There are typically two schools of thought when it comes to overtime: it’s more expensive than idle time and keeping it below 5 percent is a measure of good management. Neither of these is always true – sometimes higher overtime is a good thing. The trick is to have a strategy for identifying and preventing unnecessary overtime.
It really can be a good thing.
Many companies have a line item to track the cost of overtime. They closely monitor how much overtime has been worked and focus on getting the cost down. Without a full understanding of the best use of overtime, or without a way to track trends in how it’s being used, managers may worry about having any dollars allocated to it at all – they prefer to play it safe. The bad news is, this can lead to continuous, unnecessary, and unplanned over staffing. Overtime can make sense when you strategically plan for it to meet unexpected short-term changes in production needs or to manage seasonal or other peaks in demand. The effective use of overtime can create large amounts of flexibility and improve employee engagement. The results can be better customer service, lower inventory, lower prices, and shorter lead times. For occasional and brief periods, planned overtime cost companies less. Contrary to common beliefs, overtime can, in fact, be a great tool for your business.
It’s the unplanned overtime that hurts.
Paying for more overtime than you had planned for can be costly and the result of several root causes. Three common reasons are being chronically short-staffed, continually mismanaging absences, and having a company culture that encourages overtime. All of these have the same result — more unplanned overtime and higher labor costs. And there might be a better answer than to turn to overtime. For example, after 14 hours of overtime in a week, it becomes less expensive to hire additional staff, such as a part-time employee, rather than pay for more overtime. In addition, the cost of overtime includes both fixed and variable costs, which are often overlooked. Overtime has physical, emotional, and psychological aspects to consider in addition to the impacts on compensation.
Assess how overtime is supporting or hurting your operations and costs.
Here are five questions to help you identify trends and patterns to determine if you have a good or bad overtime situation.
Are the same employees or people in the same department continually recording overtime on their timecards?
Does timekeeping show a pattern of excessive tardiness that’s causing other employees to cover and incur overtime?
Is overtime caused by employees punching in or out outside of their scheduled shift times — incidental timeclock punching?
Do the same employees always “call out” — reporting they’ll be absent without offering a reason — requiring others to work unscheduled shifts?
Do you have unfilled job openings for extended periods of time? Who’s covering those workloads?
How to limit unplanned overtime.
Because unplanned and unnecessary overtime has so many causes, there are also several strategies for reducing it.
Schedule to meet demand - accurately aligning scheduling with your company’s needs is one critical step toward making a real difference in profits. To get there, you must be able to better estimate workloads and manage your workforce for a best-fit schedule. When you can match employee availability, skill sets, and preferences with your business demands, you can reduce unplanned overtime and maximize employee productivity.
Create and disseminate schedules faster - reducing the time managers and supervisors spend to create, update, and communicate schedules increases the likelihood employees can respond and request necessary changes in scheduling up front and avoid unplanned overtime down the line.
Gain real-time visibility into accurate employee time worked and scheduling data - the emphasis here is on “real time” and “accurate.” What are the hours they are scheduled for? How frequently are they absent?
The most effective way to implement any of these strategies to reduce unwanted overtime is by automating your time and attendance and scheduling. Remember, overtime that’s properly projected can boost productivity, profits, and employee engagement. Unplanned overtime does the opposite in all three areas.