Outsmart Unplanned (and Costly) Employee Overtime

Paying employees overtime happens, and it may even be wise to include it in your compensation and staffing strategies.

But it’s important to analyze unplanned or unchecked overtime hours to know how much you’re paying for employees, and to understand how overtime is being handled (or mishandled) within your organization.

Unless allowing your non-exempt (hourly) employees to work overtime has been a deliberate part of your HR strategy, chances are overtime is causing problems for someone within your company – your C-suite, HR department, managers or employees. When overtime creeps into your payroll and company culture haphazardly:

  • Your C-suite may see it eating away at profits
  • Your HR department may see it as a liability due to issues like unfair distribution, favoritism or unclear expectations
  • Your managers may struggle with how to schedule employees and distribute overtime hours
  • Your employees may work overtime hours without approval or without pay, feel burdened or burned out, see the distribution of overtime as unfair or wish for other ways to earn a bonus

Root causes of unplanned overtime

Paying for more overtime than you planned can be a symptom of a few issues:

  • You’re short-staffed. Do you need to hire more employees? Do your employees complain of needing a vacation or seem burned out?
  • Your employees seem unproductive. Are you wondering why the work isn’t getting done within normal hours? Do your employees need more training? Do you need better equipment or technology that helps them be more efficient?
  • You don’t have an overtime policy or it’s not being enforced. Are your employees working overtime hours without approval? Are their workloads pressuring them to work overtime without recording it or being paid? Could your scheduling be improved to reduce overtime?
  • Your company culture encourages overtime. Is overtime being used as an incentive or bonus without strategic oversight?

If you can pinpoint what’s causing overtime to creep into your payroll, you can likely do something about it and more proactively control your labor costs. Start your analysis by looking at how much overtime was paid out in previous pay periods. It probably makes the most sense to do a year-over-year or month-over-month comparison to help identify if it’s truly a trend or an isolated incident.

Also pay attention to staff morale, closely monitoring any issues your managers and employees are experiencing in regards to overtime. Is overtime distribution creating any points of tension?

Resolving overtime issues

Before you take any major employment actions (e.g., add headcount) or make business decisions (e.g., purchase new equipment) to fix overtime issues, it’s crucial to revisit your company’s goals and HR strategy. Then you can write (or rewrite) a focused and strategic overtime policy and take steps to ensure it’s enforced appropriately across your organization. Your policy should clearly outline when an employee is eligible for overtime, the overtime approval process and scheduling requirements.

Then, you’ll be set to address any previous overtime issues you’ve had by unrolling your new or updated policy. This process should involve:

Communicating expectations – Make sure your supervisors and employees understand all policy requirements, such as:

  • Employees must receive permission to work overtime
  • Employees must accurately record all overtime on their time cards
  • Employees cannot work overtime out of the goodness of their hearts (i.e., go unpaid for overtime work)

Scheduling proactively – Train your managers with scheduling responsibilities on how to fairly distribute overtime when it comes up and make policy-based scheduling decisions.

Monitor morale – Keep tabs on how your employees are adjusting to changes.

To help with both analyzing overtime patterns and enforcing your overtime policy, you may need time tracking and employee scheduling software, especially if you’ve always relied on a manual system. When you use a software-based system versus a paper timekeeping system, you have tools, such as automated alerts, that can help you spot overtime expenses before they happen and make cost-conscious schedule changes. Some time and attendance software also provides reporting features so that you have instant insight into your workforce metrics, allowing you to make more proactive (cost-saving) decisions.

For example, data collected through your time and attendance software could potentially indicate whether you have enough extra work to make a new hire. It could also add clarity to a decision to invest in employee training, new equipment or another productivity-boosting technology.

Benefits for all

Addressing your overtime culture head-on will benefit everyone in your organization. Payroll is usually one of a company’s biggest expenses – controlling overtime costs can increase profits. Having the right policies and procedures in place can lead to less liability and complaints and more fairness in the way overtime is distributed.

Learn more about how to avoid costly payroll errors and other common HR pitfalls. Download our free e-book, 7 Most Frequent HR Mistakes and How to Avoid Them.

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