Overtime is often a necessary evil. Especially while many businesses are struggling to find labor, overtime costs continue to rise. Overtime is required at a federal level to be paid at 1.5 times an employees normal rate of pay for any hours worked over 40 in any given 7 day period. Different states may have different overtime laws, so be sure to check with your state for any differences in laws. If you run a bi-weekly or semi-monthly payroll, the overtime period remains as a 7 day period. Hours worked over 40 in any 7 day period, must be paid out as overtime. While there may be no way to completely eliminate overtime, below are some strategies to reduce overtime costs.
Strategies to Reduce Overtime Costs
While every industry and business maybe different, below are a few tips for reducing your overtime costs.
- Review time cards frequently
- Adjust your payroll period
- Create a different work schedule
Let’s take a look at each one of these tips more in depth.
Tip #1: Review time cards frequently
The most important way to reduce overtime is to be aware. You need to know when your employees are going to go into overtime. A helpful tool in doing this is by using a time clock system like isolved to alert you when an employee is approaching overtime. If you know an employee is approaching overtime, you may send them home early depending on business needs. Sending them home early or having them come in later will help manage their hours worked. Use your managers and supervisors to check time cards on a daily basis to stay aware of potential overtime.
Tip #2: Adjust your payroll period
Adjusting the pay period may not be something that business owners think of trying. Most business owners use a Sunday to Saturday or Monday to Sunday pay period. Whatever pay period you decide to use is considered your overtime period as well. However, depending on your industry, it may make sense to adjust your pay period. Many hospitality businesses run a Wednesday to Tuesday pay period. Since business is strong on the weekends, the last thing hospitality businesses want to do is send someone home who is approaching overtime on a busy Saturday night. By adjusting the overtime period, hours can be reduced at the end of the overtime period (Monday or Tuesday) when business is slower.
Tip #3: Create a different work schedule
Have you thought about implementing a potentially different work schedule for your employees. Would a three day work week, with 12 hour shifts work in your business? Instead of running two shifts daily, run one long shift of 12 hours, and allow your employees to work fewer days in the week. This is a benefit to your employees and can help manage overtime as they are working fewer days. Scheduling your employees for a total of 36 hours in a week gives your business some flexibility to keep employees later if business demands it without hitting overtime.
Can I make an employee “exempt” from overtime?
Remember! There are very specific rules that apply to making an employee “exempt” from overtime. An “exempt” employee is the same as making them a salaried employee. Employees must work in a specific job classification and earn minimum weekly pay set annually by the state and federal governments to qualify as an “exempt” or salaried employee. Making an employee exempt to avoid overtime is not always the best answer. Please reach out to us or read our annual minimum wage update article to learn more about the requirements of making an employee exempt from overtime.
There are many tools in your toolbox to manage overtime. Unfortunately, sometimes the job requires more than one tool to be done. While these tips may not completely eliminate overtime in your business, implementing one or all of the them may significantly reduce your overtime. Feel free to reach out to our team so we can brainstorm to help you manage and reduce your overtime costs.