It’s about time to get over overtime
I have often wondered about overtime pay. I wonder who thought of it.
In most states, employers are required to pay their employees one and one half
times their regular pay rate once they have worked 40 hours in the same pay
week.
 | ||
OK, there is a good chance that this does not describe someone that you are
currently paying overtime to.
But hang on. The likelihood that Eddie is not tired nor at wit’s end while doing sub-standard work actually furthers my point.
I don’t believe in running a business with rampant overtime hours. I have worked with
some cleaners who regularly pay upwards of 20 overtime hours to a single
employee in a single week. This can’t be allowed to continue and should never be allowed to start.
Reversing this overtime drug can be a Herculean task. More on that in a minute,
but first, I wonder how overtime pay started. It probably has origins with
labor unions, but I don’t care enough about the history of it to research it.
Whatever the reason it was ever introduced, I feel certain that it was never
intended to morph into what it is today: A drug to employees and a profit drain
to employers. (On second thought, that probably was the union agenda.)
First, the plus side. Does overtime pay have any benefits? Absolutely! The
problem is not in its benefits. The problem lies within its abuses.
Let’s say that Shannon makes $10 per hour and is scheduled for 40 hours per week.
Her gross pay would be $400 per week.
The problem with Shannon is that she misses one or two days of work per month
and comes in late once or twice a week.
She is an extraordinarily good employee when she is there, but she just plain
sucks when she isn’t there.
Try as you might, you cannot turn Shannon into a dependable employee. What could
entice her?
Suppose you offered her a 25-cent per hour raise! That ought to get her, huh?
One extra ten dollar bill (less state, local and federal taxes, of course) each
and every week.
With that sort of enticement, Shannon ought to be putty in your hands! Surely
she will never miss another day, because it is now “cash city” at the cleaners. I don’t think so.
OK, enough sarcasm. What does that have to do with overtime pay?
Lots, actually. Remember a column that I wrote a couple of years ago (March
2006) titled “How to give a raise that you can take back?” This goes hand-in-hand with that.
Instead of giving Shannon a meaningless 25-cent raise, schedule her for two
hours of overtime. When she misses a day, or comes in an hour late or schedules
a doctor’s appointment on the afternoon of the busiest day of the week, the hours that
she is missing are the big-money hours.
An employee must work all week to get to the holy grail of overtime, but if she
schedules that doctor’s appointment, it is going to cost $15 per hour instead of $10 (or $10.25). It
is a great way to “get them back” for being absent.
Interestingly, 42 hours for a $10 per hour employee, with time and a half for
two hours equals a gross pay of $430. $430 spread out over a 42-hour work week
comes to less than $10.24 per hour!
The 25-cent per hour raise is not effective at helping to curb tardiness or
absenteeism, but two hours of overtime might be.
The beauty is, if it does not curb Shannon’s shortfalls, you may not win, but you don’t lose because you did not give her an extra 25 cents per hour.
She only gets it if she complies. So scheduling a bit of overtime can help to
minimize attendance issues, and it is a godsend when you have an unusual
situation that leads to the need for your staff to band together and get the
work out.
The overtime pay is a built-in bonus system that essentially says “I know that you’ve been working hard and we have really valued your devotion, but we need more
of your skills to get through this week. I am willing to put my money where my
mouth is and jingle up some serious coin to compensate you for the effort you
are putting in.” (Remember that line. We will refer to that again later.)
A number of factors can lead to the need for overtime, such as an equipment
breakdown, a sudden spike in volume or the absence of a key employee. Knowing
that you can count on staff members to be there when you need them is very
valuable. Overtime pay is well worth it. Unless…
Unless it is abused by employers and employees alike. It so often is.
Too often, the reason that there is overtime at all is because employees are
allowed to waste time, pad the time clock and goof off and work is allowed to
expand into that time.
Oddly, it is allowed to continue and the employee is rewarded for doing it! And
what a reward! If Eddie presses shirts for you at $10 per hour for 40 hours, he
probably takes home about $325 a week.
He is a working man and when he combines that pay with his wife’s pay, they get by. Perhaps he puts $20 in his pocket after the bills are paid.
This is his disposable income.
One day, the true need for overtime rears its ugly head. Maybe it was an
equipment breakdown on a super-busy week when Shannon had a “doctor’s appointment.” Eddie is right there for you and works five hours of overtime.
That week, his gross pay is $475, his take-home pay is $385. His bills at home
are the same, his wife still contributes the same, except now his disposable
income has quadrupled to $80.
It is possible that you read this and don’t think that $80 is a lot of money or is enough to motivate an employee. To an
employee that generally has 20 bucks in his pocket, $80 is huge.
But wait! There’s more!
All Eddie had to do to increase his pocket money, which is really the only money
that he has because the money for rent, utilities and car payment were already
ear-marked before he got out of bed on Monday morning… so let me re-phrase that, all Eddie had to do to increase his pay 400 percent
was to work 12 percent more hours!
That is some kind of ROI! If you buy a new shirt press this week, your return on
investment (ROI) could be five years. Not for Eddie, no sir! He give you a
little and you reward him in a huge way.
Just for fun, and knowing that everybody’s finances are going be different, what would the “fair” return in cash be to Eddie if the effort and the reward were equal? He works 12
½ percent more, therefore, he pockets 12 ½ percent more. It’s no longer $20. Now it is $22.50!
It is absurd to think that Eddie would work five extra hours for a mere $2.50.
But the fact is, his rent, utilities and car payment do not go up, so is it
fair to give him a 400 percent increase in pay?
I have digressed a bit, but I intended to. The fact is that Eddie, whether he
did the math that I did or not, knows that overtime pay is a sweet deal for
him.
It is very easy for anyone to get very addicted to overtime pay, so to speak.
Far too many managers let overtime get out of control and it becomes a demon
out of control.
Eddie, given a taste of a 400 percent increase in pocket money, has a new
lifestyle. Maybe he now takes his wife out to dinner on Friday night. Maybe he
can now afford to hang with some buddies at the pub. Maybe he realized that now
he can afford to lease that new Toyota Camry with all the toys for $269 a
month.
This will happen if you allow overtime to become a regular part of an employee’s pay. Reversing it, which I deem completely necessary, may be near impossible.
Eddie, in order to maintain his new lifestyle — a lifestyle that you personally allowed him to sample — must work 45 hours. Frankly, it is 45 hours or bust.
Consciously or subconsciously, Eddie has allowed his productivity to slip off.
He used to press 55 shirts per hour, but now he has slipped to a bit under 50.
Perhaps you hadn’t noticed.
Hate to tell you this, but Eddie is hosing you. Maybe he defends his slower
production with the old “I want to do a good job” line and you probably buy into it. The difference in productivity between 50
and 55 shirts per hour doesn’t seem like much — in fact, most people are unable to produce shirts as fast as 50 per hour, so
that can seem just fine.
The problem is that this dip in production costs you an extra five hours per
week for probably four employees and probably all overtime. That is 20 hours at
your hourly rate times 1.5. That could be around $1,200 per month!
Guess who is paying for Eddie’s new Toyota? Your cost per shirt, by the way, just went up over 13 cents per
shirt! Does that not surprise you?
When I owned a plant, I would work day and night trying to find ways to cut a
penny off the cost of a shirt. In this scenario, Eddie gets a taste of the “good life” and your cost per shirt goes up nearly 14 cents. Who is to blame?
You are. Management.
The challenge now is to get Eddie to press faster, work harder so that he can
get paid less. That is some challenge! Remember how I said earlier that “the likelihood that Eddie is not tired, nor at wit’s end and is not doing sub-standard work actually furthers my point”?
That’s right. Eddie isn’t as tired as he used to be, he is getting paid to work slower, not quite as
hard, and you are paying him more as some sort of cosmic reward.
I have seen countless employees who really are not very good employees, not very
good workers and yet they get 10 overtime hours per week. And because
management regularly allows this to happen, it is very similar to “scheduling” Shannon for those overtime hours.
This means that this sub-standard employee is not too likely to miss work,
either, for fear of forfeiting those big money hours.
Recall the line that I asked you to remember: “I know that you’ve been working hard and we have really valued your devotion, but we need more
of your skills to get through this week. I am willing to put my money where my
mouth is and jingle up some serious coin to compensate you for the effort you
are putting in.”
Doesn’t it hurt to think that this is what you are saying to that slow-poke who can’t seem to get out of his own way?
A manager that I was training last year was an excellent student. She watched
her drycleaning production and productivity numbers maniacally. She calculated
them during the day so that she could run if/then statements on a spreadsheet
that I designed for her and then was able to make adjustments before the day
turned into merely a historical event.
But she did not regularly check the numbers in the shirt department. Perhaps she
thought that there was no need. Shirt production was always over 100 shirts per
hour. With three and a half people in the department, pieces per labor hour was
rock-solid at over 28. That doesn’t need fixing.
But I told her that she needs to constantly watch the pieces per labor hour in
the shirt department. I’m not certain that she knew exactly why immediately, but it didn’t take her long.
I said “Suppose that you don’t look at the numbers for six months, and then when you finally do…” She interrupted me and completed my sentence. “… if the numbers are not good, I will have a huge job to rectify it.”
That’s right.
So what is a manager to do? It’s really simple. Don’t allow overtime to happen. Watch your productivity. Graph it. Question dips in
production and address them immediately. Failure to do so is very costly and
the fix can be quite a challenge.
“If you do what you’ve always done, you’ll get what you always got.”
