When it comes to operating expenses, employee overtime is usually a big contributor. Overtime is generally undesirable as it increases your expenses and reduces employee satisfaction. While it has its uses and is sometimes unavoidable such as acting as a buffer when there is an unpredicted spike in demand, employee overtime can easily become a very costly liability if it isn’t managed properly.
In this post, we’ll explore some methods you can use to reduce your overtime costs and manage it better.
An audit of your company’s overtime is a vital first step because you must determine the root cause of the problem and where the overtime costs stem from before deciding on the best course of action to resolve or reduce it.
Some of the things you need to find out are:
- How much overtime does your company currently incur?
- What is the actual monetary cost of this overtime?
- Where does this overtime come from or why does it occur?
- When does this overtime occur? Is there a trend, or is it seasonal?
Having the right data is critical to managing overtime costs and it’s worth spending the time and effort to collect and analyze it.
Temporary staff, subcontractors or additional employees
After completing an audit of your overtime, you may find that you have a seasonal or repeating pattern of overtime. If your company’s overtime is caused by lacking staff members to cover these periods, then employing temporary workers or subcontractors can be a viable solution. Make sure to first weigh the costs of training and paying additional workers versus the availability of your existing employees and costs of paying them overtime premiums. Sometimes, adding a new staff for a period is enough to make all the difference.
In addition, if you find that the overtime in your company is fairly consistent and significant enough, then hiring additional full-time or part-time may be the best option to control it. Again, as long as the calculated costs and improved employee working conditions are deemed to be beneficial this can be a favorable solution.
If hiring new staff is not an option, another effective way to reduce overtime is to train your employees to perform the tasks for multiple positions. This gives you the flexibility to easily reallocate employees when faced with an unexpected increase in demand or shortage of labour. It also reduces the dependency on certain groups of employees who are required to work overtime due to their expertise in their position.
However, depending on your business sector, cross-training employees for other positions may introduce its own set of complexities. From a payroll perspective, it can be daunting to pay employees who work in multiple positions that offer different rates of compensation instead of just a flat rate per employee. And if you do offer compensation for work outside an employee’s standard position, how do you track the hours and pay if the pay scales are different from position to position? From a scheduling perspective, how can you ensure that only those employees who are trained and qualified for a position be scheduled to work them?
With the right payroll software, such as Advanced Payroll AX, worked hours and pay rates can be accurately recorded for any worker according to the position they worked. Employees may also have an unlimited number of positions with each position having a different rate of pay, and specific pay withholding rules.
Also, scheduling solutions, such as StaffRight Omni, allow you to define the minimum skills or certifications required for a given position. This ensures that only trained and qualified employees are considered eligible for filling a vacancy or demand.
Cross-training is typically a cost-effective alternative to hiring more staff; however if you are still strained to fill positions because of employee availability, hiring additional or temporary employees may be the necessary solution.
The Right Tools
Your managers are on the front lines of your business and are your best resource to improve overtime management. This means that it’s important to equip them with the right tools to better understand why overtime is occurring and how to mitigate it when it happens. Also, ensure that all your managers know and adhere to your company policies and best practices for handling overtime.
For example , one area where overtime can be managed more effectively is when filling an unscheduled absence. Scheduling software solutions, such as StaffRight Omni from LOKI Systems, feature a call-in list with customizable parameters to help you quickly select the most cost-effective solution for shift coverage. The call-in list can be configured to display a ranked list of available candidates based on the preferences you’ve selected such as employees who will not be taking on overtime hours to work the shift. You can also rank candidates by those with the lowest amount of scheduled time, helping to manage your overall scheduling efficiency better.
A simpler way to accomplish this can be to schedule according to department. Managers know their departments the best which makes them the ideal people to perform the task of setting appropriate staff levels. They know the best way to handle overtime, whether it’s cross-training, seconding workers, or hiring temporary or full-time workers. When overtime is needed, managers are most likely the ones able to accurately predict how long it will be needed. Therefore, it is essential to ensure your managers have the right tools and the right information to do their job.
Schedule to Demand
Another way to reduce overtime is to schedule your staffing levels to demand according to what you anticipate to be your busiest times. Although you may not be able to anticipate demand with 100% accuracy, the closer you match your scheduling levels to it, the less overtime you will accrue. Having an audit of your overtime metrics helps immensely to predict demand.
The right scheduling software will enable you to set scheduling targets to more effectively match staff levels to demand. This means that prior to schedule creation, you’ll know right away how many people you need to schedule for the day and how many people you will need to add or remove.
There are many different ways to manage overtime more effectively, but it starts with knowing what your current overtime situation is. Harness the power of analytics first with workforce management tools that give you data-driven insight into your business and its operation. Then, weigh the costs and implications of various solutions to find the best fit or combination for your organization’s situation. By using the strategies outlined above, overtime can stop being an agonizing liability and instead be a tool harnessed to meet demand when necessary.
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