Company Payroll Policy for Overtime

time-371226_1280It seems like overtime issues never cease… if it isn’t one thing, it’s another.  But with money, productivity and safety at stake, it’s too important to just wing it.  That’s why — aside from the obvious issues of when to pay time-and-a-half, when to pay double time, and who qualifies for the higher rates — your company needs a well thought out payroll policy to address other overtime factors.

 Here are several points to consider:

  • Do you have a formal rotation system that distributes overtime opportunities fairly? Make a list of eligible employees in order of seniority, for the various positions.  When opportunities arise, offer the overtime to the top name on the list.  Whether that person accepts or declines, his or her name goes to the bottom of the list.
  • Many employees who work overtime over an extended period grow accustomed to the extra pay and grow dependent on it as part of their regular pay.  Then when overtime ends, they feel cheated.  You may need to adopt a new policy to limit the amount of overtime employees can work in a pay period.  This spreads the opportunities out more evenly and prevents over-dependence on the extra pay. Take time to explain the new policy to staff.  If you have some employees who are racking up huge amounts of overtime, build steps into your policy to gradually wear them down to your new limits.
  • In the interest of safety and health, consider what time of day or night the overtime will occur.  On an evening shift that ends around midnight, overtime could mean the employee is working, or driving home between 3 am and 6 am.  Even for seasoned graveyard shift workers, the human body hits an energy drop during those early morning hours that makes us less productive.  The last thing you want is to be paying more for less work.  And of course, you don’t want your staff members driving home when they are overly tired.
  • Excessive overtime leads to fatigue which can make employees more vulnerable to illness.  That can cause your absenteeism to shoot up and your productivity to plummet, defeating the purpose of the high overtime pay.  Plus, fatigue increases the likelihood of accidents, in which everyone loses.
  • Does your company run eight hour shifts?  Unlike those working 12 hour shifts, people who work eight hours plus overtime are less likely to have time off in between during which to recuperate.  If you have to ask these employees to work overtime, avoid double shifts, and consider limiting overtime to an extra four hours so that the total does not exceed 12 hours.
  • Does your company run 12 hour shifts?  If so, overtime should be only in emergencies if possible.  Even then, you should try to keep the overtime employee on only until a relief person can be found.  Set a limit of two hours overtime, for a total of a 14 hour shift.  If you ask a 12 hour shift worker to come in on a day off, it might be a good idea to limit that practice to one additional shift per pay period so that the employee has time to get rested between shifts.
  • Consider cross-training as a way to minimize overtime.  Cross-training can not only help control overtime, but in general it increases the value and flexibility of your workforce.
  • Consider adjusting your staff level to more accurately cover your demand to meet the needs of your business without the use of expensive overtime.
  • It’s important to establish a pre-approval process for all overtime hours.  Many companies let employees make that decision for themselves, but it can quickly grow out of control.

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