How much overtime do you pay every year? Does it vary depending on the job role or the time of year?
Regardless, from January 1st this year, changes to the Fair Labor Standards Act mean that over a million additional US workers are now entitled to overtime — whether they’re salaried or paid hourly.
For small and medium-sized business owners, this means being more diligent than ever — not only when watching their payroll, but crucially, remaining legally compliant.
This article looks at some common reasons for problematic overtime, as well as ways to keep it at an optimum level.
Striking the Balance
Managed well, overtime allows employers to respond quickly and effectively to short-term fluctuations in workload or staffing. Businesses with seasonal needs, changing deadlines or sudden orders have all experienced not being able to meet goals with standard numbers of staff or hours.
For employees, overtime provides a welcome boost to wages, resulting in increased morale and company loyalty. Workers who perform well and allow you to meet targets deserve to be rewarded.
This may be even more pertinent to small and medium-sized companies, where the division in the hierarchy can be less defined and where the meeting of demand is more tangible. But there is a balance to be struck.
Diminishing Returns
Left out of control, labor suddenly becomes 50% more expensive, as well as less productive. It can also lead to an overtime-conditioned workforce that resents having the extra pay “taken away” from them.
A study by Stanford University found that after 50 hours of work, there is a significant drop-off in productivity due to burnout. Research has also found that increased work hours during one period may lead to increased staff absences during others.
Both the research and payroll suggest that in the main, overtime is best kept limited and if possible, well anticipated. This helps to both protect a company’s finances and safeguard employees from being overworked.
FLSA Changes
This has been made even more important by the new FLSA regulations that have entitled many more additional workers to that 50% increase per hour.
- The takeaway for the new legislation is that the minimum pay level for an individual has increased from $455 per week to $679 per week, whether hourly or salaried.
- Unless exempt, anyone earning $679 or less per week must be paid at 50% more for anything over 40 hours.
- The new regulations automatically default to whichever situation benefits the employee most when federal and state laws conflict.
Auditing Overtime
An evaluation of your company’s overtime is an essential first step to optimal payroll. This allows you to determine where the biggest costs originate before choosing the best solution to reduce or improve it.
Some pertinent questions to address are:
- When does this overtime occur primarily — for example, is there a seasonal trend?
- What groups of workers, if applicable, does it correspond most to?
- What are the after-effects of overtime-heavy periods on employee attendance?
Having the right data is critical to managing overtime. It’s well worth spending the time and effort collecting and analyzing it. From there, small and medium-sized businesses can utilize a number of strategies.
Additional and Temporary Staff
Hiring temporary employees can save businesses significant overtime expenses. This alternative can be particularly effective if increased staffing needs are seasonal — and therefore predictable — for roles that don’t require lengthy training.
In addition, if you find the overtime in your company is fairly consistent and significant, then hiring additional full-time or part-time workers may be the best option to control it.
Make sure to gauge the investment of training and paying additional workers in comparison to paying your current employees extra. New or additional staff aren’t always worth it.
Workforce Cross-Training
Is there one specific type of work requiring a disproportionate amount of overtime? Having only a small number of employees with the skills or ability to perform a role often causes excess hours. An effective way to reduce this is to train your employees to perform the tasks for multiple positions.
This helps limit some employees being idle while others have too much work. It also reduces the dependency on certain groups of employees due to their expertise in their position.
Keeping on Top
While there are many different ways to manage overtime more effectively, it starts with knowing what your current overtime situation is. Then, address what the new law will impact before finally weighing solutions to find the best fit for your organization. Small and medium-sized employers must, however, get knowledgeable about the new and ever-changing rules for companies.
If you want to ensure your company is compliant with the regulation, our professional employer organization provides help in many troublesome payroll areas, including FLSA compliance. We provide HR services tailored to fit the unique needs of your organization.
