How to control overtime costs

Measure overtime as cost and as a share of hours

Two numbers tell you most of what you need. Overtime share = Overtime hours / Ordinary hours x 100, by team and month. Overtime cost = Overtime hours x ordinary hourly rate x 2. A Surat textile processing unit has 150 workers who work 31,200 ordinary hours in a month (150 x 26 x 8). They log 2,496 overtime hours, an overtime share of 2,496 / 31,200 x 100 = 8.00 percent. At an average ordinary rate of ₹95 an hour, the cost is 2,496 x ₹95 x 2 = ₹4,74,240 for the month. Split by department, dyeing accounts for 1,610 of those hours, which is where to look first.

Find the root causes

Overtime has a small set of causes, and each needs a different fix. Look at when it happens, on which lines or teams, and who works it, then match it to a cause below. Talk to supervisors before deciding, because they usually know why their team stays late, even when the reason is uncomfortable.

• Understaffing: the team is short of people, so overtime fills a permanent gap.
• Absence: unplanned leave is covered by people staying on.
• Poor planning: work arrives late in the day, or changeovers run into the next shift.
• Roster mismatch: shift timings do not match when the work arrives.
• Downtime: machine or system breakdowns made up at the end of the shift.
• Habit: overtime is expected as part of pay, so work stretches to fill it.

Fixes that cut overtime, not output

Understaffing is cheaper to fix by hiring than by paying double time. In the Surat example, 1,610 overtime hours in dyeing equal about 1,610 / 208 = 7.7 full-time workers at 208 ordinary hours a month each. Paying 8 more workers at ordinary rates costs roughly half of what those hours cost at double time, before statutory contributions. Absence-driven overtime falls when you tackle absence itself. Planning problems need earlier cut-offs for orders and changeovers scheduled inside the shift. Habitual overtime is the hardest, because workers may depend on it as income, so reduce it gradually and check whether the base wage is too low for the job.

Controls that hold

Controls work when managers see the cost of their own decisions. Keep the approval simple, make overtime visible from punches, and put the monthly cost in front of the people who approve it, next to their team's output for the same month.

• Pre-approval for planned overtime and a short deadline for post-approval.
• A monthly cap per person, with senior sign-off to go beyond it.
• Overtime detected from punches, so none is missed or invented.
• A monthly report of hours and cost by team, sent to department heads.
• An overtime budget per department, reviewed each quarter.

Step by step

1. Calculate overtime share and cost. Work out overtime hours as a share of ordinary hours, and the cost at twice the ordinary rate, for each team over the last three months.
2. Rank teams by cost. List teams from highest to lowest overtime cost and start with the top two or three, where most of the money usually sits.
3. Find the cause in each team. Check timing, people and triggers with supervisors, and name the cause: understaffing, absence, planning, roster or downtime.
4. Fix the cause. Hire where overtime fills a permanent gap, move shifts where timings do not match the work, and schedule changeovers inside the shift.
5. Set caps and approvals. Cap overtime per person per month and require approval before or soon after it is worked. ZeniaHR's overtime policy has a monthly cap and can require manager then HR approval.
6. Watch overtime every month. Send each department head their overtime hours and cost next to output. ZeniaHR detects overtime from punches each night, so the month's figures are ready at close.
7. Cut hours, never the rate. Never reduce cost by paying overtime below twice the ordinary wage rate. Reduce the hours instead, and keep each worker's consent on record.

Frequently asked questions