8 ways to reduce overtime pay

Introduction

Employees are any company’s greatest asset, but they’re also usually the highest cost too. In fact, in some companies, labour costs account for 70% of the total costs, and overtime plays a significant role in this. This is why it is so essential to the success of a business to manage overtime in South Africa specifically. Controlling overtime effectively decreases expenditure, helps companies avoid expensive lawsuits, increases employee morale, and keeps the business legally compliant.

The ins and out of overtime policy in South Africa

To understand the impact of overtime and what is set out as law on overtime in South Africa, we first need to define overtime and overtime pay.

In simple terms, overtime refers to the number of hours worked by an employee which exceeds their normal working hours per day in South Africa. Overtime also refers to the employee’s remuneration for the extra hours worked, which is the overtime rate in South Africa. Overtime rates often vary between companies, as do the number of overtime hours worked, but standard overtime rates include time and a half and double time for specific overtime stipulations.  

In South Africa, overtime regulations are set in the Basic Conditions of Employment Act (BCEA). Under this act, employees can work a maximum of 45 hours a week (excluding lunch hours) at their standard pay rate, which is 9 hours per day for a 5-day work week and 8 hours a day for a workweek longer than five days. Overtime only applies when an employee works over 45 hours per week.

Overtime is implemented under the following conditions:

• Employees can work a maximum of 3 hours of overtime per day or 10 hours over a week.
• Overtime rates are paid at 1.5x normal rate and 2x normal rate for Sundays and public holidays.
• Overtime pay is subject to an annual earnings threshold of R224 080.48.
• All overtime is voluntary and can only be worked under an agreement between the employer and employee. Employers cannot force their employees to work overtime. It is often asked, can an employer refuse to pay overtime? And the answer is no. But an employee can refuse to work overtime in South Africa.
• Senior management employees do not receive overtime pay, nor do employees who work less than 24 hours a month for their employer or employees who regulate their hours (traveling salespeople, for example).

How to calculate overtime pay in South Africa? 

Regarding the overtime calculator in South Africa, the legal requirement for calculating overtime pay is 1.5 times the normal wage rate. To calculate overtime pay, you need to take the employee’s hourly wage and time it by 150%, giving you the hourly overtime wage. For example, if an employee receives R10000 a month and works 220 hours, their hourly wage is R55.55; in this way, their overtime rate will be R83.33. This is set out in the BCEA overtime regulations.

The overtime rate for weekends and holidays is slightly different. On these specific days, employees are paid twice their normal wage. For example, if an employee is paid R10 000 monthly for 220 hours worked, the hourly wage rate is R55.55. If overtime occurs on weekends or holidays, this employee will need to be paid R111.10 per hour for each hour of overtime worked.

8 tips to reduce overtime pay

From the above, it is clear that over time can significantly impact your business and revenue, mainly due to the number of different BCEA overtime hour regulations and legal compliance. Many companies are unsure of how to reduce overtime pay which is why we have put together the below tips. These eight tips will help your company avoid the most common pitfalls, expenses and unwanted surprises.

#1: Make sure you have overtime policies in place.

An overtime policy, made clear to employees regularly, will protect the business and your employees and should play a part in reducing costs, as long as it’s taken seriously by management. Ensure that your policy is in line with the Basic Conditions of Employment Act’s overtime regulations and the correct overtime rates for South Africa.

It should stipulate at minimum the following:

• How many hours is full time, in relation to labour law on working hours in SA, so that employees know exactly when the clock strikes overtime.
• Standard and maximum working hours per week for all categories of employees.
• Overtime laws in relation to legal working hours in South Africa.
• Overtime not paid for.
• Regular rate of pay definitions that are in line with  labour law overtime payment regulations.
• What is considered extra hours in terms of labour law overtime.
• What is classified as double time in relation to South African labour law working hours.

#2: Use a scheduling tool

Often, overtime pay can be avoided. For example, when the schedule changes.

Let’s be clear: life happens, and accidents and sick days  can’t be avoided. When this happens, employees need to swap a shift, and their managers often don’t have the time or tools to find a replacement, resulting in too many hours for certain staff.

However, an automated employee scheduling tool provides an effortless way of quickly determining which employees are available, whether their skill set is a match, and how close they are to overtime. This can all be done within seconds, and overtime pay is avoided.

#3: Be meticulous with resource allocations

To cut down overtime pay, managers need to become good at allocating resources to ensure work quality while at the same time factoring in things like constraints and dependencies. For example, if a team member calls in sick, the manager must have the ability to consider how the person’s absence will impact the quality of work.

We already know that change will happen, but maintaining quality depends on how that change is handled and how staff are allocated.

The most effective way to allocate resources is by using the right scheduling software, such as EasyRoster.

#4: Use reports to highlight incorrect rostering and attendance

Reports produced by rostering tools can keep management on top of things. They can highlight incorrect rostering and attendance with regards to the number and grades of personnel scheduled at a site, as well as projected and actual wage costs, overtime, non-productive time, site profitability, and so on.

When management monitors scheduling with a “lessons learned” focus, they will find ways to improve rostering and cut unnecessary costs.

#5: Track time to the minute instead of rounding off

If employees manage their timesheets, how do you know how much time is being rounded up? Rounding up to the closest 15-minute mark can mean overpaying for labour, plus a loss in productivity, and overtime pay costs will be higher.

Rounding up also promotes poor time-keeping habits of arriving late, leaving early and taking slightly longer breaks. It is best to remove the rounding up rule or implement an automated overtime clock solution that records time to the minute and leaves no room for human justification or error.

#6: Automate alerts

A simple way to easily keep on top of overtime pay is for supervisors to receive a daily automated email that provides employee punch-in times.

This makes things easier for them to keep on top of things, and if they happen to see that someone is routinely working even a few minutes more than their allocated hours per day, they can take appropriate action.

#7: Encourage cross-training where possible

Reduce overtime pay by training employees to perform tasks for multiple positions.

This will also allow management to easily re-allocate employees in unexpected situations or labour shortages.

At the same time, cross-training employees gives them more skills and reduces the dependency on certain staff who are required to work overtime because of their expertise.

However, cross-training may not be so easy from a practical point of view and may introduce its complexities. The right software accurately records worked hours and pay rates for anyone according to their job.

#8: Automate scheduling

Today, there is no need to keep scheduling staff manually. There are many simple and affordable timesheets and scheduling software automation tools.

Conclusion

Scheduling and workforce management tools, like EasyRoster, make it easy to track employee overtime and hours. When utilising these tools effectively, most companies will see an immediate cost reduction in administrative burdens and payroll errors., labour expenses and overtime pay. At the end of the day, it is possible to cut down on overtime pay. All it takes is smart strategising and adopting the right technology.