Have you ever run payroll and found that your cost is much higher than expected? In some industries, like dental offices, for example, payroll costs should be consistent. If your same five employees come to work every day and work their scheduled shifts, you should expect their payroll to be the same. If they use time off when they’re sick or when they’re on vacation, that’s the only time it differs (but usually your PTO policy will balance it out). Employees on a set schedule should obtain almost the same amount of hours every pay period, without any surprises.
So how does payroll go up and down? Particularly up…
If your employees make an average of $12 per hour, then your biweekly payroll should be about $4,800. So how can it sometimes be $5,300?
Frankly, there’s no reason your payroll budget should have to account for such inconstancy. If anything, it should occasionally be lower than expected not higher. This can happen when employees leave a couple of hours early on Friday or come in late due to traffic.
If you have five employees who make an average of $12 per hour, it only takes them each staying late or coming in early (about 30 minutes a day) to bump a 5-person biweekly payroll up by $500. I don’t know about you, but $500 every two weeks is kind of a lot of money. If you’ve got 10 employees, it’s $2,000 per month. With 20 employees, you’re looking at $4,000 in unnecessary costs. The bigger your business, the potentially bigger problem you could have with overtime padding.
In our scenario, each employee is only getting about 30 minutes of overtime per day. The amount that it benefits them is by little more than a hundred bucks per paycheck and that’s before taxes. After taxes, they’re getting about eighty bucks. But when compounded over each employee and the course of two weeks, your payroll budget takes a real hit.
If employees realized how very little it helped them and how hard it hits the business, they may rethink their overtime padding strategy, but seeing the payroll big picture is probably furthest from their minds.
How to Cut Payroll Costs
Cutting payroll costs is kind of like sealing a drafty door in the wintertime. A whole lot of heat escapes through drafty windows and doors. If it’s just one, maybe your heating bill won’t be too affected, but if you’ve got a house full of drafts, you can expect to be paying a much higher heating bill each month. Plug those little gaps and save yourself hundreds.
Like a house, you must do a little investigating to plug the gaps. Start by figuring out what your payroll should be for each period.
Calculate expected payroll
Find your employee’s average hourly rate by adding up their hourly rates and then dividing by the number of employees. So, if you have five employees, it might look like this: 10+12+13+13+9=57, 57/5=11.40
Next, multiply the previous number by the number of hours they’re supposed to work each week. If you five employees work full time, then it would be five times forty hours per week. 5×40=200.
Multiply this by the average hourly rate and you’ve got what your weekly payroll costs should be. So in this example, it’s 200×11.40=2,280. If your weekly payroll costs are higher than that, someone is working overtime.
Plug the leaks with overtime controls
You can explain to your employees that these costs add up to hundreds of dollars in extra expenses for the business but, if this doesn’t help, you can implement some controls on your online time tracking program.
Disable the clock in button – You can disable the clock in button before an employee’s shift begins so that employees cannot clock in early.
Send clock-out reminders – Employees can receive reminders to clock out via email. If clocking out late is an honest mistake, this might help to bring the hours back down to normal.
Get notifications when employees clock out late – If an employee clocks out late one day, you can get an email about it so that you can send them home early the next.
Automatic lunch deductions – Some employees take 25 minutes for lunch instead of 30, which adds 5 minutes of overtime in their workday. By automatically clocking them out for 30 minutes a day, they will stop coming back early.
Get a text when employees clock in – If you have employees who routinely work from home at night, you can get a text when they clock in so that you can call them up and tell them to stop working.
At Timesheets.com, we recognize how important it is to keep overtime down to a minimum so we’ve been coming up with some creative ways in which an employer can use our system to help enforce a zero overtime policy.
Now of course, if employees do work overtime, you must pay them for it. The federal law mandates that employees be paid for the time they work and that if they aren’t supposed to be working, that’s a management issue, not a payroll issue. In other words, employees can’t be docked pay because they were told they’re not supposed to work overtime. There’s no such thing as unauthorized overtime.
Timesheets.com wants to help managers have more control over when employees work. Using these features can help employees understand that they need to work their scheduled shift and nothing more.
Ready to start online time tracking with overtime controls? Get started with a free trial now.