It is important for a business to keep track of employee hours correctly when managing worked time. Treating productive time incorrectly can result in bad data leading to poor decision making.
Productive Time for Salaried Workers
Company finance departments will generally classify any hours worked doing the company business as productive time. For a salaried worker, any time spent in the office, or out of the office, doing company work, such as outside sales, would be productive.
Generally, productive hours for salaried workers are limited to the assigned work week. If a salaried worker (also known as exempt, as in exempt from overtime) works more than his assigned hours, the normal hours are counted as productive, and the extra hours are not usually counted.
For example, Mary is a manager who does not earn overtime. Her normal schedule is 40 hours a week. Last week she worked 50 hours due to an important project. For productivity, for her department, she is considered to have worked 40 hours. As a manager, she may not be required to track her excess time, since she is not paid overtime for it.
Productive Time for Hourly Workers
For hourly workers, any time performing company business is also treated as productive. Hourly workers also are paid for overtime, that is, hours that are worked over limits specified by government regulation.
In the United States, many state laws require hourly workers to be paid overtime for worked hours in excess of 40 hours per week, or in some cases eight hours per day. Often, non-worked hours, even if paid, do not count as worked hours and do not result in overtime.
Overtime can be paid at a rate that is one and half times the base hourly rate or may be higher if that is the company’s policy or as part of a union contract. The company may agree to pay some hours at a higher rate, for difficult to fill shifts.
Even if overtime is paid at a higher rate, for accounting and productivity purposes, each overtime hour is counted as only one hour. When examining productivity, the amount of money that is paid for the time is not important, only the amount of time worked.
Using Productive Time in a Productivity System
The reason that determining the proper amount of productive time is important relates to the use of a productivity measurement system. In a simple system, the amount of output is divided by the amount of hours worked to determine how productive the process is.
For example, if ABC Company makes 5,000 widgets in January, and if it takes them 500 worked hours, this computes to an average of 10 widgets per hour, or put another way, 0.1 hours per widget.
This measurement can be compared to prior months to determine if January was a productive month. If not, management may need to take steps to improve the process. The data can also be benchmarked against other companies, if comparable data is available.