When it comes to operating expenses, employee overtime is usually a big contributor.
Overtime is generally undesirable as it increases a company’s expenses and reduces employee satisfaction. While overtime has its uses and is sometimes unavoidable—for instance, acting as a buffer when there is an unpredicted spike in demand—overtime can easily become a very costly liability if it isn’t managed properly.
Recently, a Turf reader asked about strategies for controlling overtime, and industry veteran and consultant Bill Arman, cofounder and head harvester at The Harvest Group, weighed in.
How can I better control overtime? And how can I better cover the costs of overtime?
Overtime, if not dealt with in a timely and effective manner or not included as part of your estimating and pricing process, can have a dramatic and negative affect on your profit. If you have estimated your work at a normal cost and now it’s costing you one-and-one-half times that, you are draining your profit at a rapid rate.
Here are a few ways to deal with overtime.
Step 1: Determine the root cause of the overtime.
Determine why overtime is happening and determine what needs to be done to minimize or eliminate it. In some cases, overtime just might be the only answer. And that’s OK, as long as you’ve estimated and priced the work accordingly.
Here are some examples of root causes for overtime:
- Not enough workers to complete the job within the time allocated
- Lack of skilled workers; and it takes longer than we thought
- Underestimated the hours needed to complete the job
- We did not factor the overtime cost into the estimated costs
- The job location has forced the use of overtime
- Poor morning crew dispatch
- Customers’ expectations/demands exceed what was anticipated
Step 2: Root out the root causes.
Determine the top one or two root causes and make an intensely focused team effort to come up with sound solutions. Build a game plan and systematically put into place the needed steps to remedy the situation.
Step 3: Put an action plan in place and monitor the results.
Once you build and implement your game plan, measure your progress regularly. This may require a weekly tracking of payroll and the number of overtime hours or overtime as a percent of revenue. The answer is measure and track.
Here are a few examples:
- Not enough people: This is one of the biggest reasons for the use of overtime. Fixing this requires building a recruiting program that sources and places enough people to complete the workload within regular time pay. This is easier said than done, but at least you know what needs to be done.
- Estimating and pricing: This is one of the top three reasons we see when dealing with overtime. Often, the hours to complete the job were underestimated and overtime was needed to complete the job. We suggest that as each job is completed, landscape business owners review the hours budgeted versus the hours used; then make necessary adjustments to the estimating process. Maybe overtime hours are needed for various reasons but were not factored into the cost of the job. Look at how the estimates are done and make certain your hourly average wage per hour is updated and accurate. Your production rates should also be reviewed and updated. Then make certain you are marking up your costs to make a fair profit.
- Location of work: Often our dispatch location is remote, adding a great deal of travel time to the job. Overtime is then needed to complete the job as the time it takes to travel to the job depletes the actual time spent to perform the work.
Here are some possible solutions to this dilemma:
- Move. One of our clients currently spends more than $650,000 per year in overtime. Yes, $650,000. After reviewing the location of their yard and the cost of travel time to their job sites, the company decided to move. This reduced their net costs by more than $400,000. They are closer to their work, and recruiting the needed people will be a whole lot easier based on the location of their yard.
- Sell toward better route density. The closer to your dispatch yard the better. Try to sell work in a denser area to minimize travel time.
- Set up satellite yards. We had one of our clients calculate the cost of travel time to their remote locations and figured it would be less expensive to buy a yard closer to that perimeter area.
Overtime can drain your profits. So, get your team involved, identify the sources/reasons, build a game plan, measure, track and also consider recognizing those who help lower your overtime.