  • Don’t waste time by tracking payroll hours with Excel, G-Sheets, or paper timesheets. You’ll end up cross-checking time and time again timesheets at the end of the pay cycle to correct errors. Make your life easier, and go for automated time trackers.
  • Understanding the distinction between paid and unpaid break times matters more than you’d think! Some breaks under 20 minutes are typically paid, while longer meal breaks (30+ minutes) are usually unpaid.
  • To tackle the challenge of rounding work hours, employ a tool that makes it simple to round time entries and stop stressing over them. I suggest using Timeular for that.

The basics of payroll hours calculation

Before diving into a step-by-step guide on how to calculate work hours with your payroll tracker, I’ll introduce you to a glossary with all types of hours that you need to be aware of in the context of work.

  • Regular hours: The standard working time (typically 40 hours/week, but with some different policies in different European countries with a 4 or 6-day work week policy. Hence, the working hours differ).
  • Overtime hours: Time worked beyond 40 hours/week, or the maximum agreed.
  • Break times: Rest periods during work hours which can be either paid (like short rest breaks) or unpaid (like meal breaks) depending on duration and local labor laws.
  • Holiday pay: Paid time off during official holidays (check here how many work days you have in 2025).
  • PTO (paid time off): Vacation, sick leave, and personal days.
  • Training time: Hours spent on workplace education.

💡 Pro Tip: Understanding the distinction between paid and unpaid break times matters, as breaks under 20 minutes are typically paid, while longer meal breaks (30+ minutes) are usually unpaid.

Step-by-step payroll hours calculation

Crunching the numbers while taking into account hours and minutes requires a good time tracking software and an hours calculator, but most of all, it needs a process.

Here’s the process you need to take into account to have a high degree of payroll accuracy:

1. Calculate total worked hours and gross pay

This step is the foundation of your entire payroll process. You need to first account for and calculate hours worked for your employees and then turn these into actual compensation. However, you need to make differences between salaried employees and hourly workers.

I’ll break down how you can handle these calculations for different types of employees!

How to calculate work time and gross pay for salaried employees

When I started managing my first content team, I had three salaried writers who often worked flexible hours. Initially, I thought tracking their hours wasn’t necessary since they were salaried, but I quickly learned this was a mistake. What helped me in the process was accurate time tracking for a thorough workload analysis, but I’ll get into that later on.

For salaried employees, your calculation process should look like this:

  • Take their annual salary and divide it by pay periods.
  • Track their actual hours to monitor overtime.
  • Account for any additional compensation or bonuses.

I’ll take an example of a content writer. Let’s assume the employee’s gross pay per year is $60,000 annually and is paid on a bi-weekly basis:

  • $60,000 ÷ 26 pay periods = $2,307.69 per paycheck
  • Standard hours: 40 hours/week or 80 hours per pay period (which is for two weeks)
  • Any hours beyond this might qualify for overtime, depending on their exemption status

How to calculate work time and gross pay for hourly employees

This gets trickier, as I learned when managing freelance writers. One month, a writer claimed she wasn’t paid for all her hours, and when I checked our manual tracking system, I found several discrepancies. This was corrected, and since then, I implemented automated payroll calculations with automatic time-tracking software.

For hourly employees, your calculation process should look like this:

  • Multiply their hourly rate by regular hours worked
  • Calculate overtime at 1.5x regular rate
  • Add any bonuses or additional compensation

Here is an example: Let’s assume a writer’s hourly rate is $25.

  • Regular hours worked: 42
  • Regular pay: 40 hours × $25 = $1,000
  • Overtime: 2 hours × ($25 × 1.5) = $75
  • Total gross pay: $1,075

2. Determine deductions and taxes

This step used to be challenging for me until I developed a systematic approach. During my first year managing payroll, I forgot to account for a writer’s updated W-4, resulting in incorrect tax withholding. Now I double-check all deductions carefully.

Here are the required deductions you have to factor in:

  • Federal income tax
  • State and local taxes
  • Social Security (6.2%)
  • Medicare (1.45%)
  • State disability insurance (where applicable)

Other voluntary deductions could be health insurance premiums, retirement contributions, life insurance, flexible spending accounts, or union dues.

3. Calculate payroll

This is where everything comes together. I remember one particularly challenging month when three writers had different pay rates for different projects, plus overtime and bonuses. Here’s how to put together all the components:

1. Verify the foundation 📊

  • Begin with your gross pay calculations (those important numbers from step 1)
  • Review your time cards one last time for accuracy
  • Double-check any special pay rates or bonuses

2. Apply deductions systematically ⚖️

  • Work through deductions in a consistent order
  • Create a checklist for both mandatory and voluntary deductions
  • Keep clear documentation of any unusual situations

3. Final review process 🔍

  • Compare totals to previous payroll periods
  • Look for any unusual variances
  • Verify tax calculations
  • Check benefit deduction amounts

4. Prepare for distribution 💸

  • Set up direct deposits and generate pay stubs
  • Prepare any physical checks
  • Update payroll records

💡 Pro tip: If you calculate payroll hours manually like I used to, I suggest making them at least two days before payday to catch any potential errors.

However, this process is quite manual, so if you’re not using a work hours tracker, make yourself a service and use our free time card calculator. Here’s a preview of it:

Time card calculator

Ways to calculate payroll hours

By now, you understand the process and logic behind calculating payroll hours, but the most important puzzle piece is how to implement this entire process without too much manual work and what tool to go for.

1. Manual time tracking

The first tools that come to mind when talking about manual timesheets are the almighty Excel, Google Sheets, and paper timesheets.

These work for basic calculations, but you’ll quickly discover many limitations, like spending hours cross-referencing handwritten time logs with their actual submissions. I wrote in detail about tracking time in Excel and Google Sheets in the article below, so check them out:

Briefly, here’s what manual time tracking typically involves:

Paper timesheets: Employees write down their start time, end time, and breaks on physical sheets. While this seems straightforward, employees often don’t know how to fill out timesheets or forget about them, and they can make errors in the process. I remember one particularly chaotic week when a timesheet got coffee-stained, and some entries were completely illegible.

Excel and G-sheet spreadsheets: These are a step up from paper but still require manual input. You’ll need to create formulas to calculate regular hours, overtime, and breaks. The challenge? Make sure everyone uses the same format and remembers to save their updates. Looking for timesheet templates and free calculators? Check out these from our library:

💡 Pro Tip: If you’re using Excel or G-sheets for time tracking, always create a backup copy of your formulas. I learned this the hard way when a team member accidentally overwrote our master template. Also, it’s a good practice to send timesheet reminders.

manual timesheets

2. Automatic time-tracking software

Automatic time-tracking tools save hours of admin work and provide you with much more accurate data. I’ll introduce you to Timeular – a tool I wish I’d known about when I first started managing teams. The need for such a tool in order to calculate payroll it’s simple. Think about the following:

  • how many times have you or your team members forgotten to log time, rounded up hours, or made calculation errors?
  • How many hours did you spend at the end of each month reconciling timesheets and chasing team members for missing entries?

That’s why I switched to an automated solution, and you should, too! Here’s what a centralized tool like Timeular includes for you:

  • Effortless time entries: To simplify and have 100% accuracy in tracking hours for payroll, your team needs effortless ways. Timeular’s automatic time-tracking feature runs in the background while the team works. It tracks workplace apps, visited websites, and calendar events, and all your team needs to do is click and access the time entry suggestions.
  • Work hours management: The app tracks all types of hours involved in payroll calculation and gives you the totals without you making any calculations. It works as a work-hours tracker, timesheet app, overtime hours calculator, and all types of leave tracking. This centralized system reveals everything in such timesheets: payroll tracker free
  • Detailed and advanced time reporting: Instead of spending days compiling timesheet data for payroll runs, you have immediate access to accurate work hours reports, overtime analysis, and leave balance summaries. Generate comprehensive payroll reports filtered by department, project, or time period.
  • Integration with 3000+ apps: Timeular integrates with over 3000 apps, and this helps you transform the entire payroll process. Connect Timeular directly to your existing payroll software, HR management systems, and project tools through its robust API and Zapier integrations for a seamless workflow.
  • Mobile and remote available: If time tracking software is not available on any platform, it would be redundant. That’s why, with this AI-powered time tracker, your team has cross-platform accessibility to consistently track time regardless of where they work, across desktop and mobile devices, with offline tracking capabilities.
  • Privacy and compliance-first: If you’re looking for accurate payroll hours, you need to make sure you choose a tool that’s protecting employee privacy. Timeular has an anti-surveillance policy, which includes a 12-hour delay for manager access to time data in order for teams not to feel micromanaged or watched while they work.

💡 Pro Tip: When implementing your payroll time-tracker, start with a small pilot group to work out any flaws in the process. I began with just three team members, and their positive experience made the full team rollout much smoother.

Payroll made simple

Timeular captures real-time work hours and creates error-free timesheets for your team, so you can focus on what matters.

3. Payroll software options

Think of payroll software as your digital HR assistant that handles the hard part of employee compensation. While I’ve found Timeular excellent for time tracking, it works best when integrated with dedicated payroll platforms.

Here are three popular options that can complement time-tracking solutions:

  • ADP Workforce Now works as an all-in-one command center for larger organizations. I’ve seen it transform complex payroll operations into streamlined workflows, especially for companies managing multiple departments or locations. It’s great at handling intricate tax calculations and compliance requirements across different states and countries – something that would be overwhelming to manage manually.
  • Rippling takes an updated approach to payroll management. What makes it stand out is its ability to unify various HR functions. For example, when a new employee joins, Rippling automatically sets up their payroll, benefits, and even their computer systems – all from one platform. This integration significantly reduces the admin burden of managing multiple systems.
  • Gusto shines in its simplicity and user-friendliness, making it particularly suitable for small to medium-sized businesses. I appreciate how it simplifies complex processes like tax filing and benefits administration into clear, manageable steps. Its intuitive interface means you spend less time training staff and more time focusing on strategic HR tasks.

💡 Pro Tip: When choosing between these tools, consider how they’ll integrate with your existing time-tracking system. The goal is to create a seamless flow of information from time tracking to payroll processing, minimizing manual data entry and reducing the risk of errors.

time tracking payroll hours

How to choose the right payroll software for you

When choosing your payroll software you need to think beyond just today’s needs. When I transitioned from manual tracking to automated time tracking with Timeular, I learned that asking the right questions makes all the difference.

Here’s what you should consider in our tech-driven environment:

Start with your organization’s DNA

Before analyzing features and pricing, ask yourself: What makes your workplace unique? For instance, when I managed a hybrid content team, I needed software that could handle both in-office and remote workers, multiple time zones, and various contract types. So, consider the following:

  • Does your team work across different countries?
  • Do you have a mix of full-time, part-time, and freelance workers?

The answers will guide your choice.

Think about scalability and AI capabilities

With the speed at which AI and technology in general are growing, you need software that grows with you. I once chose a system that couldn’t scale, and switching platforms mid-growth was painfully disruptive. So, it’s best to ask yourself:

  • Can this system handle twice your current workforce?
  • Does it leverage AI for predictive analytics, like forecasting overtime trends or suggesting optimal staffing levels? Even if the overtime tracker is not at that level, if it includes AI capabilities, it’s already a great step.

Evaluate the integration ecosystem

Modern payroll isn’t just about processing paychecks. Consider how your payroll software will connect with your existing tech stack. The smoother these connections, the less manual work you’ll face. Address these questions:

  • Does it integrate seamlessly with your time tracking, HR management, and accounting software
  • Can it handle emerging payment methods like crypto or instant pay options?

Assess automation sophistication

Today’s best payroll systems do more than basic calculations. Look for advanced features like:

  • AI-powered anomaly detection that flags unusual time entries or expense patterns
  • Smart compliance updates that automatically adjust calculations based on changing regulations
  • Predictive analytics for labor cost forecasting and budget optimization

Consider employee experience

One aspect I initially overlooked was how user-friendly the software would be for employees. It’s not just you tracking employee hours, it’s their but their buy-in and quick adoption are the most important. Clarify the following:

  • Can workers easily access their pay information through mobile apps?
  • Does the system offer digital wallet integration?
  • Are there self-service options for updating personal information and tax preferences?

💡 Pro Tip: You could request a sandbox environment during your trial period and run a parallel payroll process for one pay cycle. This helped me identify potential issues before fully committing to a new system.

Common challenges in calculating payroll hours 

Drawing from my experience managing payroll across different teams, I’ve encountered several recurring challenges that can impact accurate employee hours calculations. Here’s how to identify these challenges and implement solutions:

Challenge: Time zone complexity

Managing remote teams across multiple time zones leads to confusion in overtime calculations and meeting attendance tracking. I once had team members in three different time zones submitting overlapping hours, which created a payroll nightmare.

Solution? Implement AI-powered time normalization systems that automatically convert and standardize all time entries to a single reference time zone while maintaining local compliance. Tools like Timeular detect an employee’s time zone automatically and adjust entries accordingly. There’s no need to manually convert times.

Challenge: Project-based hour attribution

When employees work on multiple projects with different billing rates or for different clients, accurately splitting their hours becomes complex. This was particularly obvious when managing content writers working on various client projects simultaneously.

Solution? Use AI-powered activity recognition that automatically categorizes work based on the applications and documents being used. For instance, when a writer opens a specific client’s Google Doc, the system automatically attributes that time to the correct project. This eliminates the need for manual time allocation and reduces human error in project billing.

Challenge: Actual time calculation and roundings

One of the most fundamental yet tricky aspects of payroll is dealing with exact time entries that don’t fit precisely into standard hours. When I managed freelance writers, they often worked in irregular increments – 6 hours and 42 minutes on one project, 1 hour and 17 minutes on another.

Solution? In Timeular’s time reporting system, I’ve found a way of rounding work hours quickly, and all the reports I had to send to payroll were neat!

time reporting

Conclusion

Accurately calculating payroll hours is essential for both business efficiency and employee trust. When payroll hours are miscalculated, whether due to manual tracking errors, rounding inconsistencies, or outdated formulas, employees may receive incorrect compensation, leading to frustration and mistrust.

To prevent this, you should use automated tools that track total hours worked, making sure every clock-out time is recorded correctly. This not only streamlines payroll processing but also simplifies overtime pay calculations, reducing errors and administrative burdens.

By implementing reliable time-tracking software and payroll systems, you’ll eliminate inefficiencies, ensure compliance, and create a transparent work environment where employees feel valued and fairly compensated.

Simplify payroll calculations

Eliminate timesheet errors with Timeular’s automatic tracking—get precise work hours without the hassle.

Sources

https://www.washingtonpost.com/business/2022/02/17/four-day-week-worker-burnout

https://www.bbc.com/news/articles/czd9g7yzn4jo