Devise an overtime game plan by analyzing its use and scheduling, and jump-start production without hiring new employees or burning out current ones.
An auto parts manufacturer needed to ramp up production of sport utility vehicle (SUV) parts to meet a sudden, short-term demand. The company figured it would need 200 additional employees to do the work.
But recruiting, hiring and training that number of new employees would eat up time the company needed to produce the parts. Further, the ramp up in production would most likely be followed by a leveling out in demand, ultimately leading to layoffs. The company would lose its training investment—and money to severance payments—when it shed those extra workers.
Not a rosy scenario. An alternative would be to burn out current employees by ordering everyone to work overtime. Not so rosy either.
A different solution: strategic overtime. The company identified critical positions for overtime, altered shift lengths and trained current employees to cover critical jobs in case workers were absent.
Through the use of strategic overtime, employers with sudden peaks in demand can flex production up or down as needed while saving money and keeping employees positive about their work despite more hours. Companies should analyze overtime, target it at only certain critical employees and schedule it strategically to meet peak demand, then, when the market slows down, back off the overtime.
Using a contingent workforce or outsourcing the work are possibilities. But the time required to train those workers can be a problem when demand is surging. Strategic overtime lets employers meet changing market demands quickly.
Make the Business Case
Handling production increases with overtime sounds easy, but, in reality, most companies are not aligned to take full advantage of overtime.
Although most employers can schedule more hours for their employees, they tend to use overtime at the last minute, not as part of a larger business plan. Employers schedule overtime to cover for absenteeism, meet daily demands or let individual employees make up work. Many companies do not take the time to identify which employees should be slotted for overtime and when it is most effective to schedule them. By taking the one-size-fits-all approach, employers end up paying too much and disaffecting all employees. This tactical overtime only lets the employer play catch-up.
Strategic overtime is different, letting the employer plan longer-term overtime for specific groups of employees to meet a higher production demand. HR can make a business case for shifting to strategic overtime because scheduling overtime more effectively can save money. The auto parts manufacturer estimates that it saved $5 million in costs such as recruitment, training, insurance and severance because it didn’t hire new employees to meet a short-term need.
When the manufacturer had to increase production to fill the unanticipated demand for SUV parts, the company considered increasing headcount by 25 percent. Three work crews of typically 450 to 550 workers each did the work, and managers feared that they would not be able to ramp up production in time without adding an entire fourth crew.
Management, the union and consultants came up with a solution: Add only half a crew but have current employees do the work on overtime. By using only three-and-a-half crews, the company avoided hiring, training—and eventually laying off—about 200 additional employees.
At the same time, the hours of operation went from eight-hour shifts, six days a week, to 12-hour shifts, seven days a week, with employees scheduled to work 40 to 48 hours a week, depending on overtime. An employee working 48 hours a week in four 12-hour shifts worked more hours yet actually ended up with more days off than under the usual schedule of eight-hour shifts, five days a week.
Working together, plant management and the union found they could increase production by 20 percent without hiring substantially more employees. The company estimates that through the use of strategic overtime, it not only saved the $5 million but also gained 2 percent market share by meeting demand quickly.
Evaluate Current Overtime
Planning strategic overtime requires an economic analysis of overtime use, a social analysis of employees’ work patterns and work rules, and a plan for communicating overtime changes to employees.
The first step of the economic analysis is to identify how you currently use overtime. Employers usually are surprised to discover how much overtime they use. Typically, the average overtime per week for all types of employers is 4 percent to 8 percent, which translates to an average employee workweek of between 42 and 44 hours.
In many workplaces, people in critical positions already work overtime regularly. When the employer needs to increase production, those critical employees may be unable to work any more overtime hours. By knowing who works overtime, how much they work and why, you find out whether you need to cross-train other employees to help out when those critical employees simply can’t work any more hours.
The second step of the economic analysis is to identify where overtime is truly necessary. Too often, employers use overtime during peak demands as a last resort, and they generally schedule all employees to work extra hours during the workday or come in on their days off. This shotgun approach to scheduling is unnecessary and expensive.
Instead, identify positions that are absolutely necessary to meet additional demand and schedule only those positions for overtime. Although it may seem unfair to schedule only certain positions for overtime while excluding others, if the employer communicates the reasons for the decision clearly, employees will understand it.
You also need what could be called a “social analysis” of the workforce—a review of absenteeism, employees’ shift preferences, and the work policies and legal restrictions that affect employees’ ability to work overtime.
The main reason companies use weekly overtime is to cover for absenteeism. When an organization is trying to meet peak demand, controlling absenteeism becomes critical. To deploy strategic overtime effectively, you need to know the current level of absenteeism and the reasons why it occurs. For instance, if employees are absent to take care of personal tasks on a regular basis, there is a good chance their current schedule is not allowing for predictable or sufficient time off. If you add overtime to a work situation where employees already lack enough time off, you risk higher absenteeism rates. You may need to provide alternative scheduling solutions along with strategic overtime.
The same cross-training that helps the employer prepare for limits on critical workers’ overtime also minimizes the impact of absenteeism. Because only a certain number of core employees will be scheduled for strategic overtime, you should train other employees to do the critical tasks, so that when core overtime workers are absent, others are ready to work. Although cross-training costs may seem high, the payoff comes when employees can cover for those scheduled for overtime.
The social analysis also should cover the constraints of work policies. Collective bargaining agreements often mandate how employers can schedule overtime. Other constraints may include state labor laws, health and safety regulations, and other policies, such as requirements to pay rates above the federally mandated “time and a half” pay for overtime.
Another limit on overtime is the threshold beyond which productivity drops and absenteeism rises as employees burn out. A general rule of thumb for maximum scheduled hours is 72 hours in a rolling seven-day period for a period of six to eight weeks. If you need longer-term overtime, the recommended limit is no more than 48 hours scheduled on a regular basis over four to 12 months. These are just guidelines because the nature of the work and the nature of the workforce vary greatly depending on the business.
Get the Word Out
Communication with employees is the most vital part of scheduling successful strategic overtime because good communication can help employees become partners rather than obstacles.
A schedule change, particularly a difficult one such as asking for more overtime, affects employees’ personal lives. Although some employees may not be happy with the change, resistance will diminish if people understand the reasons for it.
Employees will feel that the process is fair if employers:
- Communicate why employees need to work overtime.
- Explain why only certain people will be affected.
- Tell employees about it in advance.
- Take time to answer all employee questions.
To get the word out, try bulletin boards, newsletters, shift meetings, union meetings and e-mail—today, even blue-collar employees often have access to e-mail on factory floors. To get feedback, survey employees by asking how they want to handle the overtime. A survey can alleviate some fears that may arise with change if the survey communicates information and if management shares the results with employees.
A Competitive Advantage
Adding employees to meet short-term peaks in demand is a luxury very few employers can afford. Strategic overtime gives employers flexibility to meet peak demand. An economic analysis identifies how you currently use overtime and how to use strategic overtime properly in the future. A social analysis identifies how employees can best fit strategic overtime into their work schedules, rules and policies. A campaign to communicate details allows employees to become partners.
Strategic overtime creates a competitive advantage and helps employers break the hiring-firing cycle while targeting overtime at those employees who are most needed to do the job.
Roger Dickerson, a member of the American Institute of Certified Public Accountants, is president of Dale Consulting, a San Francisco-based firm specializing in operational strategies including strategic overtime and capital and labor scheduling.
Strategic Action in Overtime