Do your employees often find themselves working beyond their scheduled shifts? It’s easy to look at this and think, “Wow, what a dedicated team I have!”
But, it’s a clear sign that overtime is becoming the norm rather than the exception in your business, which can point to deeper issues like workload imbalance or poor time management. And with tight profit margins, there’s already plenty of reasons to take overtime and its effect on labor costs seriously.
In this article, we’ll get to the bottom of why there’s so much overtime happening and, more importantly, figure out ways to reduce it.
Why is it important to reduce overtime?
Here’s a breakdown of what you can achieve when you effectively address the matter of too much overtime:
Control costs and boost profitability
Let’s say you’ve got five employees working overtime consistently at a rate of $20 per hour. With each hour of overtime paid at time-and-a-half, that translates to $30 per hour. If each employee works an extra 10 hours in a week, it adds up to a staggering $1,500 in overtime labor costs.
Preserve employee well-being and productivity
But overtime costs more than just money. Studies show that overtime can lead to fatigue, stress, and even burnout. This makes it harder for your team to stay motivated and efficient, which, as well as a cost to your team’s health, can result in a decline in productivity and quality of work.
Minimize turnover and hiring costs
Finally, let’s talk turnover. It costs about one-third of a worker’s annual salary to onboard a replacement if that worker leaves. For example, the average retail salary in the US is $31,200 per year or $14.99 per hour. And if an employee decides to leave due to burnout caused by excessive overtime, you could be looking at $10,000 or more in costs to hire and train someone new.
Unchecked overtime is not only an immediate financial concern but also a threat to the long-term sustainability of your business.
8 ways to reduce overtime
A burnt-out team isn’t good for anyone — not for your employees, not for you, and certainly not for your business’s bottom line. Here are a few best practices to help reduce overtime and keep your team productive and engaged:
1. Use shift scheduling software
Managing your staff’s work hours is a complex puzzle — you have to match employee availability with the peak and off-peak times of your business. Scheduling John for a double shift on a day he requested off is an easy mistake to make. But it’s a clerical error that might take the better part of your morning to resolve as you ask around to see who’s willing to cover for him.
Or, let’s say you realize John is already in overtime and you can’t find a replacement. That’s costly too.
With work scheduling software like Homebase, automation takes the lead, ensuring a well-balanced schedule that eliminates overtime and ensures adequate staffing levels. Creating your ideal schedule is easy when you can see employee availability, requested time off, labor totals, and alerts for potential scheduling conflicts all from one screen.
Homebase time clock app prevents early clock-ins, sets up automatic clock-outs, activates clock-out reminders, and turns on overtime alerts, so you’ll get notified if any employee is approaching overtime.
Plus, with our integrated time clock app you’ll get alerts when employees are approaching overtime — so you’re never caught scrambling to make last-minute scheduling changes.
With Homebase, you can tame the scheduling chaos and be confident you’re avoiding unnecessary overtime.
2. Establish clear internal policies about overtime
Without set policies, you run the risk of employees clocking too much overtime, either because they’re taking advantage of your system or because they don’t understand how the system works. And for this you’ll need an employee handbook.
Your employee handbook should lay out your expectations and time clock rules for hourly and salaried employees, like how many hours an employee can work in a week before they’re eligible for overtime pay. But having a physical copy is inconvenient, hard to update, and easy to misplace or damage. A cloud-based employee handbook is a much better alternative.
If you use Homebase, you’ll get access to HR and compliance experts who can review your company policies and procedures to ensure you’re following regulations that apply to you. Plus, Homebase simplifies hiring and onboarding. So, when you welcome new employees, they’ll automatically get a welcome pack that includes their updated employee handbook.
3. Address staffing shortages
When a small business doesn’t have enough employees to cover all the work, their teams end up working longer hours or more overtime. A solution to this is hiring more people, part-timers, freelancers, or contractors—especially during peak times of the year.
Homebase’s dedicated hiring and onboarding tools streamline the process with automated onboarding systems for a seamless transition for new hires, so they can complete essential paperwork and access important documents independently. Plus, pre-written job descriptions and free job posting to top online job boards attract quality applicants faster.
Homebase’s dedicated hiring and onboarding tools streamline the process. Use our library of job descriptions and post to multiple job boards at once to speed up hiring. Once you’ve found the perfect candidate, make a great first impression with digital new hire onboarding that enables new team members to complete paperwork before their first day.
4. Keep internal lines of communication open
Let’s say your team is working on a deadline and thinking they’ll have to put in overtime. But what if they aren’t aware you’ve brought in a couple of freelancers to help out? Regular updates about project status, workload adjustments, and additional resources help your team better plan their time and tasks.
You might be thinking: “We have a group chat on WhatsApp, isn’t that enough?” Well, vital information can easily get buried in the flurry of everyday messages on such platforms. That’s why a dedicated company team communication tool is so beneficial. Homebase’s messenger lets you send notifications, share updates, and connect with employees so no important message goes unnoticed.
5. Take a vested interest in each employee
When you genuinely engage with your team, you foster a workplace where each individual feels valued, leading to a more efficient, harmonious, and successful business. Consider asking questions like:
- How do you find time for personal activities while juggling work responsibilities?
- Is there anything I should know about that might impact your availability?
- Where do you envision yourself in terms of growth and development within our organization?
- Do you feel supported in reaching out for help or guidance?
- Are there any areas you would like to focus on for further professional growth?
You can foster open communication and ensure that your employees feel at ease when sharing ideas, seeking support, and collaborating with their colleagues with Homebase’s easy employee team chat app.
It’s not just about asking these questions but also about actively listening to the answers and being willing to make necessary changes based on the feedback.
6. Review reports on overtime regularly
Let’s say you own a retail store, and lately, you’ve noticed your payroll costs are climbing. You can’t quite put your finger on why. That’s where overtime payroll summary reports come to your rescue. The report might reveal that every Tuesday when a new stock shipment arrives, your team ends up working extra hours.
Or, it could show that overtime hours tend to spike every holiday season. With a full service payroll platform like Homebase, you can easily generate payroll reports for single or multiple employees and spot these trends to develop targeted solutions. Maybe you need to arrange for additional hands on shipment days or hire temporary staff during the holidays to tackle the extra workload.
7. Invest in training and development
If your coffee shop has a new espresso machine but your baristas aren’t properly trained on it, they might struggle to make drinks quickly during a busy morning rush. And they could end up staying late to complete their other tasks, accumulating overtime.
So consider cross-training — the practice of training your employees in more than one role or skill. For example, a cashier at your coffee shop might also be trained to operate the espresso machine or prepare simple pastries.
Cross-training provides a backup plan when someone can’t make it to work. This way, your team can share the workload and wrap up their tasks within their scheduled hours, keeping your labor costs and work-life balance in check.
8. Distribute necessary overtime hours across the team
It’s a busy Friday night. Orders are piling up, tables need to be cleared, and you’re down one server. You could ask one of your staff members to work an extra few hours, but that would mean they’re on overtime.
Instead, what if you could spread these extra hours across several team members? If you have some advance notice about a scheduling issue, ask your employees to shift swap or put up open shifts for people to claim. You might already have a team member looking for different or extra shifts, and that’ll solve your problem for you.
Top 4 reasons overtime happens
Excessive overtime is often the result of underlying issues within your small business. Let’s take a look at some root causes of why overtime occurs.
1. Poor use of resources
Poor use of resources often contributes to overtime issues. Your highest-paid employees could exceed the 40-hour limit, not only increasing overtime costs but also risking severe burnout. And when burnout hits, productivity dips, and morale drops.
With Homebase, you can reuse schedule templates so you don’t have to build shift patterns from scratch every time. You can also factor in PTO or availability automatically — and share the schedule with a click so it’s never lost in the breakroom or in an email thread. Without software like Homebase to manage labor forecasting, budgeting, and scheduling for you, you need a highly methodical approach. You need to allocate your best resources first and work downward.
Your full-time salaried employees, the ones clocking close to 40 hours a week and earning the highest hourly rate, provide the framework for your operations and should be the first ones you place on the board.
Next come those with lower rates, the middle pieces, if you will. They add depth and detail to your operations. And finally, the part-time staff fills any remaining gaps, completing the picture.
2. Inadequate demand planning
You’ve analyzed your customer trends and found that typically on Wednesday evenings, the customer flow is moderate, so you schedule just enough staff to handle it. But one Wednesday, a local event causes an unexpected surge of customers. You’re unprepared for the influx, and to manage, you ask your current staff to work overtime.
This is a prime example of inadequate demand planning. But the fact is, if you’re manually managing your staffing and schedules, it’s challenging to anticipate and respond to sudden changes in demand.
Without software like Homebase, you’re left with the task of manually adjusting schedules, contacting employees to cover extra shifts, and keeping track of any overtime worked. It’s time-consuming and prone to error, leading to inefficiencies and increased labor costs.
But here’s the good news: this can be avoided. By examining historical data and fine-tuning your demand forecasting, you can predict exactly how many staff you need in each slot. To do this, you’ll need to keep detailed records, including accurate schedules that show who you originally scheduled to work each shift and who you drafted in to meet demand.
3. Ineffective time management system
Deliberately or otherwise, employees often clock in and clock out when they’re not supposed to. Even if it’s just a few minutes’ difference, this can add up over the space of a week and push them into overtime territory.
For example, let’s say your employees are scheduled to start their shifts at 9:00 AM, but some consistently arrive at 8:55 AM. On the surface, it might not seem like a big deal, but by the end of the week, it’s an additional 25 minutes, and over the course of a month, it totals over an hour of unscheduled overtime, which could add up to hundreds of dollars across the team.
Managers need backup in the form of intelligent shift scheduling software like Homebase, which notifies you of early clock-ins that don’t align with the schedule.
4. Lack of communication
Let’s say there’s a last-minute task, like changing prices or offering discounts on the shop floor. But because of a lack of communication, nobody knows about it until it’s almost too late. Suddenly, the team has to work late to get it done, leading to overtime.
These breakdowns in communication can be costly. Businesses need efficient communication systems in place with accessible methods for employees to arrange shift swaps or request time off, as well as streamlined channels for managers to communicate schedule changes.
It’s time to bid farewell to overtime blues
By taking control of employee scheduling, establishing clear overtime policies, addressing staffing shortages, and genuinely engaging with your team, you can ensure your team’s work-life balance is not compromised while maintaining healthy profit margins.
This is a much easier task with a tool like Homebase. Get overtime alerts, time theft prevention tools, smart scheduling, and a team messenger app that keeps you all connected — all from one platform.
Because after all, it’s not about counting the hours. It’s about unlocking your team’s potential and creating a thriving work environment.
Remember: This is not legal advice. If you have questions about your particular situation, please consult a lawyer, CPA, or other appropriate professional advisor or agency.
