How overtime happens
Overtime payments are federally mandated: after an employee has worked 40 hours in a week, you have to pay them one-and-a-half times their normal rate. This is not an ideal situation for anyone. Workers are tired, and you’ve increased your labor budget without gaining anything.
Unfortunately, a genuine problem exists if overtime is a significant part of your labor budget, and it almost certainly relates to the way you manage your employee scheduling. Here are some common ways that overtime payments occur:
Poor use of resources
The key to a great schedule is to allocate your best resources first and work downward. This means that senior full-timers – those who work close to 40 hours and receive the highest hourly rate – should be the first ones to go into the schedule, and then you allocate those on lower rates. Part-time staff go in last to fill any remaining gaps. This approach reduces the risk of your best-paid people accidentally crossing the 40-hour limit.
Inadequate demand planning
You have the perfect schedule, but your business experiences a sudden surge in demand. Now you need to call in people to help out, even if that means paying overtime. Sound familiar? You can avoid understaffing by examining historical data and fine-tuning your demand forecasting to predict exactly how much staff you need in each slot. To do this, you will need to keep detailed records, including accurate schedules that show who was originally rostered to work each shift and who was drafted in to meet demand.
Ineffective time management system
Deliberately or not, employees can often clock in and clock out when they’re not supposed to. Even if it’s a few minutes early or a few minutes late, this can add up over the space of a week and push them into overtime territory. It’s estimated that early clock-ins can cost businesses an average of $100 per month per location. Good management plays a role here, but you can’t watch over every single time entry. Managers need backup in the form of an intelligent shift scheduling software, such as Homebase, which prevents clock-ins that don’t align with the schedule.
Lack of communication
In an age of smart devices, there is no excuse for poor communication among a team. It should be easy for employees to arrange shift swaps, and for managers to pass out schedule amendments. However, this isn’t always the case. Communication breakdowns can lead to people missing shifts, or showing up when they’re not needed. It can also cause you to call in people on overtime rates when you could have assigned the shift to someone who hadn’t crossed the 40-hour mark.
Not having enough staff
Some companies provide regular overtime shifts every week to employees. Often, it’s the only way they can get their schedule to work. It always means one thing: there aren’t enough people on the team, or there aren’t enough trained in certain processes. In the long run, it’s always best to address the staffing shortage, either by upskilling other team members or by bringing extra people onboard. Even hiring a part-time employee will provide greater value to the business than making a full-time employee work a 50-hour week.
When people don’t show up – or quit entirely – they inevitably throw the rest of the schedule out of whack, which often results in unexpected overtime payments. Absenteeism has a number of causes, including poor scheduling. Make sure you understand your employees’ needs and don’t schedule them in conflict with their other commitments, such as education or childcare.
You can’t avoid overtime entirely. Life happens, and there will be unforeseen circumstances when you have to ask someone to work more than 40 hours in a week. However, this should always be the exception rather than the rule, and good scheduling should help you keep overtime as close to zero as possible.