Causes of Overtime: A Human Capital Perspective

"How do I reduce employee overtime?"

The question "How do I reduce employee overtime?" is one of the most commonly asked questions when the subject of overtime is presented. To tackle the costs and associated problems of excessive overtime, managers must first understand why and where overtime arises in their operations.

Figure 1. Causes of Overtime from a Human Capital Perspective


Causes of Overtime

There are four potential scenarios (Figure 1 - from left to right) that cause overtime from a human capital perspective (overtime may also be caused by delivery backlogs, malfunctioning machines, etc.):

1. If overtime is high and the absence rate (a combination of absenteeism, vacancy due to turnover, and absences due to accidents and injuries) is low, then a facility/company either does not have a large enough staff to meet demand or the existing staff is not productive enough (perhaps due to presenteeism, low morale, working conditions or fatigue).

In some instances, the total staffing level may be appropriate, but the distribution of staff throughout the day, week or year may be incorrect, causing overcapacity at some points and overtime at others (a situation seen in many service industries). A flexible workforce management approach allows for a headcount to more efficiently match ever-changing demand levels.

2. If overtime and absence rates are high, then the excess overtime is increased by the absence rate. Reducing the absence rate may result in:

a) Finding that overtime is acceptable and that a facility is correctly staffed;

b) Finding that overtime is still too high and more employees (or more productive staff) are required;

c) Finding that overtime is very low and that a facility may be overstaffed.

3. If absence and overtime rates are low, then facility managers should ensure that staffing meets demand at all times of the day, week, and year. A detailed look at demand, minimum headcount, and vacation and absence policies can determine optimized staffing levels.

4. If overtime is low, but the absence rate is high, then it is likely that a facility is overstaffed to account for the absent employees—some companies must overstaff by 10% to 15% to account for absences on weekends.

Learn More about Overtime

Want to learn more about overtime? Interested in the ways in which overtime may be impacting your workers? Visit CIRCADIAN to download a free white paper that details optimal staffing levels in 24/7 operations.

About CIRCADIAN

CIRCADIAN® is the global leader in providing 24/7 workforce performance and safety solutions for businesses that operate around the clock.  Through a unique combination of consulting expertise, research and technology, software tools and informative publications, CIRCADIAN helps organizations with traditional and/or extended operating hours optimize employee performance and reduce the inherent risks and costs of sleep deprivation and fatigue.

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