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August 4, 2003
Overtime Out of Control? Effective Strategies You Can Use to Manage these CostsOvertime can carry an organization through treacherous times, or hasten its descent into the red. The difference is a matter of strategy. PLANNING YOUR APPROACH While overtime is often used in the heat of a difficult moment, it can also be successfully incorporated into an organization’s business plan. If your organization frequently relies on employees clocking extra hours, consider an overtime audit. Analyze how overtime is currently used, both economically and culturally. How many hours of overtime are used per month? Which employees take advantage of it, and how effectively? Has it become an expected part of their income? Determine key periods in which use of overtime is necessary and plan accordingly. By formally strategizing, you’ll take the surprise and much of the stress out of the process. SETTING LIMITS When overtime is offered, a few employees often voluntarily shoulder the entire burden. Consider setting individual limits to prevent resultant health and / or motivational problems. According to BLR, 300 to 350 hours per employee per year is a reasonable cap for shiftworkers. Roger Dickerson, in a recent HR Magazine article (June 2003, “Win the Game in Overtime,” pp. 77-79), suggests the following rules for maximum hours: “A general rule of thumb for maximum scheduled hours is 72 hours in a rolling seven-day period for a period of six to eight weeks. If you need  longer-term overtime, the recommended limit is no more than 48 hours  scheduled on a regular basis over four to 12 months.” Another strategy for handling the restriction of overtime hours is a rotation system. In one such system, employees sign up for overtime on a list. When an employee works a certain number of extra hours, his or her name is scratched off, and the next employee on the list will be eligible for overtime. This allows for a pool of potential overtime workers for any shift, and prevents any one employee from shouldering too much of the burden. Alternatively, you may wish to offer overtime only to key employees or groups of employees who can handle the extra hours without a significant dip in productivity. Staff redeployment can often be used in place of, or alongside, overtime. Increased cross training will facilitate redeployment, allowing employees to wear several hats during a given period. If your employees are sufficiently cross-trained, you can also plan for the absences that result from overwork. If overtime is used frequently at your organization, find out how your employees think it could be better handled. A custom survey may let you know how the majority feels, and can include open-ended questions that may garner innovative strategies tailor-made to your organization’s culture. HOW TO KNOW WHEN YOU SHOULD HIRE As you would determine caps for individuals, you can also set systemic limits to ensure that your organization won’t be overtaxed by overtime. Consider the reasons you’re using overtime. If the burden is unlikely to abate in the near future, you may be pouring money into extra hours that would better be spent in training. Some employers insist that turnover costs are higher than overtime costs when benefits, vacation, payroll, and training are taken into account. If this is a concern, consider calculating the average turnover cost at your organization using one of the numerous free turnover cost calculators available online (search on Google for “turnover cost” for a plethora of tools). You may find that overtime is more costly than hiring. If the cost is the same—i.e., if a new employee’s total compensation plus turnover cost is the same 150% of total wages you’d spend on overtime—remember to factor in the hidden costs that come from overextending employees. In such cases you’d be wise to hire instead of allowing too much overtime. THE DANGERS OF OVERTIME Overtime is usually a response to absenteeism. However, exhausted employees on the clock are more prone to absence-inducing conditions. In other words, unscheduled overtime often creates absenteeism. Overtime hazards include:
These flexible options are suitable only in a non-union work environment, as union contracts govern overtime rules. By employing principled negotiation and integrative bargaining techniques during contract talks, however, unionized employers may also be able to effectively control overtime costs.
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