Reining In Overtime Costs

Automated time-and-attendance systems can help employers reduce overtime expenses.

By Jennifer Taylor Arnold Apr 1, 2009

April 2009 CoverHealth Care Management Group (HCMG) employs some 900 nonexempt workers at its five assisted-living and skilled-nursing facilities in southern Ohio and northern Kentucky. With round-the-clock staffing and the resulting shift differentials, labor costs are significant. And as corporate Director of Human Resources Jamie Brose can tell you, it’s easy for those costs to escalate from unnecessary overtime.

"The minute you don’t watch it, it gets out of control," says Brose. She estimates that "clock creep,"—employees clocking in a little early or a little late on a regular basis—totaled as much as $250,000 in overtime costs in past years. Without a system in place to monitor labor costs in real time, it was difficult to stay on top of it. She would look at labor costs on monthly financials and see labor costs $15,000 higher than the previous month. Then, she would try to pull data to find out what was going on.

All that changed when HCMG upgraded its automated time-and-attendance system in 2005. Today, up-to-the-minute labor data are available to line managers at all times, and built-in edits help prevent costly "clock creep."

"The employees know we’re monitoring it; they know they can’t milk the clock anymore," says Brose.

Employers are finding today’s time-and-attendance systems more flexible, efficient and affordable. The functions can help organizations of any size control overtime and other premium pay costs that directly impact the bottom line. What’s more, these systems help ensure compliance with complex wage and labor laws, offering protection against costly fines and lawsuits.

Improving Efficiency

Employers have been using computers to capture and calculate workers’ hours for decades. But new technology allows modern systems to offer functions that can boost efficiency and provide critical protections.

Real-time data provide one big advantage from today’s time-and-attendance systems. Older systems relied on batch processing: HR professionals didn’t know that an employee had gone into overtime until after the fact. Newer systems capture employee’s clock-in and -out data as they happen, and reflect the hours immediately. Most systems can even provide pop-up and e-mail alerts to warn managers that specific employees are approaching overtime.

Reporting capabilities and integration are far more sophisticated. Some time-and-attendance systems have integrated scheduling modules, allowing the system to report an employee’s real-time hours worked along with future hours scheduled per week. This function allows managers to proactively identify potential overtime situations and act on them.

"When you’re trying to control your labor spend, if you pay people overtime, it’s too late," says Morné Swart, vice president of product management for Parsippany, N.J.-based time-and-attendance system vendor CyberShift. "If you make data visible and actionable, you can get people to make those changes without having to analyze data for several hours."

Another gain: wider accessibility. Older systems often were only accessible by HR personnel. Today, time-and-attendance systems can provide information to managers across the organization. Lisa Compton-Martin, director of human resources at the Cincinnati Marriott Northeast in Mason, Ohio, started using Workforce Central 6.0, by Chelmsford, Mass.-based HR technology vendor Kronos, in late 2008. She says its accessibility saves her staff hours of time and produces better results.

"Before, [managers] were waiting for me to tell them where they were" in terms of staff hours, says Compton-Martin. "Now, even if they’re not here, they can log in from home to manage their labor and call in" to send associates home who are approaching overtime. The accessibility applies to other functions as well. For example, managers can now make edits when employees forget to clock in or out, rather than relying on an HR staff member to make corrections.

With some systems, even employees can view the hours they’ve worked and see when they are approaching overtime.

"Some of them genuinely didn’t know they were getting close [to overtime] or clocking in five minutes early. This allows us to put some accountability back on the associates," says Compton-Martin.

System flexibility allows employers to tailor the process to ensure policy compliance and reduce errors. The city of High Point, N.C., uses CyberShift’s Workforce Management 3G time-and-attendance system to manage 1,000 nonexempt employees. With its previous internally developed time-and-attendance system, timekeepers in each department had to manually enter 10 paid holidays a year, adjust the clock for daylight-saving time, and split shifts that ran after midnight. Now, all that happens automatically, says John McCrary, the city’s human resources director. "There is very little entry the timekeeper has to do, except when there are exceptions," says McCrary.

That flexibility extends to accommodating overtime. "I don’t mind paying a full shift because the business warranted it," says Compton-Martin. For example, a recent storm in the Cincinnati area prevented some employees from getting to work and resulted in overtime. In these types of situations, the hotel’s system allows managers to enter a comment noting approval of an employee’s overtime and provide an explanation.

Bigger Risks

While failing to monitor overtime can burst labor budgets, failing to compensate employees appropriately for overtime can result in bigger expenses. U.S. Department of Labor (DOL) fines for Fair Labor Standards Act (FLSA) violations have gone up, and experts predict tough enforcement under the Obama administration.

In 2008, an approved amendment to the FLSA raised the maximum civil penalty assessment for FLSA violations to $1,100 per violation; maximum fines for violations of FLSA’s child-labor provisions were increased to $11,000 per violation, and as much as $100,000 per violation for willful or repeated child-labor violations that result in death or serious injury.

The top 10 private settlements for wage and hour class-action lawsuits totaled $252.7 million last year, according to Seyfarth Shaw’s Annual Workplace Class Action Litigation Report. The report notes that the volume of wage and hour-related litigation has grown exponentially during the past several years, and the data suggest that employees and their attorneys are bypassing DOL and pursuing private lawsuits more frequently.

The built-in edits in automated time-and-attendance systems can protect employers from FLSA violations, and the reporting function can help produce evidence quickly to nip complaints. "It’s easy for a plaintiff if they are in an organization with a manual [time-and-attendance] system," says Gil Sullivan, director of product marketing for Kronos. An automated system has a "standard application of rules, with no favoritism."

Compliance Complexities

All wage and hour lawsuits aren’t about FLSA-mandated overtime laws. Employers also must comply with state and local labor laws, some more stringent than the FLSA. Employers face union rules, grandfathered policies, shift differentials and commission calculations. "It gets super-confusing for employers trying to stay compliant," says Daniel Smith, president of Houston-based time-and-attendance solution provider "It can get out of control."

For example, municipalities such as the city of High Point must accommodate the 7(K) exception to the FLSA that applies to public-safety employees. In its previous time-and-attendance environment, "We were putting a lot of confidence in individual timekeepers to understand FLSA rules," recalls McCrary. Now, employees subject to the 7(K) exception are coded in the CyberShift system to have hours calculated under different rules.

Health care facilities comply with other labor regulations. Each HCMG facility must meet state minimums for patient-to-staff ratios on each shift, and daily staffing reports must be posted for patients and visitors. Since implementing Kronos’ Workforce Timekeeper, Brose can respond to requests quickly. State officials "will come in and say we’re in violation, and we can clearly show that we have the [required] staff in there," based on the time-and-attendance system, says Brose. That "eliminates a fine, a citation and helps us stay in compliance."

Employers are subject to legal action if they fail to compensate employees in accordance with corporate policies. "FLSA is a minimum implementation of a guideline," says Swart. "Companies make themselves more attractive to the workforce by offering more generous terms than the FLSA standards demand. Even though they comply with the FLSA minimum, they need to comply with the thresholds they’ve set."

The storage and recordkeeping capabilities of time-and-attendance systems can allow HR professionals to spot troublesome trends and recognize fraud. For example, according to Smith, an client recently uncovered a fraud during a year-end audit using the system’s reporting capabilities. "An employee and a manager had conspired to change time entries," says Smith. By running an exception change report, the employer was able to recognize the pattern, and both employees were terminated.

An automated system also proves invaluable during a labor audit. Brose recently had this experience at HCMG: "[The auditor] asked for a slew of reports proving that we were paying overtime and meeting FLSA standards," says Brose. "We were able to print reports out, and, within half an hour, [the auditor] was on his way. It would have taken three days prior to having Kronos’ " time-and-attendance system.

Affordable Options

New delivery models make automated time-and-attendance systems affordable and accessible. Sophisticated functions are available through licensed systems installed on a company server and through subscription web-based software-as-a-service (SAAS) delivery. Costs range from several hundred thousand dollars for a licensed client-server system, including implementation and customization costs, to as little as $6.50 per employee per month for SAAS. For larger companies, the up-front expense of a licensed system may be more economical long term; smaller companies without the capital for a licensed system may prefer to use the SAAS model.

SAAS delivery was an ideal solution for West Jordan, Utah-based natural stone fabricator Bedrock Quartz when it faced rapid growth in 2004. The company’s manual punch-card system worked well enough when it had only five or six nonexempt employees. But when it grew to nearly 40 employees, Bedrock’s leaders realized they needed a better solution. "I thought, ‘this [manual timekeeping] is going to be a nightmare," said Alan Jorgensen, Bedrock’s general manager. Plus, Jorgensen realized the manual system wasn’t very efficient.

Jorgensen signed up with web-based SAAS provider, and quickly saw benefits. He estimates that the company saves four hours per payroll period, not to mention reducing the potential for errors. "And the price [$6.50 per employee per month] is great."

Web-based systems are convenient for companies with multiple locations and payroll processed by one home office. "It can be hard to tie it all together," says Smith. A web-enabled system provides access to all. Even some client-server systems are now offering web access for remote employees. For example, CyberShift offers system access through the Blackberry platform. "Employees who are routinely scheduled to work off-site in remote locations can be a bit elusive," says Laura Hills, CyberShift’s vice president of marketing. "Technology now allows [employers] to capture remote employees through mobile devices."

At the Cincinnati Marriott Northeast, overtime costs are down as much as 10 percent after just a few months of implementing the Kronos Workforce Central system. Plus, Compton-Martin says it has increased propertywide awareness of overtime expenses, boosted productivity of the HR department and ensured that policies are applied consistently. "People look at the initial cost factor and say, ‘Wow that’s a big chunk of change’," says Compton-Martin. "But over time, it does pay for itself."


The author is a freelance writer based in Baltimore. 

Web Extras​​

SHRM articleClear Up Overtime Confusion (HR Magazine)

SHRM articleState Wage and Hour Class Actions on the Rise in 2008 (Legal Issues)

SHRM articleGuard Against FLSA Claims (HR Magazine)

SHRM toolkitOvertime

SHRM toolkitFair Labor Standards Act

SHRM webcastConducting an Audit of Your Pay Practices


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