3 Ways Overtime Pay Can Help Your Bottom Line

By Christian Valiulis

On January 1, 2020, over 1 million U.S. workers will be eligible for overtime pay. This means employers must review employee classifications and make sure they are providing overtime to all nonexempt employees working over 40 hours. The additional workload may have many businesses looking for ways to reduce overtime pay as much as possible.

While some employers may view overtime pay as an expensive burden, it can provide valuable benefits that help an organization’s bottom line. Therefore, it’s important to send the right message to employees regarding overtime by thinking of it as a tool to boost employee morale and not a wasted expenditure.

HR professionals can be agents of change by helping decision-makers see the benefits of offering overtime. In this article, we’ll review three ways overtime pay can actually reduce costs and create a more positive work environment. We’ll also discuss how the right tools can help automate overtime management and further increase savings.

The Bright Side of Overtime

Overtime has become something of a dirty word in the business world. Corporate-level executives tend to view overtime purely in dollars and cents, but it’s important to look at the bigger picture. Overtime can actually improve company culture if handled in the right way.

HR professionals can demonstrate the importance of overtime to decision-makers by understanding and representing the employee side of the discussion. Employees view overtime as a company perk, which builds trust and loyalty when it’s used effectively. When a discussion arises about overtime or improving employee morale and perks, HR managers can consider these points:

1.     Offer Overtime as a Benefit

If businesses shift their perspective on overtime as a perk and not a burden, it could be a win-win for both employers and employees. Present overtime as an additional benefit of working for your organization. Many employees see it as an opportunity to increase their income, especially during the holidays. Employers can even offer overtime in lieu of a year-end bonus.

Overtime can also help strengthen a company’s position in the local labor market because of the extra earning potential. Gaining a competitive advantage is another way businesses can grow and meet strategic goals.

HR Tip

Provide employees with a total compensation report during benefits and compensation reviews. This report gives them a breakdown of total wages, insurance benefits, and retirement contributions an employee receives. This can be extremely beneficial, as it demonstrates how much the organization is investing in each individual.

2.     Improve Employee Morale

Overtime is often seen as just another expense with no return on investment. However, the gains can be abundant when companies invest in their greatest asset: their people. When employers are willing to pay their employees for extra work to complete mission-critical projects, employees take notice. This simple, effective gesture can be a substantial morale booster for staff when they see the fruits of their labor contributing directly to business goals.

Organizations that offer overtime provide a level of autonomy and flexibility employees thrive on, making them feel more empowered. In turn, empowered workers can lead to greater job satisfaction and commitment to their organizations. Managers who are given the authority to approve overtime can also benefit. Delegating responsibilities to managers improves their decision-making skills and gives them more latitude to grow as leaders.

Keep in mind, too much overtime can lead to burnout and unsatisfied workers. Employers need to closely monitor the amount of overtime being worked by employees to maintain a good work-life balance.

3.     Reduce New Hire Costs

Overtime is often perceived as being expensive but hiring, training, and providing benefits to new employees can actually be much more costly. Approving occasional overtime for seasoned employees to meet time-sensitive goals can be a more strategic move for your organization, rather than waiting for new employees to ramp up. This also gives your experienced staff an opportunity to grow and accomplish performance goals.

A good business practice is to analyze how much it costs to hire an additional employee and compare it to how much it costs to pay overtime. If new hire costs outweigh overtime costs, it may make more sense to offer overtime to existing employees.

Managing Overtime with Technology

Managing overtime and compliance can be difficult if you’re using manual processes. Calculating overtime is tricky and employers have to keep state overtime laws in mind depending on where they conduct business. If employers don’t adhere to overtime laws, it can result in significant fines. Having the right tools at your disposal can streamline your overtime processes and potentially save you from costly errors.

Technology platforms can be very helpful in managing overtime and mitigating risk. When making a case to decision-makers, HR professionals can present technology as a low-risk investment that will help automate overtime tasks and offset expenses in the following ways:

Employee Scheduling

Scheduling the right number of employees to cover shifts will eliminate under or over-staffing. Review how much it would cost to have employees work certain shifts to further optimize labor expenses.

Online employee scheduling can also help create a better distribution of workloads by allowing employers to adapt to sudden shift changes. This helps to prevent employee burnout from too much overtime. 

Time Tracking

Accurate time tracking ensures employees are paid for their actual time worked. There are a variety of time capture options available to meet the needs of more complex workforces, including biometric scanning and geofencing.

For example, using mobile time clock solutions with geofencing is a great way to manage time tracking for traveling or remote workers. Employers can even control when employees clock in to make sure workers are not inadvertently earning overtime for clocking in too early or clocking out too late.

Overtime Rules

Overtime rules automatically apply overtime rates for hours worked in excess of 40 in a workweek. Overtime rules can even be used to manage unique compliance needs. For example, the healthcare industry uses the “8 and 80” overtime rule, while the state of California uses overtime rules that are different from the federal rule.

Automatic Overtime Calculation

Automating this complex process eliminates time-consuming manual calculations and reduces the potential for payroll errors. Set up automatic overtime calculations using either the regular rate of pay (RROP) or fluctuating workweek method.

HR Tip

If using the fluctuating workweek method, make sure it’s only applied to salary, nonexempt employees and their hourly wage does not fall below the federal minimum wage.

Overtime Compliance

Running reports to proactively review employee classifications and adjust as necessary will help maintain compliance, reducing the potential for fines. Compare scheduled hours versus actual hours worked on a regular basis to help control the amount of overtime being worked. Employees can even review and electronically sign their time cards to help ensure accurate pay.

Employers can also use technology to revise policies and procedures as needed. Employee handbooks can be uploaded to a self-service site for employees to review and electronically sign so they are aware of any overtime policy changes. This eliminates miscommunication with employees and sets company expectations about overtime.

Finding the Balance With Overtime

Overtime often gets a bad wrap, but there can be valuable benefits for both employees and employers. HR managers can help champion the employees’ perspective on overtime by presenting it to the c-level in a way that promotes a positive company culture while offsetting costs elsewhere. By providing employees the option to earn overtime in a healthy way, employers can benefit from boosted staff morale and reduced hiring costs. Moreover, HR professionals can make the case to implement low-risk tools like technology platforms to automate overtime pay and compliance management.

Just remember to find the balance between offering overtime and preventing employee burnout. Helping workers maintain a work-life balance while giving them the opportunity to occasionally earn more allows employers to use overtime as an effective business tool. With the right tools and policies, employers can use overtime as a strategic tool to improve their bottom line and support employee well-being.