Reduce Overtime | 6 mins read

How to Rid of Burning Labor Costs by Reducing Overtime

how to rid of burning labor costs by reducing overtime
Michelle Jaco

By Michelle Jaco

When the pressure's on for deadlines or quotas, or you're faced with a spate of unexpected absences, it can seem like authorizing additional overtime it unavoidable. From a project management point of view, the work needs to get done, and it's the manager's job to see to it.

Unfortunately in these cases, simply accommodating organizational objectives can come back to haunt managers in the form of frustrated accounting and budgeting personnel. When cash flow is tight, that extra overtime can lead to even more stress and tense exchanges.

The good news is that cutting into profit margins through inordinately high overtime expenditures isn't the only way to address organizational objectives. There are tried-and-true methods for reducing overtime; a little planning and utilizing the following steps can provide managers and business owners with sensible alternatives to summarily giving in to overtime.

1. Overtime As a Last Resort

For every employee that just wants to clock out and go home at the end of the day (or the end of a shift), there'll be at least one who can use the extra hours, and who will eagerly stay late or take an extra shift. While this certainly solves the immediate problem when demand is high or when you're short-staffed, obviously this translates into overtime.

There's a certain culture that tends to exist in organizations that pay out a lot of overtime, and this is governed by the executives, managers, and owners who allow it. Unfortunately, this also often includes aspects such as employee fatigue, disengagement, and high employee turnover, none of which are conducive to productivity in the long term.

To be blunt, all of this simply reflects poor time management. Adopting a policy of treating overtime as a last resort will go a long way toward ameliorating overtime problems. The practical alternative is to institute a solid management system for the workflow that gives managers more flexibility and the ability to anticipate and address unforeseen circumstances.

Online employee scheduling software that makes shift planning effortless.
Try it free for 14 days.

2. Work Smarter, Not Longer

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Work smarter, not harder has been the mantra of sales trainers, entrepreneurs and motivational speakers in the business realm for decades. A lesson can definitely be taken from this. In short, it comes down to administrative efficiency.

There are many workplace tasks that are necessary, but which are tangential to workers' roles and assigned duties. Answering messages and emails, meetings and the like can significantly cut into work time. Like those few hours of overtime here and there, these can add up to many hours across. Those hours often need to be made up in the form of overtime.

Scheduling management seminars can aid managers in improving their efficiency as well as that of their teams. Encouraging employees to spend set (and minimal) amounts of time on administrative tasks can improve their productivity during regular work hours, and using instant messaging and other media can cut down on the need for meetings.

3. Perform a Time Audit for Your Team

This may sound intensive or even intrusive, but it's not at all, and it's really quite simple. In fact, your workers probably won't even know it's taking place. What this amounts to is getting a handle on who, where, and when-

  • Who Which workers are typically racking up overtime
  • Where Which teams or departments regularly require overtime hours
  • When Which days or shifts show up as having high rates of overtime
This is a great deal easier than it used to be in the days when scratch pads, time cards, and manual punch clocks were the only way to go. Today, managers can utilize work management software or scheduling apps to establish shift hours, track workers' time, and set up tracking alerts for employees.

This way, managers can see ahead of time (without poring overtime cards or spreadsheets) if an employee is approaching their maximum hours for a given week, leaving plenty of time to revise schedules. They'll also be able to see patterns in overtime as they emerge, giving them the ability to re-evaluate how they're scheduling workers.

4. Cross-Train

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Cross-training has numerous benefits, not the least of which is dramatically reducing overtime. It also has the potential to reduce employee burnout and turnover. Managers and employees can both benefit from aspects of cross-training, and it is indisputably of long-term benefit to any organization.

There's nothing wrong with certain workers excelling at their jobs, but it's a matter of simple mathematics that when there are limited trained personnel on a team at crunch time, you're going to need more people. Establishing a cross-training policy will increase the pool of trained employees for every position or role included in the regimen, providing an alternative to excessive overtime. Hourly employees are still ensured their requisite hours, and staffing levels can be met. Overtime remains an option, but only when it's absolutely necessary.

From a mental health and safety perspective, cross-training also reduces boredom and employee fatigue, thereby lessening the chance of accidents and errors in the workplace.

Online employee scheduling software that makes shift planning effortless.
Try it free for 14 days.

5. Adopt Flexible Scheduling

Flexible scheduling has become increasingly popular in many organizations, the qualifier being that it doesn't conflict with operations or organizational objectives. As workplaces have become modernized, digitized and globalized, and as workplace culture has changed, increasing numbers of jobs have lent themselves to flexible scheduling.

More and more businesses are engaging freelancers and contract workers, many of whom work from home. The viability of this trend has prompted managers to adopt flexible schedules for such workers, as well as statutory employees. Certain time tracking software packages and other digital utilities provide for offsite workers, which maintains accountability and helps to accommodate employees' worklife balance.

6. Place Real Limits in Overtime

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Yes, it can be done! While a certain amount of overtime may be inevitable, it doesn't have to be a runaway train with beleaguered managers tied to the tracks. There are no legal limitations on how much or how little overtime employees receive, but you are at perfect liberty to put a cap on how much overtime individuals, teams, or departments accrue.

Establishing such parameters and sticking to them will not only help in reducing overtime costs but helps to improve employee relations through managed employee expectations.

Your time audit (see Step 3) will aid in determining the dynamic behind overtime hours currently being paid, as well as providing insight into how much your organization can realistically afford to dole out in overtime. The latter figure will dictate what the limits on overtime hours should be.

7. Correlate Staffing to Current Demand

This is often the bane of managers in manufacturing, particularly in organizations where demand fluctuates wildly on a seasonal basis. Poor time management and antiquated scheduling practices can compound this problem.

Keeping up with demand is obviously imperative, but the preceding steps should give some insight into how to do this. Like the time audit, recognizing patterns in demand can aid managers in anticipating when more or fewer workers will be needed at a given time.

Work management software can also be integral to this process, as many of these tools provide for identifying just such patterns.

8. An Official Overtime Policy (This is a Must)

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Even though you'll still be obligated to pay overtime to employees who work extra hours, having a clear, well-crafted overtime policy is an imperative. Again, utilizing the preceding steps should help in determining what your overtime policy will look like, as well as including any other necessary policies and procedures items and legal notices.

Tell your employees exactly what the organization's expectations are, what is allowed as regards overtime, and how and when overtime hours will be paid. Any preauthorization or approvals for overtime hours should be articulated, as well as all caps and/or restrictions on overtime hours.

9. Ensure Accurate Timekeeping

This may appear self-evident, but it's surprising how many organizations fall short in this regard, whether it's through antiquated technology, poor time management practices or poor accountability.

Even with organizations that still utilize traditional punch clocks and time cards, policies and procedures can be tightened up to improve accuracy, thereby reducing overtime hours and costs. Some of the available workforce management software and scheduling apps completely eliminate the possibility of buddy punching and other untoward practices, as well as providing a real-time, accurate representation of hours worked.

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