Three Tips to Reduce Non-Billable Overtime, Now.
Originally posted July 30, 2019
Protect your profits and reduce overtime.
As a service contractor with a distributed workforce, labor is always going to be your largest expense. Overtime for hourly employees is the number one profit-killer, particularly in service industries with thin margins. What kind of cost savings would your company gain if you could reduce unbillable overtime?
IBIS World reports have long since noted wages and associated employee benefit costs accounting for a large percentage of expenses in service contracting industries, and global surveys now project employer-sponsored benefit costs to rise by 8.1% on average for 2022. When one expense category consumes half of your revenue, it’s critical to control the things you can (like overtime) to keep your business profitable.
What’s the secret to reducing overtime? Stop it before it starts. We’ve compiled several ways to reduce overtime for service contractors to help you get a handle on overtime and meet your business goals.
1. Know your service-level agreements (and what bill rates you’re obligated to maintain).
SLAs dictate the service standards and pricing obligations you’re required to deliver to your customers. As such, those who manage your company’s scheduling should be well versed in bill/pay rates by contract. If your contracts do not allow you to bill your customers for overtime, you’re still on the hook for paying it — because legally you have to. Even if your SLAs allow for overtime to be billed back to the client, you still need to keep it in check so you’re delivering the service your clients want at the price they’re prepared to pay. Your clients expect a certain level of service, and that can’t be compromised simply because you don’t have any workers to do the job who won’t be on overtime.
2. Use smart scheduling software to reduce overtime.
If you’re still using paper (and yes, that includes spreadsheets) to schedule your employees and track their time, you typically can’t spot overtime problems until after they happen. You’re probably also spending a lot of time doing tasks that could be much easier, or even automated, with the right software. Consider a technology upgrade via your scheduling software.
Even if you have scheduling software in place, make sure you’re leveraging all the features effectively. You should be able to see the schedule for the week and in context with adjacent weeks to spot any overtime problems before they happen. In fact, your solution should be able to alert you to those issues as you’re scheduling shifts or work assignments as well.
It’s also crucial that your software solution helps keep you in compliance and up to date with labor laws in the jurisdictions where you operate. You still need to pay attention to legislation updates and overtime requirements, but it’s beneficial if your tool can help keep everything in check. Also, consider the needs of the region(s) where your company is operating in. If you’re a growing global business, your needs are not static to one nation’s regulations. If you’re operating in the U.S., this includes tricky meal and rest break intricacies and pay-to-the-minute regulations. Globally, you might have other considerations stemming from Working Time Regulations, fixed-term contracts, Fair Work Acts and more.
If you’re not comfortable with your software, if you have newer employees or if you simply need a refresher on best practices, it’s worth contacting your software provider for hints, tips and extra training to help you get the most out of your investment.
Pro tip: Appoint a lead account manager. This person is responsible for ensuring all account managers know scheduling procedures and have access to all tools and policies to do their jobs efficiently. This person should also review and compile relevant key performance indicators (KPIs) related to scheduling. You should be using all the reports available to track trends and pinpoint issues and automate as much of your scheduling process as possible.
3. Dig into your data.
Data is often viewed as a tool to inform decision-making based on retroactive results. While true, it is sometimes forgotten data can help proactively manage results, too.
Think about digging into data early on in your scheduling process. For example, by including criteria like parameter searches for available guards that fit within the bill rate specified per job, your schedulers will only be able to assign officers to shifts whose hourly rates fit within the scope of a job’s budget. (This can be a big help in keeping your business ahead of wage creep.)
How to reduce overtime during a labor shortage.
We’re all acutely aware of the challenges of tight labor markets. Sometimes, overtime is simply unavoidable, especially when businesses are struggling to keep shifts filled due to employment gaps. We hear you. There are still ways to mitigate overtime costs, even when there’s no way to avoid it entirely.
- Keep the variables in mind. Factor in the certifications, trainings and rates of your officers. When overtime is needed, select coverage that can keep you as close to budget as possible given hourly rates. (Here’s a handy how-to on how to use smart scheduling to keep your jobs profitable.)
- Rethink retention. If you have officers who have recently left your company on good terms, think about offering a self-scheduling program. This way, employees can stay in your system and pick up shifts based on when they want to work. See how one company is piloting a program like this to reduce overtime needs while increasing employee retention.
- Share your findings. One of the reasons to invest in enterprise software is that it can connect the dots between all the different pieces of your business and pull them together for clear visibility of business performance. Share your reports with your clients — especially your low-performing contracts — and use your findings as leverage to renegotiate billable or non-billable overtime.
This article highlights three of the ways service contractors can reduce overtime. For the complete list visit our resource library and download our free Guide to Reducing Overtime.
