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Avoidable Overtime is Draining your Profits

Overtime is both a blessing and a curse to employers. While it keeps operations running as needed, it can become very costly! Take a look at how avoidable overtime can become a drain on your profits and what you can do to save your bottom line!

When it comes to running a business and scheduling your employees, overtime can be both a blessing and a curse. Yes, it means you can keep operations running smoothly and meet the demands of your customers/clients. However, it also incurs financial costs, and creates other issues! This is where the importance of understanding the difference between avoidable overtime, and unavoidable overtime is crucial.  

Avoidable overtime – is overtime that is incurred due to poor schedule management and failure to maximize available resources. Generally, this cannot be charged to a client, or recovered in any way. 

Unavoidable overtime – is overtime that is incurred due to a lack of personnel or resources, or an increase in demand, and cannot be avoided. In some cases, this overtime can be charged to clients and maybe recoverable.  

More often than not, employers are unsure if the overtime on their schedule is avoidable, or unavoidable. When overtime scheduling becomes habitual and commonplace, we stop looking for alternatives and accept it as part of the scheduling process. This does not have to be the case.  

Overtime Pay 

Anyone who has ever worked, or scheduled overtime likely knows that there are rules that dictate how overtime should be compensated. According to the U.S Department of Labor; 

Unless exempt, employees covered by the Act must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay. 

U.S Department of Labor

So, as you can imagine, frequently scheduling avoidable overtime can become quite costly. With no opportunity to ever recover these costs, there must be a better way?  

How avoidable overtime can drain your profits 

There are multiple ways that avoidable overtime can drain your profits. Obviously, it creates costs that cannot be recovered, but outside of that, it has other implications too.  

Financial Impact 

As we know, overtime is expensive. Before adding in overtime, labor itself is often one of the largest expenses for organizations. Salaries, benefits and turnover costs are high enough, without having to add overtime to the mix. Due to its nature, avoidable overtime is often scheduled purely out of habit, or due to poor understanding of workforce management. In the U.S., 85.8% of males and 66.5% of females work more than 40 hours per week. If you are frequently scheduling avoidable overtime, you are essentially paying your employees more, to work unnecessary shifts. As we all know, increased costs generally lead to decreased profits. 

Impact on Performance & Productivity 

When it comes to being profitable, the level of output from your staff is generally directly correlated to the profitability of the business. There has been a lot of research carried out on the impact of overtime on productivity. A study from J. Nevison highlights this impact, noting that little productive work takes place over and above 50 hours per week. It also shows that ongoing, consecutive overtime work can lead to declines in productivity.  When you consider the decline in productivity on top of the avoidable overtime costs, it becomes clear how fast overtime will begin draining profits.  

Increased Health Problems & Turnover 

So, avoidable overtime is already racking up the payroll bill, and also impacting productivity. If that isn’t enough to deter you from relying on overtime in your employee scheduling, increased health problems should be. A study from the European Heart Journal showed that people who worked three or more hours longer than a normal, seven-hour day, had a 60% higher risk of heart-related problems such as death due to heart disease. Increased health problems can lead to more costly issues for you as an employer. Absenteeism will increase due to illness, and in turn, this can lead to turnover. Turnover is extremely costly and is sure to negatively impact your profits!  

How to remove avoidable overtime from your schedule 

When it comes to removing avoidable overtime from your employee schedule, there are many steps you can take. Not all of these are necessary but will change the way that your organization views overtime, for the better. 

Develop an Overtime Policy 

The first step to changing the way overtime is managed in your business is developing a clear policy that will be enforced consistently. The main thing to enforce in this policy is that overtime should be used as an exception, not a rule. Chances are that if you regularly schedule avoidable overtime, you have stopped seeing overtime as out of the ordinary. This needs to change, and schedulers need to be reminded that overtime is a last resort.  

Bear in mind the implications that this might have on your staff. Talk to them before making any big changes, some of our employees might be relying on the income from their usual overtime assignments. Be open and honest with them, and remind them that you are reducing overtime for their benefit.

Review your scheduling process

The best way to eliminate avoidable overtime from your organization is to go to the root of the problem. Of course, all overtime comes from your employee scheduling process. When using manual scheduling processes, it can be hard to manage employees and shifts effectively. Luckily for managers and schedulers, employee scheduling software can be used precisely for this! Take Celayix for example. We use a rules-based engine for scheduling, schedulers can create tailored business rules specifically to eliminate avoidable overtime.

With this rules-based engine, schedulers will receive a warning when trying to assign overtime. Not only that but you can also autofill your entire schedule in a matter of minutes while telling the scheduler to follow your overtime rules. Employee scheduling software can save you time and money when it comes to managing your employee shifts. Celayix has helped companies save over $100,000 in avoidable overtime pay, and can help you do the same! If you’d like to hear more, be sure to reach out to a Celayix Solutions Advisor today!

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