John Malloy of Sanford Rose Associates – Santee Featured in The Street Article: 3 Times a Business Must Say Yes to Overtime
Dallas, TX | 3/4/2014:
By Kathryne Tuggle
NEW YORK (TheStreet) — With rising costs for small-business essentials such as health care and rent, it’s not always easy to successfully budget a year or even six months in advance. When budgeting for employee salaries, the cost of overtime can also be difficult to pin down. Even if you plan to cut your employees off with a strict 40-hour work week, some overtime hours should be factored into your budget. Experts weigh in on the top situations where overtime is a must:
When you can avoid hiring another full-time staffer.
Most companies can estimate an overtime budget of 10% to 15% of their total annual budget, says John Malloy, president of executive search firm Sanford Rose Associates in Santee, S.C. Although that may sound like a lot, it’s a drop in the bucket compared with the cost of hiring and training.
“Think about what it will cost to hire, train and retain a new person vs. what you’ll spend paying your employees for a few extra hours of their time,” he says, adding that it just makes more sense to give overtime to the employees you’ve already trained and provided benefits for.
“Overtime isn’t a bad thing,” he says. “At many manufacturing companies, employees are accustomed to getting 15 or 20 hours of overtime each week. They may have a fairly modest base wage, but when they get that overtime it’s a boost for morale and does a lot for employee retention.”
Employees who collect overtime regularly will be less tempted to migrate to another company — they grow accustomed to their weekly bonus, and they realize it’s a good thing.
“When an employee gets locked into expecting a check of that size, they’re loyal,” he says. “When you think that you can get that loyalty for far less than what you’d pay to hire another employee and give that person benefits and training, it’s a no-brainer.”
When business is busy, employees get sick or there are other “unknowns.”
There will be times of the year you have to pull the trigger and draw from your overtime budget — even if you’re saving it for a rainy day, Malloy says.
“It is going to happen — if you are running a two- or three-person business there will be unforeseen circumstances. Even if you are running a 20- or 30-person business you will encounter those unknowns,” Malloy says.
Those “unknowns” will vary from industry to industry. Companies in retail may have a big holiday rush, while manufacturing companies may be busier in the summer. Restaurants will have to budget for busier times of day, while other companies may need to pay overtime to half their staff if the other half falls ill.
“The point is that anyone who doesn’t budget for OT is kidding themselves,” Malloy says.