United States: Overtime Best Practices

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Workforce productivity and overtime are key metrics to be considered when trying to measure or analyze worker cost savings and efficiency. More strictly enforced state and federal overtime regulations, as well as new overtime limits in some markets, are complicating overtime policies and workforce best practices with regards to managing and executing overtime practices in the workplace. Many employers have one policy regarding overtime, often created in the market in which the company is headquartered. As companies expand into other markets, these policies may fail to get updated to meet the regulations of the new market. With new limits on overtime going into effect this year and regulations being more strictly enforced than in years past, the risk with regards to compliance has grown significantly.

In most markets, overtime starts at over 40 hours per week and requires employers to pay time-and-a-half to employees for every hour they work over this threshold. Some markets, such as California, have much more complex overtime regulations with additional provisions for any hour worked over 8 hours per day, and double time for any hours worked over 12 in a single day. Not to mention time-and-a-half for any work completed on the seventh consecutive day of work (and beyond) by a worker located in California. Companies that employ workers in states such as California, Colorado and Massachusetts need to be conscientious of the state overtime guidelines in these areas and adjust company overtime policies to comply with them for workers in these markets. This is vital in an effort to avoid any noncompliance risk associated with failing to pay overtime to employees in these states when it is due.

In contrast, the state of Kansas only requires workers receive overtime pay after 46 hours worked in a single week. In this case employers, whose policies are not in line with the state requirements, may be overpaying employees in this market and needlessly losing revenue. While some other states comply only with the federal overtime regulations, making them better candidate markets in terms of opportunities to drive savings or establish cost controls, when sampling markets in which to expand operations. When overtime is necessary to complete a project or make certain that product is delivered on a time line, operations in Virginia, North Carolina and Ohio will pay less than those markets with additional state legislation mentioned above.

Best practices for overtime have come under scrutiny recently in many organizations. In instances, especially in states with more costly overtime regulations were workers are consistently asked to work overtime to meet productivity expectations, companies should consider adjusting headcount instead. When paying workers time-and-a-half (or more) for additional hours in some instances, it makes more sense to hire additional workers to meet production needs if the current workers are not meeting these requirements and overtime is a regular occurrence. For example hiring two more employees to work regular hours is less expensive than having fifteen current full-time workers work overtime for more than five hours each per week. If the amount of money spent on overtime is greater than the spend to hire additional headcount to perform the same work during their regular work hours month-over-month then it makes the most sense to cease overtime and hire more individuals in the positions which accrue the most overtime on a regular basis.

Navigating the new workplace regulations can be daunting, however with regards to overtime, an updated policy that meets all market requirements and state provisions along with efficient management of hours worked and overtime paid will help companies avoid hefty fines and penalties for not complying with regulations. It will also stop employers from overpaying for overtime in areas where laws are more relaxed. Choosing markets where overtime is more affordable is one primary spend minimizing measure to consider when expanding operations. However, the most efficient use of regular full time work hours (and employees to accomplish tasks and meet production requirements within those regular full time hours) is the most important means of controlling the money spent on overtime by employers. Regular analysis of the overtime paid each month, and annually, can help businesses adjust head count to meet expectations without breaking the budget.