Dealing With Overtime Abuse

Is overtime abuse even real?

Businesses of any size might run into those unpleasant situations when the employees need to work overtime. Whether it is an emergency from your side or from the side of your client or even a third party: these reported excess hours will need to be fully compensated at 1.5 rate. However, it is one thing if you know where the reported extra hours come from, and completely another when you did not have any emergencies in your business process. Working unauthorized excess hours to be later compensated at a bigger rate is called overtime abuse and it is a quickly spreading fungus that infects all businesses, from small to enterprise, draining their resources, lowering productivity and stagnating their growth.

This is a part of our article series on workforce planning strategies, to get the overview of the problem click here.

How employees commit overtime abuse?

Incorrect shift tracking

If your shift tracking system is not advanced enough, then your employees will exploit it however they see fit: working shorter shifts today and longer shifts tomorrow, with excess time that has not been approved by anyone but has to be compensated at 1.5 rate. Or swapping shifts with one another and accumulating shift debts so you will never get actual data on who worked how many hours in what day and, as a result, will never get a full picture on how productive your departments are.
No reliable tracking system

If you do not have a reliable shift tracking system, you are never going to know whether the information you get from the system accurately represents your employee’s working time. They might be working half a shift and reporting one and a half for all you know, and will continue to do so for years if there is no strict shift tracking system that has them check in and check out at the same time every single working day.

No overtime policy

Often there is no overtime policy to speak of in the first place, no management-approved document that tells employees what is considered overtime and how the overtime hours operate within their usual working process. This leads to employees imagining or supposing how it probably works which, in turn, leads to overtime abuse and many excessive hours that did not need to happen.

No overtime approval

If there is no overtime approval procedure and no official guidelines for the employees to follow, they will make overtime hours themselves out of normal working hours that should not be considered overtime. It is one thing if a project is in a tough spot and you need your team for two more hours to overcome the hurdles, and it’s a completely different matter when an employee is just staying longer not to get stuck in traffic. There should be an overtime approval procedure where the project manager of the employee approves or declines the working hours as overtime. Otherwise you will flush a lot of money down the drain on people who report 2 hours daily because they check their mail a couple of times from home or stay a bit longer to meet up with a friend afterwards.

No individual data reports

Many businesses neglect to collect working time data per employee and keep it for a substantial period of time. This results in many issues down the road: no statistics on how many hours the employee worked and how many of them were reported as overtime; no analytics on how productive this employee is and how much time they spend on their tasks, and, most importantly – no viable compliance report.

How overtime abuse is harming your business

Vulnerability of critical business processes

Time tracking is ultimately the most important business process you have because it manages your most precious resource – your employees. Time tracking and, subsequently, shift tracking gives you data that helps you manage your business plans, measure productivity and predict expenses. If it is not automated and does not have a transparent structure that each of your employees knows – it means that there is little system in your business process and many resources: people, time, finance, end up wasted.

Extra expenses that are easily avoidable

Overtime abuse brings major expenses that might seem little but can quickly accumulate over time and undermine your budget management from the inside. If you do not have a clear overtime policy and are paying 1.5 rate to anyone who reported more hours – you are going downhill. If you refuse to pay the overtime rate to all your employees, they will riot because some of them are probably not abusing anything.

Reduced labor budget

Since your resources are wearing thin paying the overtime rates to those who file endless excess hours, your general salary budget is getting smaller and smaller. As a result, it prevents you from hiring new specialists and, ultimately, from growing and expanding your business.

Failed compliance audits

Thousands of businesses spend millions of dollars in fines because they fail to present employee data to a compliance audit. Labor laws are constantly changing and are sometimes difficult to fully understand and keep up with. Without proper shift tracking system that offers you big volumes of data on each of your employees, it will be quite a challenge to pass the next compliance audit.

Low employee productivity

There is no point for the employees to work hard and be productive when they can avoid it and still get full compensation plus the overtime rate for the hours they regularly file in because no one is checking or approving anything. Since you might not have the individual statistics, it can be going unnoticed for a surprisingly long period of time.

How to avoid overtime abuse?

Accurately track working hours

Introduce a high-quality time management system into your working process. If your employees are working shifts, the system should be tailored appropriately. The system should be as transparent as possible so everybody could understand how it works, what it allows to do and what restrictions it has. It should introduce rules into the working days of your employees and keep them in check – no super-late shift starts, no super-early shift closings. Set up a training session for your people if you need to – let them understand how to report their hours correctly and let them feel the boundaries of a new system. However, this system is not to introduce pressure or anti-utopian espionage after the people who work for you – ultimately it is for their own benefit, to make sure that they are fairly compensated for their hard work.

Introduce an overtime policy

As a business owner, you have to establish a clear-cut overtime policy and make it known to every single employee working for you. In the overtime policy, all rules should be written very clearly: what is considered to be overtime, what should be done so the hours are counted as overtime, how the hours are compensated and so on. You need to enforce this policy in your company if you want order and productivity.

Introduce an approval system

In your overtime policy you should clearly established what is considered to be overtime and what is not. Have a transparent system of approval in every department of your business across the board so that every employee knows who approves their overtime hours if the need arises. Customize your shift tracking system to include approval process into reporting excessive hours and demand monthly reports from the heads of your departments on how many approved overtime hours people worked this month and for what reason. It will allow you both monitor the disparity between reported and approved hours and make conclusions on the state of your business in general.

Automate business processes to predict workforce demand

You should always know how much workforce you need for your business operations. Do you have enough? Do you need more people get involved not to overwork your current team? Maybe you need to hire a new specialist? To obtain this information you need to automate your business processes and have a relevant snapshot of your business at any point in time – for example, with real-time data calculation (link to real-time calculation).

Introduce advanced analytics

Collect as much data as possible to know what the status of your business is. You can use specialized software or have a custom one made specifically for you and tailored to your business needs. Accurate analytics will help you see what departments show high productivity and what could use a little more management care. Use raw data as an instrument in building comprehensive statistic reports that will show you how close you are to reaching your business goals.

Conclusion

Overtime abuse is a problem many businesses run into every single day, drowning in avoidable expenses and wearing thin their resources instead of growing and expanding. It can be indicative of poorly optimized workforce management process that offers plenty of room for improvement. However, this problem is easily fixable with a decent overtime policy, a transparent approval system and spreading basic awareness among the employees in your company. Top it off with a good time tracking system, smart data management and profound analytics – and you’ve got a recipe for a business success.