8 proven ways to reduce overtime & labor costs (2023)

Summary

• Excessive overtime can negatively impact employee happiness and productivity. The labor costs associated with it can also place a financial strain on your business. 

• There are 8 ways you can reduce your reliance on overtime.

• Businesses are turning to workforce management solutions to schedule overtime and track labor costs more efficiently.

Overtime is a double-edged sword for your organization. On the one hand, it is a convenient way to address short-staffed situations, and it provides your employees with a bit of extra cash. On the other hand, studies show that excessive overtime can have a number of negative effects on your business and your team. 

Along with workplace stress and heavy workloads, overtime has been linked to higher rates of employee turnover intent. Other research finds that it negatively affects employee satisfaction and reduces company-wide innovation over time. The same research shows that overtime work positively affects the productivity of a company. It also states that this is probably due to the “exploitative efficiency” that comes with overtime.  

Of course, there are additional labor costs to consider when asking team members to work extra hours. According to the Department of Labor, employees covered by the Fair Labor Standards Act (FLSA) must receive overtime pay for all hours worked in excess of 40 hours a week, unless they are classified as “exempt.” The rate at which they should be paid for overtime should be a minimum of 1.5x their regular rate. 

Needless to say, overtime can be quite expensive for an employer. But this is sometimes a small price to pay for fully staffed shifts. Or is it?

Webinar: How to lower your overtime hours

If overtime is resulting in unsatisfied, unhappy, and unmotivated employees, is it really worth it? In this article, we have compiled eight tips on how to reduce overtime hours in a way that will help you save on labor costs while keeping your staff members happy and productive. 

1. Cross-train to bolster your workforce

If only a few of your team members can carry out certain tasks, you’ll end up with a situation where the same few people are getting overtime. These people are more likely to experience burnout, as excessive overtime creates a poor work-life balance. Additionally, other employees not getting any overtime might feel hard done by not getting the extra cash incentives. 

You can tackle this by ensuring your employees receive cross-training for different roles. This way, you have more flexibility in filling vacant shifts with a larger pool of qualified employees. Cross-trained employees not only help you avoid scheduling unnecessary overtime, but they also allow you to divvy out overtime in a fairer manner if needed.  

2. Maximize productivity with flexible work schedules

For some people, having scheduling flexibility makes it easier to get everything done within a 40-hour week.

Giving your staff a say in how and when they are scheduled will improve their productivity and reduce the number of overtime hours claimed. Research shows that most managers find their teams to be more productive when they have the option of work-time flexibility.  

For hourly workforces, a shift swapping app makes it easier for staff and managers to flexibly manage shifts in a way that promotes better work-life balance. Managers can use it to quickly fill vacant shifts while avoiding overtime, and staff can use it to alert their team members whenever they can’t make it in, cutting down on no-shows and tardiness. 

3. Forecast your demand levels and & labor needs

Properly forecasting demand is perhaps the best way to avoid unnecessary overtime. Before scheduling employees, businesses should utilize machine learning to predict upcoming demand. Things like weather, foot traffic, historical sales, and economic trends can all influence how many staff you need to schedule. 

Webinar: How to Forecast Your Schedule

With an accurate demand forecast, you can accurately manage your staffing levels – without edging into overtime. Identifying demand down to the hour for every team, location, and role ensures that you’ll always have the right number of staff on hand to handle potentially short-staffed situations where overtime is required – like an unforeseen evening rush after a mid-week baseball game. 

4. Distribute hours more fairly with overtime equalization

For some employees, overtime means greater financial stability. Without transparent and equal distribution of overtime, you might find yourself in a situation where you are accused of not fairly distributing overtime hours. 

Overtime equalization ensures a fair balance of overtime among your employees when they do need to work beyond their regular workday. When assigning which employees are to work overtime, it takes things like employee qualifications and preferences into consideration. Using employee scheduling software here also creates an even rotation of overtime amongst staff suited for the job. 

5. Ensure your employees have the right tools to do their job

One way of reducing overtime hours is to take a good look at what tasks your employees are doing and think of ways to make them easier. Providing the right tools to speed up workflow can cut down on wasted time, helping employees finish their work in a timely manner. 

You should pick out the most tedious tasks and find solutions that can help automate them. This could mean providing restaurant managers with digital inventory tracking tools, retail staff with a task management system, or scheduling managers with auto-scheduling software. 

6. Stick to your budget by setting overtime limits 

A good way to stay within your labor cost budget is to set a hard cap on the number of overtime hours you can afford to allocate for every day, week, month, or year. This is all about finding the right balance between supporting your employees and improving your bottom line. Setting hard limits on hours worked encourages managers and employees to adapt and become more efficient with how they navigate overtime.  

Of course, setting limits doesn’t disqualify you from paying overtime worked beyond them. The law stipulates that any time over 40 hours has to be paid as overtime. So, if someone has exceeded your overtime budget, make sure you have an accurate way of recording, calculating, and alerting managers to all overtime pay owed. 

7. Utilize time tracking for greater accountability

Time and attendance software is ideal for helping you track, manage, and calculate overtime. It alerts your frontline managers whenever an employee hits overtime, and it automatically records overtime hours and time and a half pay on digital timesheets. These timesheets display scheduled vs. actual hours and labor cost variances, making it easy to pinpoint where and when you are spending too much on overtime. 

Perhaps more importantly, automated time tracking helps you avoid tricky situations where employees claim to have worked more overtime than you have on record. By default, the Department of Labor assumes that the employee is right about the number of overtime hours they worked unless the business owner can provide proof otherwise.

With timesheets recorded on a daily basis, time tracking software protects businesses from paying out overtime that was never actually worked. It increases accountability and ensures your overtime tracking is airtight, helping you avoid costly DOL fines and employee lawsuits.

8. Use employee scheduling software to stay on top of overtime

Technology plays a huge role in helping you schedule in a way that keeps overtime costs low. Scheduling software tracks things like work hours and unavailability, automatically suggesting the most cost-effective people for coverage while avoiding unnecessary overtime. It lets you see wage costs for every shift so you’ll always know how much your business is spending on labor in real-time. 

This kind of automation cuts down on the overtime errors that come with scheduling via spreadsheets. For instance, certain scheduling platforms will alert managers whenever they try to schedule a shift that will cause an employee to dip into overtime. Scheduling software will also typically keep track of maximum work hours and prevent managers from scheduling employees for more than is legally allowed, depending on your state. 

Schedule and track labor costs effectively with Workforce.com 

There are a number of ways you can stay on top of overtime levels across your workforce. You can carry out most of these tasks manually, or you can use technology solutions like Workforce.com’s scheduling and time & attendance software.

The latter ensures that you carry out the procedures outlined in your overtime policy more efficiently, more accurately, and in line with legal requirements. To find out more, get in touch with one of our workforce management experts today. 

And if you find that your business is racking up overtime hours because it’s consistently understaffed, check out our free webinar below. It just might help. 

Webinar: How to lower your overtime hours