Introduction

Labor overtime refers to any hours worked by an employee that exceed their normally scheduled working hours. This is typically calculated as the hours worked in excess of scheduled hours (e.g. 40 hours per week), or hours worked during weekends. These rules often can vary by state and/or country. The overtime rate of pay varies between companies and by the specifics of the overtime, such as the number of overtime hours worked, or what day the overtime was worked on.  Standard overtime rates include time and a half and double time.

 

Business Challenge

For the typical system integrator, overtime can have advantages and disadvantages.  Overtime can often be utilized to meet pressing deadlines but has the side effect of eroding profit margins if not managed properly. It also has an opportunity cost impact on adjoining projects, often causing them to be delayed or compressing their schedules (creating a cascading overtime occurrence).  And if relied on excessively, it can also cause employee burnout in the long run.

Some of the common challenges faced by integrators around overtime include:

• Managing planned overtime and reacting to unplanned overtime work
• Reviewing and approving overtime hours
• Deciding which technicians should perform overtime work
• Deciding on how to cost the overtime for active jobs

Typically, it is a best practice of mature companies to collectively mitigate the use of unplanned overtime, with the knowledge and support of the entire organization, and not limited to Operations or Installation.

 

Recommended Practice

Part 1:  Understand and mitigate root causes of unplanned overtime

Planned overtime is typically factored into the projected cost and price of the job, either during the pre-sales cycle or through a customer-approved change order during the execution phase.

Unplanned overtime is typically reactive and can be caused by several factors, most of which could be mitigated or avoided entirely. These include, but are not limited to the following:

• Inadequate or missing site surveys, resulting in unexpected site conditions that cannot be remedied with a customer-approved change order (CCO)
• Poor deliverable quality from the previous person in the project life cycle
• Poor subcontractor quality control causing re-work for the integrator and project schedule compression
• Lack of labor forecasting within the sales pipeline report such as poor capacity planning
• Lack of proactive project management. This includes responding to missed milestones early in the project (often by others) and taking corresponding actions such as delay notice with accompanying customer-facing change orders. This also allows the customers to become entitled, believing the integrator will resolve issues for free
• Lack of status visibility into actuals (how much have you spent?) versus projected (how much do you have left?), and forecasting (what does the future hold based on this trend?)
• Procurement issues such as back orders or wrong equipment/parts
• Poor prioritization of sales/design engineering efforts resulting in delayed or incomplete drawings that result in late procurement
• Warehouse staging issues such as missing or misplaced equipment, parts, or tools
• Unplanned, last minute trips to retail stores to due to site conditions not discovered in proper site surveys
• Lack of chain of custody on equipment or parts by lead technicians (“we never got it”)
• Piracy of equipment or parts to other projects, which is often done by project managers
• Misplaced equipment or parts on the job site (“someone must have moved it”)
• Not giving the Technician enough time, in the early phases of the project, to finish the deliverable. This can result in a snowball effect in later phases where the technicians are spending effort completing the previous task instead of completing their own tasks.
• Last minute scheduling of overtime labor due to inadequate or false reporting by installation labor
• Deceitfully clocking overtime hours without prior approval

In summary, perform a thorough root cause analysis for actual instances of unplanned overtime in your projects, during a postmortem phase, to identify required changes in your internal policies and procedures to mitigate such events in the future.

Part 2: Institute process for approving overtime

While the recommendation above may eliminate most of the avoidable unplanned overtime, unforeseen project circumstances may still raise the need for overtime labor. We recommend accounting for this by instituting the following practices:

• Regularly run project status, labor variance and labor forecasting reports to predict a potential need for overtime hours during specific periods on specific projects
• Thoughtfully select the correct technician for each overtime instance
• Create project change orders (both internal and customer-approved) to account for the needed overtime
• Regularly review logged overtime hours against pre-approved hours. This may require instituting a policy where logged overtime hours are not acceptable unless pre-approved by project manager.

Part 3: Assign overtime to technicians based on criteria

For the purposes of this document, the term “technician” is used to refer to all labor such as engineers, drafters, programmers, rack fabrication, installers (both pre and final), commissioners, trainers, etc.  Most companies rely on their most talented technicians to save the day, resulting in the following effects:

• Creates a hero/martyr mentality in many experienced technicians. Initially, they are honored to be the hero, however too much overtime and dependence on them has created a “martyr – woe is me” sentiment. This is a risk where the key competence of the company feels taken advantage of and considers leaving the company.
• Creates a negative reinforcement paradigm, where employees at the early phases of the project life cycle are not called back in to fix their own work. This results in placing reactive overtime on employees in later phases. Often the heroes mentioned above. This lack of holding people personally responsible for their own quality of workmanship reinforces the permission to continue to perform work not meeting the expected standards.
• Paying two to five times for the same work to be done over again, especially if higher cost subcontractors were not monitored for the quality of the deliverable. The integrator may choose to withhold payment from the subcontractor, but the schedule compression has forced overtime to be expended on this project and has done damage to other projects planning to use those resources.

In general practice, overtime should be assigned to the lowest cost/competence resource capable of achieving the required quality deliverable.  If an apprentice technician can fulfill the required deliverable to the quality standard, assign them.  Too often, integrators use their most skilled resources to fix projects at the end with overtime instead of requiring the employee/employee type to stay and use overtime early in the project to complete the assigned task to the quality standard.  Using overtime early in a project often mitigates using exponentially more later.

In theory, the use of overtime early in a project is a form of proactive planning to deal with a variance in estimation or job site conditions and mitigates the use of more later.  Integrators should shift their thinking on overtime. It is an essential tool in the project manager’s tool kit and used judiciously with approval/consent by way of the proper communication channels.

Part 4:  Institute method of costing overtime to active jobs or as overhead

It is a common practice to cost overtime hours to the last job a technician worked at during a week. Although this is a seemingly easy option, the practice may financially diminish a job for labor shortfall caused by another job, or for overall lack of labor capacity planning. For this reason, consider the following tips on costing overtime hours:

When	Consider
Planning for overtime during pre-sales cycle	Job costing the planned overtime to the job
Planning for overtime during project execution	Job costing the planned overtime to the job
Approving unplanned overtime after the fact	Option A: Job costing the overtime hours to the job determined to be at the root cause of the overtime Option B: Job costing the overtime hours equally to the jobs a technician worked at during the week Option C: Costing the overtime hours to your company (i.e. overhead cost)

 

In Q360

Prevent unplanned overtime

• Make use of sales funnels to drive better estimation
• Make use of the Labor Capacity Forecast report for a more macro look at your labor requirements when planning a new job
• Make use of project templates and task check lists to improve quality of delivery and reduce variation that may cause re-work
• Improve communication between project managers and purchasing by thoughtfully setting PO Release and Requested Dates on projects. Also monitor the purchasing-related information on the Project form, Materials tab, and related workflow buckets.
• Make use of delivery date details in master items to identify equipment that have long lead times
• Make use of staging locations to organize and advertise location of job-specific stored equipment and parts
• Tag shipped equipment and parts with the method of shipment. Also including name of technician picking up the equipment, to document chain of custody.

Predict the need for overtime labor during project execution

• Ensure time bills are reviewed regularly and task statuses are up to date
• Regularly run the Project Status report for active jobs. Running this report for completed jobs may also be beneficial to draw comparisons that can inform job estimation or execution
• Regularly run the Projected vs. Actual Labor Hours report for suspect jobs

Plan for overtime labor

• Create timely change orders for overtime labor once the need is identified. Consider charging for the overtime (CCO) if caused by customer-initiated changes or issues.
• Assign tasks to technicians with the default wage type of overtime or prevailing overtime

Respond to logged overtime hours

Use the Post Timebills Records form to address overtime related time bills.

• Time bills classified with the overtime wage type may relate to planned or unplanned (unapproved) overtime. A good way to distinguish the two is to check the default wage type classification of the associated task.
• Even if no time bills are classified as overtime, review the total time logged during a week (excluding leaves). If it exceeds overtime threshold (e.g. 40 hours), that is an indication of logged overtime labor.
  • Use the extended menu to split time bills and change their wage type to overtime. Refer to the Recommended Practice, Part 4 of this document for best practices on overtime attribution.
  • To allocate overtime hours to your company (i.e. overhead), change project associated with the time bill to the overhead project being used to log non-productive “office” time.
• Post all approved overtime time bills. Unapproved ones can be altered or changed to standard time.

Regularly review incurred overtime by analyzing overtime spent on projects, paying close attention to trends such as consistencies in project type, product line, project duration, project manager, sales rep, and technicians involved.

 

Frequently Asked Questions

Can I split or change time bills after they are posted, such as during the HR review process?

No, time bills must first be un-posted in order split, change the wage type, or change the linked project.

Can I prevent people from submitting an overtime-classified time bill?

Yes, this is a common practice that assumes creation of an overtime-classified task for a planned overtime, or a retrospective look at a person’s time bills for the week to identify overtime hours. To achieve this level of control, you may increase the field level permission for the Wage Type drop down field (Timebill form, Details tab) to a higher level.

How is overtime costed for prevailing jobs?

This can vary depending on your Q360 configuration and labor rules. Further discussion may be required.

 

Published: June 10, 2020