Question
I am the shop foreman of a 5 man shop; as such, I am paid a salary. The others in the shop are paid on an hourly basis, time and a half after 40 hours/week. I went home sick Friday and one of the guys called me Saturday AM very upset because one of the owners came in and said from now on they are to work no more than 40 hours per week. If they are over, they should go home early on Friday. They go out of the shop to do site work or installs on a regular basis and a lot of times don’t get back to the shop before quitting time. Does this sound right to you? They are not happy about this at all.
Forum Resonses
(Business and Management Forum)
From contributor H:
As a shop owner and employer for over 25 years, I can understand his point of view. As the foreman, you should too. Many times, but not always, installers get back to the shop after closing time because they stop on the way back for drinks, food, etc. He does not feel like paying for this. Perhaps he is aware of this happening?
What incentive does any employee have to work and get the job done in a timely fashion, especially if they are paid by the hour? I'm sure he does not want them to hurry and do shoddy work, but not to create overtime by wasting time, either.
It's a rock and a hard spot for you, and as foreman you are paid to be on the side of management. Tell your guys to make sure they are not goofing off. Get the job done and get back to the shop. If they were salaried employees, rest assured they would return to the shop on time. I am not advocating anyone working for free. Just do what you're paid for the best you can.
I have seen this problem before. The company has tons of work and the employees work overtime for extended periods. They get used to this and adjust their debt load accordingly. New trucks, new cars, new boats, four wheeler, jet ski, all on credit. The company slows down and overtime goes away. Many of the employees feel as though they got a pay cut and that is the reason they cannot pay their bills.
If the boss thinks that he can meet his deadlines without overtime, then why would he want to pay more to get the same amount of work done? The bottom line is it is the owner's company and if he decides that he needs to not allow overtime, then that is the way it is. Do your work and have your guys do theirs without complaining.
I have been told they don’t want to pay overtime if possible, but here is the deal. It is not a case of abuse on the part of the employees. Nearly always when working on site, they are supervised by me or an owner of the company. About 50% of the OT occurs because they are asked to arrive early to travel to a job that is 2 or 2 1/2 hours away.
They respect me and work hard for me and I want to see them treated fairly. Don’t get me wrong - they need a push sometimes, but all are good workers. They show up on time and don’t complain about the extra work. They don’t show up hung over and don’t steal or cheat the company. (They did pass this damn virus to me on a long weekend, though!). The amount of money in question is not a lot - on average, 4 or 5 hours a week, 10 would be extreme. By my way of thinking, this is less than the cost of making 2 trips to finish a job.
In the 14 months I have worked there, I have never heard the owner who oversees production say “thanks for the hard work,” he's never bought lunch for them (I do on occasion). If he did throw them a couple of extra bucks or pass on a gift, they would pass out. If he is in a good mood and it is a long ride home, he might spring for a soda at the Quick Stop, but that’s about it. They feel they are not respected at all for what they do, and this in another insult. I am sure this will lower the already poor morale in the shop.
I think the real issue is not the overtime; it is feeling like the boss appreciates their work. It is quite possible that this guy is a jerk. That is not the same thing as not allowing for overtime. He did not disallow overtime because he was trying to be a jerk or because he was being insensitive. He eliminated overtime because he is worried about the cost.
As for it not being a lot of money, that depends on your view of a lot of money. 5 employees average $14 on hour. % hours of overtime each at $21 adds up to $525 per week, not including taxes. In his mind, this is money that comes right out of his pocket. I think your boss might be a jerk, but not because he doesn't want to pay overtime. He can't really go back to the customer and increase the labor for the job, so no overtime just makes sense.
Back in 1998, then governor Pete Wilson of California changed our overtime laws from 8 hours a day to 40 a week before you got overtime. You should have heard the screaming. No longer could you come in late Monday, leave early Friday, do 40 hours in 4 days and take home 48 hours pay. Unfortunately, Gray Davis caved to the unions and went back to the 8 hr a day/40 hour per week rule, and the slackers went right back to their old ways. You should see the articles in the L.A. Times about the overtime abuse on part of cops and fireman.
More than one shop has gone bust because of the abuses... Unless there is physically too much work in the shop, it's probably an abuse in some form.
We ramped our workload up again, and the instruction was given that OT needed to be approved at least 48 hours beforehand. We also allowed only 2 senior people to work OT, and then if OT was required, it was to be done by apprentices first, then the next cheapest person, and so on.
The main problem is, if people are allowed to, and expect to work overtime, you'll find that somehow that overtime always ends up being worked. If people know that they don't need to work hard/fast to get something done, because the boss will happily pay them overtime, then overtime they will work. And uncontrolled overtime is a major profit killer.
Employees should quit whining about the overtime pay not being there and be thankful they have a job. Employers should also realize that if they want something done, they have to pay one way or another. No man's labor is free. Plan ahead for those unexpected problems and plan your employee's time as well. You're supposed to be running the show. Run it. Life was tough back then and is tough now. No free rides for anyone. That's business.
What an owner should be discouraging is unproductive overtime, but forbidding willing people to work extra to help the company make more money is self destructive. Also, if you go into the situation assuming that your employees are dishonest goldbricks, that's the kind of workforce you will end up with. It's better to hire carefully and set high expectations, and then reward those who achieve. At my place, the slackers self select themselves out of the work force pretty quickly.
And by the way, it is not "...far cheaper to hire a new employee than to pay time and a half to 5 guys for 8 extra hours each a week..." as posted above. A new employee must be trained, must be added to the insurance rolls, must have all same benefits as existing employees, etc. and must be a risk for unemployment insurance if let go when the work slows down. Better to work some overtime to get through short term overloads or to accomplish a set goal beyond your normal production.
I would also point out that you are not paying a $10/hour man $15/hour when he is on overtime - for a 48 hour week, this man is making $10.83/hour, which isn't really that much of a premium. (40 hours at $10, 8 hours at $15 divided by 48 total hours). If you are really getting 48 hours production, it's a bargain.
I prefer not be on overtime constantly because the returns diminish over time, but just like my second shift, overtime is a tool to maximize the use of my fixed costs, create customer satisfaction and bring more money to the bottom line.
Overtime that is bid into a job represents more profit and better utilization of the fixed assets as pointed out previously, however we all know that most overtime develops as a result of lower than expected productivity, screw ups, material delays, equipment break downs, etc. Those are not reimbursed by the customer, and the resulting overtime is a 50% increase in labor costs. Overtime hours cost 50% more per hour, not 8.3% all week long.
If you are working consistent overtime, you need additional help, as I stated earlier. The real resentment will come from the hourly employees who develop a taste for the overtime, went out and bought a new truck, content that it is a regular fixture of the job, and suddenly finds that the overtime didn't last as long as the payments on the truck.
I owned a printing plant for 38 years before getting into wood. Workload there is totally unpredictable from week to week, and competition prevents you from charging overtime to the customer in most cases. If you want the work, you eat the overtime. If you refuse to do the job because of the added costs, you potentially lose the customer. Production in that business is registered in hours and days, not weeks like in the cabinet business. I have personally had years when employees were close to doubling their salary with overtime, gotten used to the extra pay, and when it ended they have actually come to me and asked for hourly increases to "make up" for the lost overtime. In their mind they took a pay cut when the work week was only 40 hours... Some times more like 30 that they dragged into 40 to get a full check, short as they thought it was.
Example:
Journeyman $10 per hour
2400 hours worked $27,000 net compensation
Base cost is 11.25 per hour + OH and is in all bids.
As contributor R mentioned, there are advantages to overtime. Any time spent getting set up and started/stopped now gets amortized over a larger number. We have tried to work 5 9's for years. When you get over 10 hours in a day, men get worn out and it's hard to perform. Last year we did 10 weeks of 5 10 to 12 hour days and then 5 on Saturday. We had lots of pizza lunches, shirts and gifts to show our appreciation at the end.
Installation that includes travel time is one of the most difficult costs to control. If you are using employees that work both in the shop and the field, it is much harder. If you have employees that are installation only, then look at having them report to the job and get paid for their time working on the job. If they come in the plant and pick up tools and parts everyday, then you can't do this.
The thinking behind having a policy of no overtime is like this: 1) Management should run the company and staff the company appropriately so people aren't overworked; 2) Employees tend to be less productive and less safe when they work too much; 3) It increases direct labor costs.
But you're right that if you are customer-focused, there are times when overtime may be unavoidable. And you're also right that the actual cost is probably less than it seems. You outlined a few of the costs associated with not working overtime that I hadn't considered.
From a manager's standpoint, the problem happens when overtime becomes the natural course of events and people are always working 10 hour days or every Saturday. It seems to lead to a deprivation of people's personal lives, and then if it gets cut back, you may have some disgruntled employees.
I had my paint shop supervisor off for a week ago - we've got 2 tradesman in there (one who is always in the spray booth) and 3 apprentices, who are excellent boys. The first day, they got bugger all done. The second day, I went out there first thing, then at lunch time. I gave them goals of what I wanted achieved from start to knock off. Every day they exceeded the targets I set for them.
But also, as has been stated, the OT becomes the goal. The goal is best pursued through targets. I used to (now in a different situation) keep graphs on everyone. When they came into the office, they knew how they were doing - not my opinion based on whatever. This concept, however it is pursued, has as much value as Lean, in my opinion. The "team" concept, if Home Depot is any example, is unworkable. (Now I’m being provocative.) Not to say there is anything wrong with getting everyone involved, but if there is no accountability, you have a team who gets along great but doesn’t produce.
The statement that it is cheaper to hire a new employee than pay overtime is way off. It is far cheaper to pay overtime than to hire another employee. An employee costs more than twice what he is paid to the employer. You can pay an employee overtime for half as much as a new employee.
I offer a good wage (my floor sweeper makes $10/hour up to my highest paid positions that can make over 40K a year), good growth opportunities (I have more work than we can do and more is out there), and good working conditions (company paid lunch on Fridays, no set hours, no questions as long as work gets out). Oh, and a company paid cruise for each employee and their spouse each year if profit margins and sales goals are reached.
I have one employee that is out on maternity leave. I let her come get parts (we do a monthly manufacturing run of approximately 500 units of 4-7 parts each) and assemble at her home so she can stay at home with her baby.
Out of 7 employees in the last 2 years, one has turned out to be worth keeping. The rest have taken advantage of me and the shop (and the other employees) in one way or another. I've been to unemployment court because one dude quite my shop to go to another shop and got fired. He thought I should pay him unemployment. One dude had to go because I found out he was loading his car with any wood that he could fit in the back and was working on his own projects and not shop projects. One dude left when I pointed out he was producing $0.85 work for each $1.00 he was paid and we needed to work on his production. One dude admitted he was whacked out on painkillers one day while at work.
The employee pool has become extremely shallow in my area. It is to the point that I outsource a good bit of work to another one man shop because I can't get a decent employee. It seems most of the people that come in here have a bad work ethic.
I would love to go through the bad apples to find a few really good ones. The problem (again in my area) is all the good apples seem to already have jobs and the owners will do whatever it takes to keep them. Schools don't teach woodworking anymore. They teach construction, but I need someone that can lay laminate, not frame a house. Recently I reviewed over 40 apps, called 10 in for interviews, 3 showed up and none were qualified for different reasons. So no, I can't just hire more people.
I know of 2 shops that have closed since January because they can't get employees. I am building my shop to depend on employees as little as I can. Automation, CNC, etc. And I'm still looking for that one real good employee that can come in and help me bring the shop to the next level and be very well paid.
As far as overtime goes, past about 10 hours a week, production decreases rapidly. If I have 2 people doing 10 hours a week, let's look at it. 2 people at $15/hour (15x1.5) = $23/hour on overtime. So the 20 hours OT costs me $460.
Assuming I let the part time person take over the lower skilled, simpler tasks, instead of $15/hour, they make $12/hour. No time and a half, so the 20 hours of work now costs me (20x$12.00) $240.
Even when I factor in the cost of benefits, the taxes, etc, the best business decision, for those 20 hours of work, is to hire an additional person. This is why OT should be an occasional thing, not a way of doing business.
I will admit that I work (if you can call it that) for the government and I wish I could get a job that pays this much, but I actually get to do some work at. I am so sick of not working. I just want to work 40-50 hours a week. Problem is that I make $25 an hour and no one is willing to pay that.
Time studies are a must for management to help them bid a job effectively. Those employees who wish to become employers someday should keep records also for future use. How you allot your time and spend your money is your decision, but do so by planning it out. Overtime pay can be held to a minimum.
