Many small business owners are struggling with attracting and hiring new employees.
They may be challenged with increased employee turnover as big businesses continue to raise their starting wages to attract new employees.
With orders to fill for customers, small business owners have few choices that will allow them to continue to produce results while facing challenges impacted by the current labor shortages.
Overtime could be a short-term solution to fulfill production gaps for your small business.
Employees paid an hourly wage are subject to overtime compensation when working over forty hours per week. Federal law states that employees are to be compensated time and one-half of their hourly wage.
Before issuing overtime, businesses should look at their current operations to understand if it is necessary.
- Small businesses should evaluate their operations and consider the overall cost associated with overtime.
- Companies should analyze specific areas of their business in which production is behind. They should try to understand why production is down and why overtime is needed.
- Business owners may want to step back and evaluate their operations to see how the business could be more efficient. Utilizing technology to automate processes may help offset workloads, eliminating a need for additional work hours.
- Employers may also want to assess current assignments. Managers may wish to redistribute workloads throughout their organization. Transitioning responsibilities to other employees could significantly decrease overall payroll costs.
When choosing to offer overtime, it may be a good idea to have a few policies in place to ensure it is worthwhile.
- Overtime should be issued when employees are meeting production standards.
- Eligible employees for overtime should not be on performance management for quality issues.
- Employees that are offered overtime should have a good attendance record.
- In an ideal scenario, overtime can be issued or approved when an employee is meeting or exceeding company expectations.
- Offering employees non-mandatory overtime as an incentive to increase their earnings may be a great motivator to encourage employees to continue performing to the best of their ability.
Companies should be aware of hidden costs when deciding whether or not to assign overtime.
- Studies have shown that employees who work additional hours consistently are at an increased risk of burnout.
- Tired employees have a higher rate of call-offs.
- Employees that are not rested have an increased risk of injury. An injured employee could file a workers’ compensation claim. An injured employee may miss work due to the injury and potential rehabilitation of an injury. The employee may be temporarily unable to fulfill full job responsibilities decreasing production for some time.
- When appropriately managed, overtime can work well for a business. When overtime is not managed correctly, it can increase payroll expenses and adversely impact the company’s overall production.
Overtime does have its place at times for both employers and employees.
- Overtime can be a short-term solution to an unexpected surge in orders. Offering overtime can allow a small business to react at a moment’s notice without having to recruit, hire, and train.
- Offering overtime can add additional revenues, assuming it is still profitable to provide overtime to produce goods and services.
- When customers receive goods and services timely or within a promised timeframe, they become loyal, long-term customers adding to the organization’s success.
- Small businesses should not calculate only the hourly compensation when considering hiring a new employee. They should keep in mind that there are other costs associated with adding another employee. New hire expenses include benefits, paid time off, and costs associated with onboarding a new employee. When considering all this, overtime may be more cost-effective than taking on a new employee.
- Overtime can be attractive to employees. Businesses that offer optional overtime are appealing to both potential and existing employees allowing workers to increase their earnings from time to time. Overtime offerings can help retain the existing workers.
Small businesses struggling with keeping up with customer demands or attracting employees may decide that overtime is something they must explore.
They may not be able to react to customer demands without offering overtime to employees. While overtime compensation may be necessary, businesses may still be able to put policies in place that will encourage a favorable outcome when utilizing overtime as an answer to keeping up with production demands. It will be essential to have some internal policies in place to ensure that the result of extending overtime to workers results in increased production while meeting customers’ demands. Employers will not want to max out their payroll budgets.
Furthermore, managing the actual cost of payroll is not an easy task for any employer. Small business owners are rock stars at managing their businesses with limited resources. They will have to understand if overtime is suitable for their business.
PaySmart is a payroll provider located in Mechanicsburg, Pennsylvania, supporting small businesses in the Central PA region. PaySmart is dedicated to helping small businesses take care of their payroll needs. To learn more about how PaySmart may provide payroll solutions, please get in touch with us at 717-766-1777. Our New Client Concierge is waiting for you!