It goes without saying, but America’s small businesses have to be mindful of every dollar.  The local pizza parlors, coffee shops, and retail stores are constantly fighting to stay out of the red each month.  A weekend of bad sales or an unforeseen issue with inventory can be the reason a business turns a loss instead of a profit.  That’s why keeping down the costs you do know about and can control is essential.

One of the largest single expenses of every local business is labor.  A good rule of thumb is to keep labor costs under 30% of revenue.  Nothing can make labor costs creep up quite like overtime — that time-and-a-half your employees earn when they stay late or arrive early.  Reducing overtime costs will save money and ensure that your profits can go back into the business or your pocket.  So how exactly can businesses put a plan into place to reduce overtime costs?


Familiarize Yourself with Local Laws


Depending on where your business operates, there may be specific local laws that govern overtime pay. For example, in the state of New York, some employees must be paid 1.5 times their usual pay rate when working over 40 or 44 hours. Overtime exceptions exist for certain types of employees, so knowing which of your employees are eligible for overtime pay and after how many hours will not only reduce overtime pay, but also keep you in compliance with local laws.


Sales Forecasting


Once you are aware of your local labor laws, you’ll need to put a robust sales forecasting system into place. The goal of sales forecasting is to ensure the right number of employees are scheduled for each shift, given your expected sales and foot traffic.  This might sound difficult, but with technology on the market today, you can make assumptions about your sales easily.   Your sales projections can then dictate your staffing needs, with a healthy dose of common sense. Your point-of-sale system won’t know that the annual Halloween parade was switched in your shop’s neighborhood, for example, or what the weather forecast for this weekend is. But you can manually adjust projected sales on out of the ordinary days to calculate your labor as a percentage of sales and make sure it stays under that 30% benchmark.


Put Processes in Place


Make it clear that employees are only allowed to clock in when their scheduled shift begins in. Early clock-ins can slip under the radar and add unexpected labor costs, unless they are actively prevented. This doesn’t mean that you need to watch over your time clock like a hawk. Instead, bake this into the way you do time tracking. With modern time tracking, it doesn’t matter if you’re in your office or across the country, you can set up your time clocks and watch as the data pours in. Sophisticated time trackers allow you to control time tracking from anywhere, so that you can monitor labor costs and employee punctuality from any device.

Communicate Expectations

When you hire employees, they should be aware that you closely monitor overtime pay and that in normal circumstances, they are to only work the hours they have been scheduled for. In cases where overtime is required to be able to meet customer needs, have a process in place for manager approval.

Clear expectations are especially important if your business is remote. Fostering a culture of trust and honesty is crucial to your success. Having remote hourly employees means that they need to be able to clock-in at different job locations. You want to know that employees are at the correct job site when they clock-in and GPS-enabled time trackers allow you to verify clock-in location on employee timesheets.


Set Alerts


On some occasions overtime work is unavoidable, so it’s important to be aware when employees are working overtime and how much that’s going to cost. In a mobile-first world, being able to get a quick alert on your smartphone can maintain your peace of mind and reduce overtime costs at the same time.

Hire More Employees

Do employees frequently need to add extra hours to be able to get their work done? That might mean that you need to hire additional employees. As your sales grow, your staff growth will need to keep pace. Don’t get caught in a cycle of requiring overtime each day just to keep your business on track. Spend a bit of time to hire the best new employees so that your business can run smoothly.

What tactics have you used to reduce overtime costs in your business?

Ready to reduce overtime costs? Sign up for Homebase’s free employee scheduling tool to manage scheduling and time tracking all in one place.


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