11 Ways to Keep Overtime Costs Down

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When it comes to the cost of doing business, labor takes the cake.

Every business owner knows salaries are one of the most significant expenses on the spreadsheet, but each employee is worth more than a regular paycheck when you factor in insurance, hazard pay, health benefits, retirement, and more.

Adding unnecessary overtime to the mix only pushes labor costs higher, and that bump can be disastrous for small businesses with tight operational budgets. Plus, working beyond the regular 40-hour week can wreak havoc on employee productivity and health. Unfortunately, we Americans have a bad habit of working way above that threshold: According to Gallup, about half of us put in more than 40 hours in an average week.

Team managers and HR pros need to manage overtime effectively not only to maintain acceptable levels of employee health and productivity, but also to prevent labor costs from eating away at the company’s budget. Here’s how they can do just that:

1. Reexamine Your Workflows

The root causes of overtime are inefficiency and poor workflow management, which means the first step in addressing overtime is to reexamine your workflows. What do employees do during the day, starting from the moment they clock in? Are excessive status meetings taking too much time from real productive work? What other distractions are sapping your staff’s focus?

Prepare a list of your current processes and policies. Review each one to see how effective it is. Modify or create new ones where necessary. Do a time-and-motion study on the workplace to see if everything flows the way it should.

2. Assess Your Workloads

Regular overtime often occurs when companies assign employees overwhelming amounts of work. Conduct an audit of employees’ workloads during an eight-hour shift. Your employees should be finishing all work assignments on or before the end of a shift, as appropriate. If most of your staff members regularly report needing more time to complete their work, workload assignments should be reassessed.

3. Know the Local Laws

State and local laws governing overtime pay vary. Your company needs to keep abreast of labor laws in its location. Make sure your business complies with the local law at all times to avoid making overtime even more expensive by incurring hefty penalties and fines.

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4. Monitor Your People

Business owners and managers have the right to know how their employees spend their time while at work. Does email take the biggest chunk out of peoples’ mornings? How about that 10-minute coffee break every hour? These are the questions you have to address to understand how your people manage their time. Time is money, which is why tracking time at work is critical if you want to stay within your operational budget.

5. Implement a Strict Overtime Policy

If you find that overtime is still excessive even after you’ve addressed workload and workflow issues, it’s time for a new policy. Consider mandating that employees must have overtime approved by managers; no authorization means no overtime. Let managers know they should exhaust all avenues before agreeing to overtime. Distribute a company-wide memo that outlines your new policy to ensure everyone understand the expectations moving forward.

6. Do a Little Forecasting

If your business relies on foot traffic and store sales, a little forecasting is in order. Sales forecasting helps ensure you have the right number of employees to handle each shift based on expected foot traffic and sales. Daily, weekly, and monthly projections can help coordinate and manage staffing levels. If your forecasting shows a shortage of available employees, it’s time to consider hiring more.

7. Proper Schedule Management

Schedule management goes hand in hand with forecasting to ensure you have enough employees per shift to handle all the work that needs to be done.

One schedule management strategy is overlapping employee schedules from one shift to the next. This strategy helps if the first shift needs to hand off work to the next shift. Overlapping schedules also provide backup in case one or more employees become unavailable during their shift for some reason, such as illness.

8. Train Your Staff

It’s simple: Efficient employees can do their jobs faster and better. Make sure your employees know their roles, responsibilities, and expectations. A well-trained staff is a productive staff — and one that doesn’t take unnecessary overtime. Schedule regular training sessions to keep employees’ skills and knowledge up to date at all times.

9. Plan in Advance

Some projects will run longer than others. That’s simply inevitable. Plan for this eventuality by putting staffing contingency measures in place. Overtime costs can be avoided by planning for busy periods and allowing workers to take flexible hours. You can also hire freelancers to augment your current staff at a reduced price, if necessary.

10. Hire More Staff

If your employees are continually taking overtime hours despite your best efforts, it’s time to hire more people — but only as a last resort and only if your budget can handle it.

Avoid falling into the trap of complacency. Just because your employees can manage at the moment doesn’t mean they don’t need extra help. If your employees are overworked, they’ll eventually become burned out. At that point, their productivity will drop sharply, and overtime hours may skyrocket.

11. Cut Overtime Entirely

Some may consider this the nuclear option, but it works. The easiest way to keep overtime costs down is to stop allowing overtime in the first place. Kind of a no-brainer, right? A lot of HR horror stories involve employees slowing down work on purpose or coming up with excuses to work extra hours to pad their paychecks. Disallowing overtime outright prevents all of that from happening.

Take note: This route must be managed properly. It is the manager’s responsibility to ensure work is coordinated efficiently and employees are not overloaded. Cutting overtime does no good if your employees’ workloads truly are impossible to handle in a normal shift.

Excessive overtime doesn’t simply hurt the company’s budget — it also hurts the people working extended hours, leading to burnout, bad health, and declining productivity. Overtime should only be used when necessary.

Companies with lax approaches to overtime and monitoring become the victims of their own policies. Use the above strategies to curb excessive overtime while fostering a healthier, more efficient, and more productive work environment.

Dean Mathews is the founder and CEO of OnTheClock.

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