In this age of hyper-productivity and long work hours, overtime has become common for most workers. Overtime has become a glorified habit, where more time put in seems like the employee is more productive. However, this is far from the truth. If your employees are putting in long hours at work and your company is shelling out a lot for overtime hours, you may want to reevaluate your overtime policy. 

In this guide, you can learn how to make overtime an exception within your workplace and set up systems to avoid overpaying for overtime.

What is Overtime?

Simply put, overtime is the amount of time the employee works beyond their normal working hours. 

Companies with overtime policies and who fall under the jurisdiction of countries with laws about overtime pay are mandated to pay their employees for overtime. However, many salaried employees do not work by the number of hours they put in and rather get a fixed salary with no added pay. Overtime pay does not apply to them.

Overtime is such a common phenomenon that countries like Japan, the United States, and the European Union have set up laws to protect employees from overtime. These laws include a cap on the number of hours an employee can work overtime, exemptions, and mandates payment for overtime hours.

Note: Check what laws apply to your company based on the country or state you live in.

How is Overtime Pay Tracked?

Different companies calculate overtime in different ways, based on internal rules. Here are 5 common ways that overtime is paid.

1. No overtime pay

Many companies, like tech startups, do not have overtime pay for their employees. Employees get a fixed salary on a monthly basis and any time put into work by the employee is unpaid overtime. In many cases, this overtime is also not recorded or noted down.

2. Hourly rate

The employee is paid the amount that they usually earn within an hour. For instance, if the employee earns $20 per hour and worked 10 hours overtime in a week, their overtime pay would be $200.

3. Daily rate

For employees whose pay is calculated on a per-day basis, their overtime is also calculated by their total fixed salary divided by the hours they are mandated to put in. Use the base overtime pay to find the total overtime pay accordingly.

For this type of overtime pay, if your employee gets $400 a week and their normal working hours within a week is 50 hours, their hourly pay is $8. If the employee put in 5 overtime hours, they get an additional $40 as overtime pay.

4. Fractionated rate

Some companies pay employees a fraction of the regular hourly pay. For instance, an employee who earns $20 an hour gets half of the hourly pay. This means that if they put in 20 overtime hours, they get $200. 

5. Bonus pay

Some companies even give overtime workers bonus pay in addition to their overtime pay. For instance, if the overtime pay is fractionated as mentioned above, the employee will also get an additional $100 a month for putting additional hours into the company.

Why You Should Avoid Overtime

Regardless of whether overtime pay is included in your company policy, overtime is an unhealthy workplace culture. Overtime does not prove whether the employee has been productive with the time they have spent. This means that as a company, you may be overpaying, incurring an added cost. 

For employees, taking overtime on a regular basis can affect their mental health, causing stress. Employees who take overtime frequently often have no work-life balance. People working overtime are more likely to end up burnt out. 

Employees who invest more time in work may even find it hard to stay passionate about their job, resulting in job dissatisfaction.

The option of overtime also causes a dip in productivity. CNBC found that working more than 50 hours a week can make you less productive. With more hours to work, employees are less likely to spend their time efficiently.

8 Ways to Avoid Overpaying for Overtime

If you’re looking to cut unnecessary costs and make working hours more productive within your office, you have to set up systems that allow employees to avoid taking overtime. Here are 8 great ways to manage overtime.

1. Use time tracking software to keep a record of work hours

Manually tracking your employees’ time is not a scalable solution. Moreover, the traditional method of working overtime, where employees punch cards with overtime information is also not an efficient way to keep track of employee time.

AttendanceBot is a time tracking software that automatically keeps a record of your employee’s time. Your employee just needs to send a message to the bot within Slack or Microsoft Teams and the smart app records the employee’s work hours instantly.

As the HR, you can go back and look into every employee’s work hours, their leaves, and overtime within the AttendanceBot dashboard. The bot also generates attendance reports for you automatically.

The bot works perfectly for overtime management. It shows you how many additional hours each employee has put in. The app can be programmed to calculate the employee’s pay based on the time they have put in at work.  

2. Cap your overtime pay

One mistake that many companies make is not capping their overtime pay. This means that if an employee worked for 30 hours more than their normal working hours, they will be paid the full amount for the time they put in. 

Without a cap on your overtime pay, employees can easily add more hours to their overtime so that they can get the additional pay without putting the work in. By capping your overtime pay, you can avoid time theft.

You can make it clear that employees can’t work more than 10 or 20 additional hours to their regular working hours and that hours worked more than the allowed number of additional hours allowed will be unpaid.

3. Ensure deadlines aren’t set at the last minute

Overtime should be an exception, not a habit. Oftentimes, companies have urgent work with a deadline for the next morning and employees end up staying at work all night to finish the task at hand.

Make it a company rule to assign deadlines 2 days prior so that employees have time to finish the work without having to put in more hours. There will be times when last-minute deadlines are unavoidable. But, by ensuring your team has planned ahead, you can help your employees get back from work on time and avoid overpaying for overtime.

Another way to avoid overtime is by asking employees to provide a reason for the overtime they are putting in. With this, you can know what tasks are keeping the employee at work for longer.

4. Set up policies for overtime and overtime pay

Your employees must know your company rules for overtime. An overtime policy can help you educate your employees about how your overtime pay works within the company as well as avoid any confusion.

This policy should include the following details:

  • Eligibility: Outline which employees are eligible for overtime pay and how overtime pay looks for different types of employees— salaried, shift employees, contract employees, part-time employees, and freelancers.
  • Overtime cap: How many additional work hours will be taken into account for overtime pay?
  • Overtime pay calculation: What is the pay for every additional hour that the employee puts in?
  • Compensatory off: If overtime pay is not given, can employees take a compensatory day off?
  • Bonus pay: Is there any bonus pay given for overtime?

Here’s an example of an overtime policy:

5. Use project management tools for accountability

We’ve all had instances where we worked all night because of a task that we missed out on. A scribbled list of tasks just doesn’t cut it anymore. Every company must use an organized project management tool to help employees keep track of their work and ensure nothing slips through the cracks.

Apps like Asana and Trello are used by successful companies to manage their work in a streamlined manner. Each employee can put down their tasks in a private list or kanban board, or you can create groups or boards based on the department or project. All tasks related to that department can be collated there. 

6. Improve team communication

You’ll be surprised how much good communication can help your team to work smartly. Set up a transparent communication system where employees can feel free to talk to you honestly. Have an open-door policy where employees come to you with any problems they have. This way, you not only improve team morale but can also know when overtime is becoming an issue.

Inculcate open communication everywhere. During team meetings, take 15 minutes at the end of the session to ask employees whether they are having any troubles with their workload.

Do one-on-one meetings on a monthly basis. Talk to your employees to gauge their workload. Understand what tasks are on their plate or any blocks they have which is causing overtime. With this information, you can help them plan work better and reduce the additional hours they are forced to put in at work.

7. Identify patterns for overtime to optimize work planning

With tools for time tracking and project management, and by communicating with your team regularly, you can understand the reasons behind overtime. With this, you can set up rules and change how your team works to optimize work planning and reduce overtime hours.

Here’s an example of how you can put your multiple systems to use. By analyzing your time tracking app, you might learn that employees have overtime only on Thursdays. Looking into the project management tool, you find out that managers add a weekly report task every Wednesday evening. This task needs to be created and sent by Friday morning. 

Once you talk to employees, you understand that this task takes more than a day to complete. Now that you know the reason behind overtime, you can ask managers to assign these reports on an earlier day and have employees block out their hours just for this task. Employees can even plan their work ahead so that they only have the report to focus on. 

By keeping an eye on when overtime is taken and learning what the task is and how the employee is handling it, you can help them decrease their workload and plan it better. 

8. Set up shift schedules

In many cases, employees end up working overtime because their role requires them to stay and have conversations with clients. Roles like restaurant server and customer support require someone on the job and unfortunately, employees within such fields end up putting in 16 hours a day to ensure work runs smoothly.

Shift schedules are perfect if you need an employee on the job for long hours. With shift employees, you can have one employee for the first 8 hours and their position will be replaced by another employee for the next 8 hours. This way, your employees won’t have to put in overtime hours and won’t have to worry about long workdays. 

Shift schedules may be tricky to set up if you’re manually tracking employee schedules. AttendanceBot has a dashboard built for shift planning, allowing you to plan out your employee’s hours. You can repeat shift hours and drag and drop shift blocks with ease. The bot sends a reminder to your shift workers before their shift starts so they are at work on time.

You can also manage and make changes to shifts directly within Slack or Microsoft Teams. This way, you don’t have to log into the dashboard every time an employee takes leave.

Read more about shift management. 

Overtime has become a habit in many offices and if your workplace also has employees burning the midnight oil, this 8 step plan is ideal for you.

Set up this system for time tracking, managing overtime tendencies as they come up. This way, you avoid overpaying for overtime and help employees reduce the additional hours they put into their workday without compromising on the work they do.