The Department of Labor defines overtime as exceeding 40 hours per week, with employees subject to overtime regulations earning 1.5 times their normal wage. The threshold for employees subject to overtime rates as of July 1, 2024, is $43,888 per year ($844 per week) and will be $58,656 per year ($1,128 per week) on January 1, 2025. As these thresholds increase and exemptions weaken, managing overtime costs is a priority for managers in a variety of industries.
Here’s what you need to know about overtime cost control and how to best mitigate these costs if employees need to work longer than planned.
Assess Current Workflows
If employees frequently work more than 40 hours per week, assess whether it’s simply a busy time of year or if inefficiencies need to be addressed.
Look at the typical day when the employees get overtime. Is their time wasted by pointless meetings? Is there excessive bench time between clients or customers? Assess the organization’s current objectives and how much current policies and procedures align with them. Frequent overtime may indicate a disconnect in how the work is being done.
Forecast Future Workflows
Take note of the times of year and days when activity tends to be the most frenetic. When do you need employees on deck? Daily, weekly, monthly, and seasonal projections are critical to reducing overtime expenses and ensuring that there isn’t a shortage of employees during the busiest times. Efficient forecasting and employee scheduling techniques can keep overtime costs down by ensuring that there are enough hands on deck in the first place.
Invest in Employee Training
Training may have a high upfront cost, but it has long-term dividends in increased productivity and more efficient workers. Employees who are unclear on their roles, responsibilities, and objectives will need more time to do what they are tasked with. Training employees on how the work should be done, keeping their skills up to date, and regularly contributing to the organization’s institutional knowledge is a robust overtime cost control measure. Neglecting training can result in continuous inefficiencies and employees who can’t get their work done without putting in large amounts of overtime.
Hire More Workers
Taking on new hires may seem counterintuitive if the goal is to mitigate overtime expenses. However, if your assessment shows that high overtime expenses aren’t just the result of getting a large project finished or peak seasonal activity, it could indicate long-term understaffing. Overworked employees need to be paid what they are legally owed for overtime, and they may also reach capacity, get fed up, and quit. Hiring more employees before this happens is a proactive strategy that addresses the issue before it becomes a serious problem.
Limit Hours Employees Can Work
While this may not always be an option depending on the type of business, cutting out overtime altogether is the ultimate method of managing overtime costs. If all employees are capped at 40 hours per week, they can’t sit on their phones and look busy after that 41st-hour kicks in. If employees cannot complete their work in a 40-hour work week, this could indicate understaffing or managerial inefficiency overburdening employees.
Monitor and Adjust
Monitoring overtime patterns and costs on an ongoing basis is essential. Review your strategies regularly to ensure they remain effective. Adjustments may be necessary based on changes in business demand, employee performance, or regulatory updates. Being proactive about monitoring allows you to catch potential issues before they escalate into costly problems.
Contact ASAP Payroll for a consultation on optimizing your payroll and managing overtime costs. Schedule a demo today to see how our payroll solutions can help reduce your overtime expenses.
