How SMBs Can Leverage People Ops to Reduce Overtime Costs

Pay, Work / By / employee scheduling, labor cost management, overtime reduction strategies, People Operations, small business workforce management
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Labor Costs for SMBs Drain Cash Flow Fast

For small and medium-sized businesses (SMBs), managing labor costs is a constant headache. Overtime quickly:

  • inflates expenses, only part of which is wages. That’s more payroll tax, afterhours operations,
  • strains your budget, as overtime drifts to double time (in some states), from unplanned overtime
  • leads to employee burnout, which leads to missed shifts, excessive overtime, and degraded customer service

But, when you put effective people operations strategies in place, you can reduce overtime costs without sacrificing productivity. Here are just a few ways people ops can reduce unnecessary overtime and interrupt vicious work patterns.

1. Analyze Overtime Patterns

Start by looking at your current regular time and overtime data. Identify when and where overtime is most often happening. Is it during specific projects, certain times of the year, or in particular departments? Understanding these patterns is needed to develop solutions that make sense.

How to Audit

But, do you know how to examine overtime data?

First, collect the info and verify its accuracy. You can do this directly in your timekeeping system, by reviewing timesheets/time cards in a specific period and checking for errors.

Each issue you find (for example, missing approvals, missing clock outs, and employee hours that do not match their schedules) becomes another item to review in full during a time and attendance audit you do internally.

Note: If any audit leads to employees missing hours, just know that it means that the employees in question have been accumulating back pay, which would be legally owed to the employees as wages worked.

❌ How Not to Audit

About correcting past time and attendance data: at no point should you attempt to “rewrite the past.” Editing historical time records is prevented in most modern timekeeping apps, and it casts doubt on the trustworthiness of the entire history of the time records. It also poses a legal risk and a red flag if you were ever to be audited by the Department of Labor or other labor agencies.

✅ What to Do Instead

  • Use Corrections, Not Edits: Most modern timekeeping systems allow you to add corrections or adjustments rather than overwriting historical data. This keeps an audit trail intact.
  • Document Changes: If corrections are necessary (e.g., clerical errors), clearly document why the change was made, who authorized it, and keep a record of the original entry. Most modern timekeeping apps accommodate this, as well.
  • Audit Regularly: Conduct proactive audits to catch errors early, reducing the need for historical adjustments.

Next, when “dirty data” has been cleaned, really dig into the numbers. Compare the regular hours against overtime hours across different periods. Daily, weekly, biweekly, monthly … and look for spikes or trends.

Is overtime consistently high on certain days, during specific projects, or in particular departments? What about managers? Which managers seem to be driving their teams to work longer hours, or have teams that take excessively long to complete tasks that could be done by someone else in less time?

Visualize the data. The trends and patterns you discovered – those need to be communicated in a single picture, clearly, and impactfully. Make your visualizations talk! Be careful not to make unfair or unfounded assumptions. The data won’t lie, but you will!

On the topic of why … next thing you do is to perform a root cause analysis. Identify why overtime is happening. Some of the best questions to ask are:

  • Is it due to understaffing during peak periods?
  • Are we not preparing for regular seasonality?
  • Are a certain subset of our employees under-skilled?
  • Are our managers good at supervising and scheduling employees?

Now, gather the insights from your root cause analysis and trend analysis, and assemble it into a cohesive story. Doctors collect information, ask questions, show evidence, diagnose, and prescribe. Your path here takes a similar sequence, as the next thing you do with the total picture is to report it to your team.

Summarize your findings in clear, actionable format, and highlight the key patterns and areas of improvement (the diagnosis). As the expert here, present your recommendations and get those scheduling, staffing, training, or process changes fixed.

2. Implement Efficient Scheduling

Use employee scheduling software to optimize work schedules. These tools can help you match staffing levels with demand, ensuring you have the right number of employees at the right times. When you are consistently struggling to find people who can cover shifts, the scheduling software usually has a feature to allow employees to effortlessly pick up, drop, shorten, or extend shifts.

This proactive approach can prevent the need for overtime caused by understaffing. Effective use of the reporting features also will help you avoid falling into the trap of “over-hiring” due to misinterpreting shift challenges as being understaffed.

3. Cross-Train Employees

Equip your team with a diverse skill set through cross-training. This flexibility allows employees to cover for one another during absences or peak periods, reducing the reliance on overtime.

Also, it enhances employee satisfaction by providing opportunities for professional growth. Better trained employees often get work done faster, and more efficiently, reducing unnecessary overtime.

4. Monitor Workloads and Delegate Tasks

Regularly assess employee workloads to prevent overburdening. Delegate tasks appropriately and consider redistributing work during high-demand periods. This not only reduces overtime but also promotes a balanced work environment.

Protect Your Team, Protect Your Profitability

By critically analyzing your operations and implementing these people operations strategies, SMBs can effectively reduce overtime costs. This approach not only safeguards your bottom line but also fosters a healthier work environment, leading to increased employee satisfaction and productivity.

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Cody Bess
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