DECLARE @T TABLE
    (DKey INT, EmployeeId INT, LoginTime TIME, LogOutTime TIME)

INSERT INTO @T
SELECT 8,501,'07:13:13','07:18:04'
UNION ALL SELECT 9,501,'07:13:13','07:13:26'
UNION ALL SELECT 10,501,'08:35:56','08:36:20'
UNION ALL SELECT 11,501,'08:35:56','09:00:00'
UNION ALL SELECT 12,501,'14:08:08','18:30:26'
UNION ALL SELECT 12,501,'15:45:25','18:30:32'

SELECT *
FROM @T

-- Method by Itzik Ben-Gan
-- http://www.solidq.com/sqj/Pages/2011-March-Issue/Packing-Intervals.aspx 
;WITH C1 AS (
        SELECT EmployeeId, ts, Type
            ,e=CASE Type WHEN 1 THEN NULL ELSE ROW_NUMBER() OVER (PARTITION BY EmployeeId, Type ORDER BY LogoutTime) END
            ,s=CASE Type WHEN -1 THEN NULL ELSE ROW_NUMBER() OVER (PARTITION BY EmployeeId, Type ORDER BY LoginTime) END
        FROM @T
        CROSS APPLY (
            VALUES (1, LoginTime), (-1, LogoutTime)) a(Type, ts)
        ),
    C2 AS (
        SELECT C1.*
            ,se=ROW_NUMBER() OVER (PARTITION BY EmployeeId ORDER BY ts, Type DESC)
        FROM C1),
    C3 AS (
        SELECT EmployeeId, ts
            ,grpnm=FLOOR((ROW_NUMBER() OVER (PARTITION BY EmployeeId ORDER BY ts)-1) / 2 + 1)
        FROM C2
        WHERE COALESCE(s-(se-s)-1, (se-e)-e) = 0)
SELECT EmployeeId, StartDate=MIN(ts), EndDate=MAX(ts)
FROM C3
GROUP BY EmployeeId, grpnm

SELECT EmployeeId, MIN(LoginTime) AS LoginTime, MAX(LogOutTime) AS LogOutTime
FROM (SELECT DENSE_RANK() OVER(PARTITION BY base.EmployeeId ORDER BY base.LoginTime),
      base.EmployeeId, base.LoginTime, overLap.LogOutTime
      FROM Overlapping base
      INNER JOIN Overlapping overLap ON base.EmployeeId = overLap.EmployeeId 
      WHERE (overLap.LoginTime > Base.LoginTime AND overLap.LoginTime < base.LogOutTime)
      OR (overLap.LoginTime = base.LoginTime AND overLap.LogOutTime > base.LogOutTime)
      AND base.DKey <> overLap.DKey
      )a(pos,EmployeeId,LoginTime,LogOutTime)
GROUP BY pos, EmployeeId;