Overtime is probably the most often reviewed aspect of labor expense, partly because the overtime line tends to stick out on most P&Ls and partly because Property Leaders tend to jump on overtime as a way to engage in a larger discussion on operational efficiency. To aid in the understanding of overtime usage many Casinos and Hotels establish simplistic reporting thresholds for Job Class overtime hours as a percent of total hours worked (a 3% weekly threshold is common), exceed the established target and Operations will usually feel the heat. The questions usually go something like “was the overtime justified?” Or, “how can overtime expenses be reduced?”
In certain cases there are benefits to the operational use of overtime: overtime provides flexibility to match existing staff to variable guest demand and overtime coverage can be available on short notice, the staff working overtime requires no additional training to deploy and there are no additional wardrobe expenses associated (an especially important point with Job Classes like Casino Cocktail Servers). Finally, overtime can be seen as a morale-booster by some employees looking to supplement their income.
The problems associated with excessive overtime are also easily understood. Not only is overtime expensive, if prolonged it can reduce productivity, create employee morale issues and increase employee turnover. Perhaps most problematic is that some employees, after working prolonged periods of overtime will come to depend on the additional income and will be financially impacted if the opportunity for overtime is removed.
Overtime Work Rules
Understanding your local work rules regarding overtime is essential to producing an overtime analysis as a handful of states currently have work rules in place which supersedes Federal Guidelines. At the time of this writing California, Nevada, and Alaska all have 8 hour daily overtime rules while Colorado has a daily 12 hour overtime rule in place (the Federal rule is based on weekly hours worked). Some states have “rest” period rules in place which dictate the amount of employee time off between consecutive shifts, in Nevada, for example, an employee is eligible for overtime if their base pay is one and a half times the state-established minimum wage and if there is less than 16 hours between the end time and the start time of their work shifts on consecutive days. Note – Nevada employees can be scheduled for 10 hours per day for 4 calendar days per workweek without receiving overtime if mutually agreed to in advance.
Causes of Overtime
Excessive Overtime is almost always caused by one of three conditions:
1. The underlying structure of the Department or Job Class,
2. An incorrect understanding of the Department or Job Class operational conditions,
3. The scheduled availability of Department or Job Class staff.
I find it easier to understand the validity of overtime if I take all of three conditions into account in two different time contexts, first, the actual time of day in which the overtime occurred, and second, the actual duration of each overtime occurrence. Once I have completed my analysis using both time contexts a more accurate assessment of overtime validity can be reported to Senior Leadership.
Analyzing Overtime
Here are some strategies which may help you in preparing an analysis on the validity of overtime usage:
Structured Overtime tends to produce occurrences in durations of 30 minutes or less and is usually a byproduct of either clock management issues or gaps between job class shifts. Review employee historical pay records to identify patterns of potential clock abuse (and associated Supervisory issues), as well as the job class labor standards for shift end times and start times in order to reduce this type of overtime. Structured Overtime should be eliminated as quickly as possible and its trends should not be forecasted in future periods.
Operational Overtime tends to produce occurrences of less than 4 hours and is usually a by-product of some operational need to retain staff. Review the time frame in which these incidents occurred to determine if the overtime was a result of an overall Area Event or if it was due to a specific Property function, note the associated demand driver and review the Employee Schedules in use to determine if a re-deployment of staff can occur when similar circumstances are forecasted. Also note that in some cases Operational Overtime may be caused by intermittent family medical leave being taken during a scheduled shift.
Scheduled Overtime tends to produce occurrences of more than 4 hours and is usually a result of either a general lack of available staff or because a late call-off of a previously scheduled employee. Not enough available staff usually results in an overtime occurrence in the form of an additional day being scheduled, in the case of a call off; the overtime may be a result of an employee working a double shift. In either case a review of the Job Class standards for the same time period against actual staff available will give you a better understanding of whether or not the overtime was justified.
Understanding Incremental Overtime Expense
To complete an overtime analysis it will be necessary to understand the incremental cost of overtime over the use of straight time. For example, a 35% benefit load with 20 annual days of PTO and a time-and-a-half overtime rate would result in a 12% incremental overtime expense of overtime over the straight time rate. The use of Part Time Employees would reduce the coverage expense even more; however, an incremental analysis would need to be performed on the training and wardrobe costs associated with the use of greater headcount to deliver the same number of FTEs.
Next time out we will discuss strategies for effectively managing Overtime expense.
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