Few Payoffs for Overtime Pay
It can be a drag on pensions and the bottom line.
Overtime is a vital management tool. Clearly, it's preferable to pay some workers time-and-a-half during work-packed periods than to add employees who may be underutilized at other times. "If overtime is driven by workload and intelligently balanced, planned and documented, it can be a very effective tool," says Drummond Kahn, director of audit services for Portland, Oregon. If it's not used appropriately, he adds, "it can lead to paying more than needed to get the work done."
We have come across a number of cases of the latter. There are cities and states in which workers who are about to retire put in scores of hours of overtime, largely to hype their pension benefits. In Buffalo, New York, for example, firefighters who retired in 2008 earned about $110,000 a year before their retirement, with an average of $45,000 of it in overtime. For those not nearing retirement, the average pay was about $70,000, with less than $16,000 of it from overtime.
Some cities invite this kind of problem by allowing unions to select who gets overtime assignments. In Bridgeport, Connecticut, which faced a $19 million deficit last year, police officers racked up nearly $9 million in overtime. Police union officials say there is not much that can be done about overtime since the department is 75 officers short of authorized strength. That's a fair enough point. But city officials complain that labor contracts allow unions to pick who gets assigned overtime, which drives up costs when older officers with higher salaries get these assignments. One police sergeant had a salary of $62,948, but picked up more than $100,000 in overtime--bringing compensation for that year to around $163,000.
Sometimes, overtime spirals out of control when government doesn't intervene in related problems. Atlanta City Auditor Leslie Ward told us that a lot of the overtime in her city's jail was driven by excessive staff absences. In 2008, the staff was unavailable to work 21 percent of their scheduled shifts. "If an employer doesn't manage or monitor the potential for abuse of sick leave," she says, "you end up with a lot of staffing gaps that you have to fill with overtime."
An audit in Portland, Oregon, which focused on three very different departments, noted problems with compensatory time: An employee gets one-and-a-half hours off for every additional hour worked, driving the city to a large overtime bill. And, there was often missing information on why overtime was necessary. "We found employees weren't asked to track the details or record what they were doing," says Jennifer Scott, management auditor for Portland. "So, management didn't have data or reports to analyze the use or misuse of overtime."
There are a number of potential ways out of an overtime morass. Scott suggests that government agencies implement policies that establish "a tone of how it could be set efficiently and effectively." This includes making sure employees have reasonable expectations about overtime. Otherwise, they tend to build it into their family budgets, assuming that if they want more hours, overtime will be available to them.
The Massachusetts Bay Transportation Authority has been able to cut overtime use by 45 percent since 2005 through a variety of basic management improvements: sequencing projects instead of running them simultaneously; planning ahead for personnel needs; and working with the labor unions on productivity issues.
In Atlanta jails, 12-hour shifts have helped to reduce overtime, although union leaders complain that there are safety drawbacks and that the change has hurt employee morale. Flexible schedules, which Atlanta's Ward uses with
her own auditors, help reduce unscheduled absences. They also are attractive to employees.
New York Governor David Paterson's pension reform proposals would exclude overtime compensation from being included in an employee's pay when a pension is calculated. As with other parts of the pension proposal, this stipulation would be in effect for new employees and not current employees.
Meanwhile, the New York Comptroller's Office advises local governments to do the relatively simple calculations that determine when hiring more employees would be cheaper than having current employees tote up overtime hours. For example, a recent audit noted that New York's Monroe County could have saved $2 million over five years by hiring 26 additional deputies for several jails, rather than utilizing overtime. The Comptroller's Office also put together a brochure of recommendations. It's available on the office's Web site (osc.state.ny.us/localgov/costsavings/overtimeplanning.htm).