You can account for break time in several ways:
- Create a separate project where you'll put all time entries for breaks (eg. spent 5h on ProjectA, 3h on ProjectB, and 1h on project Breaks).
- Create a "break" tag. Then employees can create a 1h time entry, leave it without a project, mark as nonbillable, and attach "break" tag. Later in reports, you can filter out entries with the "break" tag to calculate payroll or billable hours.