Many companies believe that solving overtime issues is as simple as implementing the “perfect schedule” to save significant costs. While scheduling plays a critical role, the truth about overtime is more nuanced. In this article, we’ll explore when schedule changes can genuinely reduce costs, and discuss how overtime impacts your workforce and operations. Let’s look at this idea more closely.
When a Better Schedule Saves Money
The idea that a better schedule can cut overtime costs dramatically holds true under the following condition: your current schedule is inefficiently allocating labor. For example, if some parts of the week are overstaffed while others are critically understaffed, redesigning the schedule to balance coverage can indeed save money.
In a different scenario, if your operations are expanding or your workforce is fixed, increasing demand will inevitably lead to higher overtime. This rise in overtime brings several challenges:
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- Increased Fatigue: Long hours wear down employees, leading to higher stress and lower overall well-being.
- Productivity Decline: Employees working excessive hours are less efficient.
- Higher Accident Rates: Fatigued workers are more prone to errors and accidents.
- Quality Issues: Overworked employees are less likely to maintain high-quality standards.
- Turnover and Absenteeism: Burnout contributes to higher absenteeism and attrition rates.
The perfect schedule will allow you to keep these from happening. It does this by allowing you to add straight-time hours to “replace” overtime hours—without the risk of overstaffing.
The Role of the “Perfect” Schedule
A well-designed schedule won’t eliminate overtime entirely but can strategically replace overtime hours with straight-time hours. This is particularly effective for maintaining a productive, engaged, and safe workforce while meeting operational demands. However, there’s a key consideration: the cost of straight-time hours isn’t significantly lower than
overtime. Straight-time costs include wages, benefits, and taxes, while overtime includes a premium rate and taxes. From a financial perspective, these often balance out. For example, if you save $1 million in overtime costs through a schedule adjustment, you’ll likely spend a comparable amount in straight-time costs to maintain the same coverage.
What’s the Right Overtime Rate?
For companies with stable production levels, an overtime rate between 5% and 15% is typically ideal. This strikes a balance between operational flexibility and workforce satisfaction. It’s also worth noting:
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- Around 20% of employees actively avoid overtime.
- Another 20% seek out as much overtime as possible.
- The remaining 60% are comfortable with moderate overtime levels.
If you’re unsure how your workforce feels about overtime, don’t guess—ask them. Employee feedback can provide valuable insights into what’s working and where adjustments are needed.
Summary
Overtime management is about more than just cost reduction—it’s also about maintaining workforce health, safety, and productivity while meeting operational goals. A balanced approach, supported by an optimized schedule, can help you replace excessive overtime with straight time and create a more sustainable workload for your team.
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