Ramping down production in an uncertain economic environment

Staffing done right in a shiftwork operation

The Institute for Supply Management’s New Orders Index reported nine industries where new orders declined in March [1]. If your company is among those who experienced a demand drop due to the COVID-19 disruption and therefore, you want to swiftly ramp down your production ― you are going to need a plan of action.

We are not talking about a traditional downswing.  Those happen all the time due to factors like seasonality, changes in consumer behaviors, or obsolescence.  What we are going to cover here is how to ramp down quickly due to a sudden, and unexpected change in demand.  To further complicate this scenario, we will couple it with a foreknowledge that at some unknown point in the future, you will need to ramp back up again; possibly very quickly.

There is no one-size-fits-all solution here.  However, there are several considerations, some of which may apply to you while others are out of the question for your operation.  In all cases, we recommend that you prepare for the worst and hope for the best.  Act as if the slowdown will last for a very long time but be ready to ramp up if things turn around quickly.

Workforce Considerations

While every employee is important to your operation, some are more costly to replace than others.  If you have to let people go, make sure you have a priority list of those high-skilled employees you don’t want to lose.  Keeping those skilled people will help you ramp back up quickly when the time comes.  If a skilled position is eliminated as you cut back, lose the job but keep the person.  Find another place for that person to work.  A high-paid operator can move down to a lower-paid position such as a stacker, for the short run.  Make sure you communicate that such a demotion is “just until things return to normal” and that a cut in pay is not involved.  An operator that is moved to the stacker position would still get operator pay – if you want to keep that person.

It may be that you just need to cut back on hours across the board.  Everyone loses some hours.  This shares the pain of cutbacks.  You don’t let some people go so that others will be unaffected.  This can be done in conjunction with efforts to maintain social distancing.  For example, if you are covering 24/7 with 12-hour shifts, you can instead use 11-hour shifts.  This would allow you to cover 22/7 while allowing downtime between shifts to allow for sanitizing while minimizing interaction between employees on different crews. 

Consider reducing your crew size using voluntary/mandatory layoffs of pre-determined lengths.  One group goes on layoff for a certain number of weeks and then they return while another group goes on layoff.  The idea is to keep your employees close to your company so they can all come back when needed.

Non-Human Capital Considerations

“There is never enough time to get things done.”  I think I have heard this at every company I have worked with over the last 30 years.  And its always been true…until now.

Cutting back on production does not mean that everything it takes to produce must come to a stop.

What have you wanted to do but couldn’t because lines were up and running?  Take a look at what you wanted to do in the coming months or even the coming years.  Pull that work forward.  Get your maintenance PM’s up to 100%.  That line you wanted to upgrade in 2021, upgrade it now.  Taking down water, steam, and HVAC systems can easily bring everything to a stop. Now is the time to get that work done.

It may be more costly than originally projected to move a project forward.  However, if you take into consideration that moving a project forward will avoid production interruption in the future, the math may change dramatically in favor of getting it done now.

In summary

When demand returns, market share will go to the one most ready to capture it.  Well maintained production lines with the latest upgrades will put you in the pole position.  A trained workforce, ready to get back to work will put you at the front of the pack.

“When you change the way you look at things, the things you look at change.” – Wayne Dyer

Don’t see the downturn as “unfortunate.”  See it as an opportunity – because it is.

Shiftwork Solutions experts are available to help you adapt to new production goals and match your workforce to your production need.  We align workforce schedules with your business goals and implement a tailored solution in a guided change process. We emphasize communication in every phase from planning to execution and involve the workforce to arrive at the most optimal result for your situation.  Our proven, data-driven process will enable you to bring about the desired changes to efficiently engage your workforce and “Do it Right” as fast as possible. 

Give us a call at (415) 858-8585 or send us an email to contact@shift-work.com and we’ll call you.

If you are currently ramping up to help fight the Covid-19 virus, make sure you mention that so we can move you to the front of the line.

[1] March 2020 Manufacturing ISM® Report On Business® Source  

Free Video Conference Consultation

During this time of uncertainty caused by the Covid-19 virus, we here at Shiftwork Solutions have asked ourselves, “What can we do to help our shiftwork communities get through this?”

Last week, we shared some “out of the box” type ideas to consider in your battle against Covid-19. We’ve received several positive responses to this post. Additionally, companies contacted us to discuss the steps they are experimenting with to balance demand and resources.

We’d like to keep up our support by popular demand.

We are offering a free video conference call with one of our shiftwork experts. You can drive the agenda and discuss your shift work, operation, and staffing related questions, including:

  • Considering higher overtime to use as few employees as possible?
  • Are you struggling with the “Ramp-Down” or “Ramp-Up?”
  • Are you thinking about shorter work weeks to keep as many employees as you can?

There are any number of issues that we would be happy to discuss with you. This includes your stories of success or of things to avoid.

To set up a Video Conference Call, send us an email at contact@shift-work.com

How to Manage Variable Workloads

How to maintain the right amount of coverage and minimize the costs

by Dan Capshaw & Bruce Oliver- Shiftwork Solutions LLC

Does the demand for your company’s product(s) follow a seasonal pattern or exhibit other periodic variations? As long as the changes in demand are not “permanent,” there is no reason to hire enough employees to cover the peak workload requirements. If you did, you would have to either lay them off when demand dropped, or retain and pay them during periods when they were not needed. Paying for this “idle” time can be very expensive.

Here are four options frequently used to maintain the right amount of coverage and minimize the costs:

  • Planned overtime
  • Temporary employees
  • Discretionary work management
  • Planned time-off management

Planned Overtime

Planned overtime is the most flexible option of the four. It allows you to vary the coverage from a fixed number of employees. Although the overtime is usually paid at a higher rate, it is not an on-going cost. You pay for it only when the extra capacity is needed. Thus the incremental cost of increasing coverage is relatively small.

When you hire more employees, the added cost includes both wages and benefits, and you pay these “loaded” wages even when the workload drops and the people are no longer needed.

This means you can minimize your costs by covering the majority of the workload variations with overtime.

The major drawback comes from higher levels of overtime over an extended time period. When overtime exceeds 20% of the total hours for a sustained period, it can have adverse effects on morale, safety, and productivity.

Temporary Employees

Fortunately, overtime is not the only mechanism that we can use to match the coverage to varying production demands. Another alternative is to use temporary and contract labor to cover 10% or more of the labor required to run a typical manufacturing organization. While the problems associated with using temporary labor are well documented, the ability to economically flex up and down by 10% without affecting the rest of the workforce should not be ignored.

Discretionary Work Management

Another way to address variable workloads is to use discretionary work (such as training) to fill in for the slow periods. Discretionary work needs to be done at some point during the year, but its timing can be matched to the availability of resources to perform that work.

Suppose you have a significant drop in demand around the holiday period in December and January. These months would be an ideal time to build in some extra training. In fact, this is an ideal time to hold training that is best done when the entire crew needs to be together.

Other discretionary work, such as special maintenance or cleaning activities, can also be scheduled for these slow periods. One of the goals of discretionary work during slow periods is to convert potential idle time into productive time. Using “busy work” to fill idle time will not reduce operational coverage costs unless that work must be done to keep the plant operational.

Depending on how much discretionary work exists, it may be worthwhile to increase staffing slightly to allow more unassigned time to perform the discretionary work. The risk of doing this is that when the discretionary work cannot be matched to the built-in idle time, costs rise.

Planned Time-off Management

Employees take planned time-off for vacations and floating holidays. This time-off typically is more than 5% of an employee’s scheduled work hours over the course of a year. During peak production periods, employees taking time off are usually replaced by other employees working overtime. During non-peak periods, there is no need to use overtime to replace these absences, so idle time is reduced.

The objective of managing this planned time-off is to encourage personnel to take their time-off during slow seasons, and not to take it off during periods of peak production. Three ways to do this are:

  1. Restrict the number of people that can be on vacation at any one time. During peak production demand seasons, time-off controls can be tighter than they are during the non-peak seasons. This effectively shifts planned time off to the non-peak seasons.
  2. Schedule plant shutdowns during the slow months and require unnecessary personnel to take a vacation. This uses up vacation, reduces production hours, and allows for maintenance to be performed.
  3. Schedule personnel to take a vacation even if the plant is operating. In other words, if employees have not chosen a vacation time that meets the business needs, schedule it for them (with their input). This allows management to substitute vacation hours for idle hours.

For all three of these methods, the biggest risk lies in the employees believing that their time-off is restricted for arbitrary reasons. Therefore, when one or more of these methods is used, management needs to carefully explain why the needs of the business require time-off to be managed. Equal application of the planned time-off management techniques will reinforce the message that the rules are established to help manage seasonal workload and other business issues.

Managing planned time-off effectively can allow you to increase staffing so that more work is performed on straight time and less on overtime. Like discretionary work management, if planned time-off is not managed effectively, it can exacerbate the variable workload problem.

Summary

To summarize, the best practices for managing variable workloads are to:

  1. Use overtime to cover the majority of workload variability that exists.
  2. Use a 10% buffer of temporary employees to flex your capacity up and down to match the changing workload (but only if the skill requirements allow it).
  3. Minimize actual idle time by planning discretionary work and training to be performed during the slow periods.
  4. Manage planned time-off so that more time is taken during slow seasons than during peak demand seasons.

Call Us and We Can Help

Call or text us today at (415) 858-8585 to discuss your operations and how we can help you solve your shift work problems. You can also complete our contact form and we will call you.

Reducing Employee Turnover

A case study

Problem

This food processing company was experiencing severe problems with employee turnover. The underlying cause of this turnover problem was excessive overtime.

Located in a small town with several other labor-intensive companies, the company constantly competes for labor, often operating with less than a full complement of personnel. This staffing shortfall was resulting in substantial overtime which, in turn, created an even higher turnover. Overtime policies allowed senior employees to accept or decline overtime work as they saw fit. When the senior employees chose not to work overtime, the newer employees were forced to work tremendous amounts of overtime, especially during the undesirable periods (i.e. on weekends). The high overtime levels meant that new hires frequently worked long stretches of days in a row causing them to seek greener pastures.

Action

Employee preferences: Employees wanted predictability, a choice in the type of schedule they worked, and reasonable time off to spend with their families.

Business requirements: A business analysis indicated that considerable productivity improvement would be realized if most of the operation changed from a combination of high production on weekdays and limited production on weekends to moderate, steady production seven days a week.

Implementation: In the end, two schedules were implemented. One schedule was a traditional 5-day schedule using 8-hour shifts. The second schedule, used by half of the operation, was a 7-day shift schedule using 12-hour shifts.

Employees on the 7-day schedule were protected from working a scheduled weekend off. They also received about 10% more income and 78 more days off than those on the 5-day schedule.

Interestingly, the company had no problem filling the employee positions on the 7-day schedule. The increased predictability, income and number of days off actually made the 7-day schedule more popular than the 5-day schedule.

Results

After six months on the new schedule, the workforce was surveyed to provide a “before and after” picture. Using indices to measure performance, the change is shown below:

  1. Communication: +5.5%
  2. Management’s openness to workforce input: +13.8%
  3. Employees feeling that they are a part of the company: +11.9%
  4. General quality of work environment: +21.1%
  5. Facility rating relative to other companies in the area: +21.2%
  6. Schedule predictability: +40.6%
  7. Schedule flexibility: +47.5%

These improvements in employee perception pertaining to the company and the work environment resulted in a greater than 50% reduction in turnover.

Call Us, and We Can Help

Call or text us today at (415) 858-8585 to discuss your operations and how we can help you solve your shift work problems. You can also complete our contact form and we will call you.

Communicating Major Changes: how a production facility did it successfully

Jim Dillingham, Partner, Shiftwork Solutions LLC

When leaders initiate a major change that affects their employees, they want everything to proceed smoothly. They don’t want to alienate the workforce or create any long-lasting disruptions or unnecessary delays. Change that affects the personal lives of people is the most difficult and riskiest type of change. Yet that is exactly what leaders do when they modify or replace their employees’ work schedules.

The leader’s challenge is how to get their people to support the schedule change. Employees have diverse lifestyles, so you can expect their preferences for a new work schedule to be equally varied. A thing as simple as changing a shift start time can feel like a catastrophic event to an unprepared workforce. How will they get their kids to school? Their carpool won’t wait for them. They can’t take that night class they’ve been thinking about. People have a myriad of responsibilities, activities, and interests that will be affected by any change in their work schedules. Every possible conflict can be blown up into an unsolvable problem.

Here is what a semiconductor company did to successfully handle the challenge. The work site was a production facility with more than 1,200 employees. Before the change, the shift schedule had relied on “weekend warriors” to handle the weekend shifts. Full-time employees had covered Monday through Friday. The weekends had been covered by two additional crews that only worked for the company on the weekends. One of the crews worked 12-hour day shifts on Saturday and Sunday. The other crew worked 12-hour night shifts on those same days. In some instances, these weekend workers also worked during the week to add to their income.

As you might expect, this was causing several problems:

  • The weekend crews experienced a high attrition rate and high absenteeism.
  • Finding replacements for the vacant weekend positions was an on-going concern.
  • Maintaining team integrity was difficult because the weekday shifts had many weekend employees who were not part of the core crew/team.
  • Using weekend warriors required five crews instead of four crews, the common approach for a business that operates 24/7. This required 25% more personnel, and thus a 25% increase in the number of employees to communicate with.
  • Productivity would drop when the weekend crew took over as the weekenders familiarized themselves with the production changes that took place during the five days they were away. This also happened to the full-time employees after being away for two days but to a lesser extent.

The management team decided to replace the old work schedule with a compressed work week” schedule that would require employees to work twelve hours per shift instead of eight hours but reduce the number of shifts worked each week. It would also eliminate the need for weekend warriors.

On the new schedule, employees would have seventy-eight fewer workdays and ten percent more income. One might think that these two figures would be reason enough to support a schedule change. The fact is that a workforce, uninformed about what is about to happen, will choose to remain on the current schedule for no reason other than they are familiar with it.

To gain support for changing the shift schedules, the company knew they would have to find a way to involve the workforce in the change process. To do this they did three things:

  1. They increased communications regarding the current situation and explained why a change was needed. They educated people about the problems the weekend warrior approach was creating. Managers held large group meetings, posted announcements, and sent e-mails to make sure the workers completely understood the reasons a change was needed. The goal was to have the workforce join together in support of the common cause. A key component of this effort was the company’s supervisors since communication between hourly workers and the first level of management is usually the most influential. Supervisors were first educated about the need for change. Then they were used to help pass that message along to their direct reports. This had the effect of empowering supervision while giving employees ready access to someone who could answer their questions.
  2. They brought in a neutral, third party to facilitate the change process. They felt the shift workers would trust the process more if it was run by someone who was not affiliated with the company. They did not want the change in shift schedules to come across as a management ultimatum. They hired us to present an impartial view of how to solve the current situation. We explained the steps that would be taken, including how the employees’ input would be used. Not everything was up to the workforce to decide. For example, the decision had already been made to get rid of the weekend warrior schedule. But the employees could play a major role in deciding what to replace it with. Our role also included responsibility for expanding everyone’s awareness of what was possible. Most shiftwork managers and employees have limited exposure to different schedules. This makes their “box” of options appear much smaller than it actually is. A critical feature of the facilitator’s work is that it must be transparent. This means no secrets. All work performed by the third party must be accessible by everyone. All analyses and all survey results presented to management must also be made available to the workforce. This was accomplished by giving the employees a shortened version of any results and letting them know where more detailed information could be viewed if they wished to do so.
  3. They involved employees in selecting the new work schedules. This began with a Lifestyle Survey that was given to all affected employees. The survey allowed employees to give their initial feedback about the pending change. It also allowed them to express preferences with regards to shift work in general. Several weeks later, the employees were given the results from the survey. This validation of results allowed employees to see that their input was actually heard. A second survey was prepared for the workforce that offered a number of alternative schedule solutions. These schedule alternatives were developed from an analysis of the business needs and coverage requirements as well as employee schedule preferences identified in the first survey. The employees were given a clear picture of the need to change. They also were educated about the different shift schedules that would work for their facility: what types were available and what people tend to find attractive (or unattractive) about different schedules. The survey allowed people to evaluate this set of schedule options. The results of the second survey were shared with managers and workers. The results were used to narrow down the schedule options to two 12-hour schedules. Every employee understood that their input was used to help identify the final options.  

The Results

The final two shift schedule options were presented to the workforce. Over 75 percent of the night-shift employees and over 95 percent of the day-shift employees agreed on what the new schedule should be. This strong consensus is directly attributed to the leaders’ efforts to communicate with their people and to actively solicit (and use) their input.

Even employees who did not initially agree with the need to change schedules eventually grew to understand and support the initiative. Employees who did not get their first choice of shift schedule or shift assignment felt that the process was thorough and fair. This sense of fairness allowed them to accept the change even though they wanted to keep their old schedule or change to something different.

If you are planning to make a major change in your business, keep these three concepts in mind. First, make sure everyone is well informed. People should have a solid understanding of the problem and its impact on the business. Second, build credibility at every step of the process. People must believe there really is a problem, the consequences are significant, and that management does not have a hidden agenda they are trying to sneak past the workers. Third and most importantly, involve the people affected by the change in selecting the best solution. Seek input from everyone, not just the most vocal people. It is especially important for employees to see that their input is used to influence the final outcome.

Communication, a clear process for selecting a solution, and employee participation are the three keys to success. This approach certainly worked well for this company. Hopefully, you will experience the same success by following these guidelines.

Call or text us today at (415) 858-8585.

You can also complete our contact form and we will call you.

Are Maintenance Workers Really Different than Other Shiftworkers?

By Bruce Oliver and Dan Capshaw, Shiftwork Solutions LLC

Many maintenance managers will tell you their workforce is different than other shift workers — that their attitudes and behaviors are not the same. Recognizing, understanding, and accounting for how maintenance personnel evaluates shift schedules are essential to finding a schedule that will satisfy their needs and give you the required coverage to meet your business needs.

When it comes to shift schedules, what makes maintenance workers unique? Using our database of over 20,000 employee surveys, we compared the responses of maintenance personnel with those of the average shift worker surveyed. The database includes information on the following topics:

  • Demographics
  • Health and alertness
  • Working conditions
  • Shift schedule features
  • Overtime

Let’s look at the maintenance worker results for each of these categories and compare them to the overall shift worker results. If our assumption that maintenance workers are different is true, we should see some differences in the results.

Demographics

Almost 98% of the maintenance workers are male. This is a sharp contrast with other shift workers, 76% of whom are male. The maintenance field is clearly dominated by men. A graphic comparison of the two groups is shown in Figure 1.

Maintenance workers have worked 43% longer in their current department than the average shift worker (8.6 years for maintenance vs. 6.0 years for the average shift worker). Unlike production workers who can quickly learn a new job in another department such as quality control or the warehouse, maintenance workers tend to stay in their specialized trade. They usually are paid more and spend more time working weekday day-shifts, which also may influence their reluctance to transfer to other departments.

This finding has two important implications for maintenance workers:

  1. Maintenance personnel expects to stay in their jobs, possibly for their entire careers. If they are required to work on a schedule they don’t like, they may see little opportunity to correct the schedule. This makes the stakes and consequently the emotions high when alternative schedules are considered. In fact, the shift schedule is so important that a substantial percentage of maintenance workers said they will quit their jobs before changing to a new shift schedule (24.7%).
  2. Since maintenance skills are often transferable to other companies, maintenance workers are able to change jobs to another maintenance job in a different company. Losing people because of your schedule is expensive. Of course, this also means that an attractive schedule can be a very effective tool for recruiting and retaining the best maintenance personnel.

Health and Alertness

The opinions and preferences of maintenance workers and other shift workers are aligned when it comes to health and alertness. They have similar sleep patterns and habits (e.g. alarm clock usage and their hours of sleep while working various shifts are almost identical), and their self-reported alertness is similar.

Working Conditions

Maintenance workers also gave similar responses to those of the average shift worker on all facets of the work environment except the need for training. As shown in Figure 2, more maintenance personnel feel their employer doesn’t train nearly enough (65.8% from maintenance vs. 55.3% of the average shift workers). Maintenance employees are well aware that training can make their jobs faster and easier. They also often believe that more training for employees in other parts of the organization will reduce the number of breakdowns.

Shift Schedule Features

There were only a few schedule features where maintenance workers’ preferences differed from the average shift worker. As shown in Figure 3, a larger percentage of maintenance people prefer fixed shifts (88.3% from maintenance vs. 82.9% among all shift workers). Most maintenance workers are assigned to weekday day-shift since most preventative maintenance work is done during this time. Minimal staffing is needed for corrective maintenance on nights and weekends. The likelihood of maintenance workers getting the shift they want is pretty high, so it is understandable that more of them want fixed shifts.

Maintenance personnel gave lower ratings to the importance of keeping their current crew members together (maintenance = 3.11 vs. average shift worker = 3.71 on a 5-point scale where 1 is lowest and 5 is the highest possible rating). Unlike other job functions that require extensive teamwork, maintenance work is given to individuals or small groups. Maintenance work often requires a high degree of independence, making the individual team member composition less important than the team skill composition is to the success of the organization.

Overtime

One interesting difference noted between maintenance personnel and the average shift workers is their preference for time-off instead of overtime. When asked, “If you had to choose between more time-off or more overtime, what would you choose?” 70% of the maintenance workers said “More time-off” in contrast with 61.4% of the average shift workers. This is shown in Figure 4.

Maintenance personnel are paid more than other shift workers, so they are not as dependent on overtime. In addition, maintenance workers work most of their overtime on weekends, since many companies push the maintenance work to the weekends. Since weekends are the most desirable time off, it is not surprising that maintenance personnel will choose to have more time off instead of more overtime. To them, asking if you want more overtime is like asking if you want fewer weekends off.

Conclusions

The survey results reveal only a few differences between maintenance workers and the general shiftwork population. The most significant difference is the lack of mobility within a company coupled with the high mobility to move outside the company. Shift schedules are always important to shift workers, but if the only apparent choice to improve a schedule is to change companies, the importance to maintenance personnel is even greater. The nature of the job attracts strong, independent personalities, so when emotions run strong, discussions can be intense. This passionate response to schedule changes explains why so many managers perceive maintenance workers to be significantly different than other shift workers – even though their overall schedule preferences are very similar.

Since maintenance work can occur anywhere in the facility, maintenance workers have many opportunities to come in contact with employees from other departments. That puts them in a perfect position to support communications along the grapevine. It is therefore incumbent on the entire management team not only to be aware of the maintenance team’s differences but also to understand their unique and valuable roles in the organization and use shift schedules that work well for their maintenance team while still meeting their business needs.

Call or text us today at (415) 858-8585 to discuss your operations and how we can help you solve your shift work problems. You can also complete our contact form and we will call you.

11 steps you can take today to keep your employees safe and your shift work operation going

In light of the rapidly evolving COVID-19 virus situation, I’m going to make recommendations that would normally seem unusual.  Typically, we plan and create shiftwork structures for long-term success.  We look at costs, employee engagement and a wide range of best shiftwork practices.

Today, I want to focus on short term actions: what can plants do today to keep their doors open and keep their employees safe?

Consider these ideas:

  1. If you are running three 8-hour shifts a day, drop down to two 10-hour shifts.  Use the 4 hours of downtime to clean/sanitize.
  2. Don’t have shifts start/stop right after each other.  For example, if you run two 10-hour shifts, make the four hours of downtime occur as two sets of two hours: two hours between each shift.
  3. Eliminate face-to-face turnovers. Consider digital alternatives; perhaps passed along online.
  4. Ask for cooperation in a time of unusual circumstances.  For example, many parents will now have childcare issues.  Look for volunteers to swap shifts to accommodate those that need different shift times for the time being.  Allow employees to donate PTO to a coworker that really needs it.
  5. Stagger breaks and lunches to minimize too many people being in the break/lunchroom at the same time. 
  6. Ensure adequate self-cleansing equipment is readily available; not just at entry points but at every workstation.
  7. Hold training on “best practices” for staying healthy (cough into elbow etc.)
  8. Encourage people to stay home if they are sick.  Put any attendance “point system” on hold.  See our post on the cost of paid time off.
  9. Incentivize people to take vacation now.  For example, if they take vacation off between now and the end of May, you will allow them to take 50% more days off with pay.  Remember, vacation taken now is vacation that will not be taken when you need people as you ramp back up later.
  10. Take advantage of extra downtime to upgrade/repair equipment.  Get as much done now as you can so that when you ramp back up, you are firing on all cylinders.
  11. Lead by example.  Keep social distances.  Be seen as always following sanitary practices.

The COVID-19 crisis will pass.  When it’s over, you want your workforce to still be with you.  Additionally, taking care of your employees creates goodwill within the community.  The right steps now can help you get through these hard times while emerging as the employer of choice going forward.

Call us today if you’d like to keep your employees safe and your shift work operation going. We can help you tackle short term and long-term challenges.  We can help.  (415) 858-8585.

How to be thorough when assessing the true cost of paid sick leave

The health and well-being of the employees is the companies’ top priority. As news about the coronavirus (COVID-19) continues to develop, giving employees more paid sick time gets in the focus.

Although Congress has just passed (March 18, 2020) a major package including an expansion of paid sick days and emergency paid leave for a subset of workers, the bill is not universally applicable to all sizes of businesses and all employees.[1]  

Knowing the actual cost of paid time off can help companies assess the financial impacts of giving more paid time.  

So, what is the cost of the paid sick days? 

Calculating the cost of additional paid time off is relatively straightforward for companies with both 40 hour or 24/7 schedules.

Let’s start with this: there are 52 weeks in a year.  This represents 2,080 hours of work if your workers are on a 40-hour schedule and 2,184 hours of work if they are on a 24/7 schedule (per person before unscheduled overtime).  For example, increasing paid time off by 3% is equivalent to giving employees an extra 62 to 65 hours of paid time off every year.

However, most employers would continue the calculations as follows: “I just gave one person 64 more paid hours off.  I also now need to pay someone else to cover those 64 hours at an overtime rate. Thus, this cost me 64 pay hours plus 1.5 times 64 pay hours for a total of 160 pay hours!”

What’s amiss with this latter way of thinking? There are three inaccuracies with this calculation: 

  • First of all, the 64 hours that you are paying the person to be absent were going to be paid to him/her if she was at work so this is not an “extra” cost. 
  • Secondly, there is an extra cost to pay someone overtime to cover the newly created opening, however, overtime generally costs about 10% to 15% more than straight time; much less than the assumed 50% additional cost.  The reason for this is that while people get paid at a higher rate when working overtime, they don’t earn extra medical benefits, vacations, holidays, etc.  Those costs are associated with straight time wages, not overtime wages.  The liability for these costs is incurred when companies hire someone, not when someone works overtime.
  • And finally, the statement includes no consideration for what would happen if you didn’t give people paid sick time.  What is the cost of a sick person coming to work?  How many others will become sick? How well does a sick person perform?  How does a person view their company when they have always been there when needed and now that they are sick, they are on their own?  How are you viewed as a prospective employer if you don’t pay for sick days but the plant across the street does? The consequential costs of not providing paid sick leave are harder to measure, yet can be substantial.

There is another consideration with regards to paid sick time: How will it be administered? 

  • People shouldn’t be able to schedule it in advance because then it becomes a vacation instead of sick time. 
  • A use-it-or-lose-it policy encourages people to take all of their sick time every year.  A buy-back policy encourages people to come to work when sick so they can get a check at the end of the year when they sell the time back.
  • Carrying sick time over is probably the best idea, however, some companies don’t like carrying an ever-increasing paid sick time liability on the books, even though there is no additional cost.   There are several ways to make this more acceptable.  For example, let employees carry over as much time as they want, then when they retire, the company can buy back the unused sick time at a reduced rate.  This allows a worker to build up a huge store of sick hours that are available for use if they ever get seriously sick.  When they retire, they may have a year’s worth of sick time that is worth half a year’s wages. 

I’m not advocating for or against increasing paid sick time.  These guiding posts are here to help you make informed decisions ― about a subject that needs careful and accurate considerations.

Call us today to discuss your questions. (415) 858-8585.

[1]: https://www.vox.com/2020/3/18/21185065/congress-coronavirus-tests-paid-sick-days

When should Management consider a Shift Schedule Unsustainable?

Most production managers have been there. Demand is higher than their ability to supply ― without the use of overtime.  The logical, and possibly, the best solution in the short-run is to go ahead and produce more by using overtime hours.

What is going on when you ramp up overtime?  What are the costs?  What are the benefits?  Most importantly, if using more overtime is a good decision now, is it still a good decision going forward?  In other words, are the cost-to-benefit rewards consistent over time?

The benefits in the short run should be clear – you are meeting the demands of your customers. Furthermore, you are doing so without additional capital and at only a small inconvenience to your employees. The cost of such an action, using overtime, is minimal.  The actual labor cost of a fully-loaded straight time hour and an hour of labor paid at the overtime rate are probably comparable.  The workforce is likely to tolerate a reasonable amount of overtime.  In fact, our database indicates that you should expect about 20% of your workforce will take all the overtime they can get.

What about the long run?  What happens if you start running your operations every Saturday instead of just a few?  What happens when you start running through the weekend?  In other words, your employees work Monday – Friday, then they work the weekend and then, they work Monday – Friday again. That’s twelve days in a row!

Business leaders recognize occasional overtime is not a problem but they are equally certain that overwhelming overtime is.  The question becomes, “When are you going to do something about this?”  When have you crossed the line from “Overtime is Reasonable” to “Overtime is Out of Control?”  This line can be fuzzy when you cross it but looking back, you will see that you are on the wrong side and possibly have been for some time.

Expect these things to happen as your schedule ― packed with overtime ― becomes unsustainable:

  1. Employees will begin to complain about never having a day off
  2. Absenteeism will begin to go up as employees find ways to get time off and have plenty of overtime income to finance missed work
  3. Recruiting new employees into a high overtime schedule will be difficult
  4. Turnover will increase as your employees seek “greener pastures”
  5. Quality will begin to suffer as sleep deprivation begins to affect performance
  6. Productivity per labor hour will drop
  7. Safety incidents will begin to rise
  8. Labor costs go up as performance per labor hour drops
  9. First level supervision will become less supportive of management goals as their overtime goes up in parallel with their workers
  10. Total productivity begins to drop as the workforce tires and vacancies become difficult to fill
  11. A significant portion of the workforce will begin to rely on their overtime to make ends meet, making them resistant to lowering overtime levels

The above symptoms tend to blossom as time goes by and are often ignored in their infancy.  (This is understandable as the very genesis of the situation is one where you are scrambling to find a way to meet your production numbers. You had higher priorities.) Eventually, a shift schedule, inundated with overtime, will reach the point when you ask yourself, “How much longer can we keep this up without creating new problems?” (Points 1-10.)  This is when you realize that your current shift schedule is unsustainable.  Yes, you can hold it together with “duct tape” solutions, but you can never make it do well what it was not intended to do.

If you resort to replacing overtime hours with straight time hours (hiring more people) but you don’t change your schedule, you will end up overstaffing where you already have coverage ― while adding no new hires where you currently have no staffing.  Labor costs will go up and high overtime will remain unaffected.  In short, you added straight time hours but the hours didn’t land where you needed them to.

If you want to reduce overtime without overstaffing you need a new schedule.  

At Shiftwork Solutions, we create custom-designed schedules that enable business leaders to increase production, attract a skilled workforce and keep costs under control. Our data-driven processes, communication centered approach and project execution bring about the changes needed to improve business operations and production output, reduce per-unit costs, all while creating an environment where workers feel empowered to help the organization achieve its goals.  Our experts bring in best practices from wide-ranging industries with complex operations to tailor solutions for specific operational needs. Call or text now at  (415) 858-8585.

What does the New Year Bring to a Tight Labor Market?

During our 30+years of cross-industry experience we have found that once unemployment drops below 6%, companies find it hard to staff adequately to meet production demands.  At the current 3.6% unemployment rate [1] a labor shortage is the single biggest production problem many companies are facing. For as many as eleven states, unemployment falls to between 2.3% and 2.9%.[2] What this means, is that almost everyone who wants a job has a job.  No wonder, if you ask any production or human resource manager: “What was the biggest challenge last year?” they will almost certainly give some version of “It’s becoming harder and harder to find employees in this ever-increasingly tight labor market.” They are most likely fighting this battle on two fronts:

(1) Getting quality employees to join their company

(2) Keeping those employees satisfied enough to keep them from leaving.

When it comes to attracting quality employees, the beginning of the year, however, represents an opportunity to jump-start your hiring efforts to hire quality employees ― without “poaching” from the company down the street.  According to the BLS, more than 600,000 temporary jobs were added for the holidays nationwide in 2018.  Most of these new hires were let go by February of 2019.  Given this seasonal pattern for the new year, we can expect that there are going to be a lot of people looking for work this January and February.  Keep this in mind as it may be a good idea to strike while the iron is hot. 

When it comes to keeping quality employees, it is always preferred to keep them rather than trying to constantly replace them.  When you slow down turnover, you immediately take a huge burden off of your recruiting and training efforts.

How to do that? Here are some insights for a shift work environment

  • Why Your 12-hour Schedule is More Attractive than You Think?
  • What is important about work-life balance?
  • What do you need to know about overtime?
  • 12 Unexpected Insights: do you know what you don’t know?
  • Why should you consider changing your shift schedule?

Our experts at Shiftwork Solutions have looked at the reasons why employees leave companies, such as inclusiveness, work-life balance. Their workforce survey is an integral part of their solutions which leads to happier employees who feel valued and are instrumental in delivering on growth targets.

Give us a call at (415) 858-8585 and talk to an expert for free.  We can help you to succeed.

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Footnotes:

[1] Bureau of Labor Statistics (BLS), January 1, 2020

[2] Local Area Unemployment Statistics (LAUS) January 1, 2020