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A manager's guide to labor cost management

August 17, 2011
by Mark Woodka
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Labor is a provider's largest expense, and one that historically has not been managed as well as it could and should be.

For many providers, reductions in agency staff and minimizing overtime are fast-track ways to control labor costs. You can experience even greater results by adding a third element of cost control: managing to your budget thresholds, as tightly as possible. Small variances in budgeted labor versus actual labor can add up to tremendous savings over the course of a year.

Many providers do a very good job reducing their agency usage or eliminating it altogether. Overtime, however, is typically managed in a reactive way and small differences between the labor budget and what is actually scheduled are difficult to identify. For organizations that manage staff schedules with pen and paper, these differences, which can yield significant savings, become invisible.

A keen eye toward preventing overtime and proactively managing the gap between scheduled hours and budgeted hours will go a long way to improving your bottom line. With a few key practices, you'll see how modest improvements in these areas can produce significant and noticeable financial results without sacrificing care.

OVERTIME INSIDE AND OUT

Let's explore overtime to pinpoint how and where improvements can be made to lower labor costs. There are three core types of overtime:

  • Scheduled overtime-often a result of short-staffing.

  • Incremental overtime-occurs when full-time staff punch-in early or punch-out late.

  • Frictional overtime-due to staffing emergencies like call-offs, no-shows or terminations.

SCHEDULED OVERTIME

While “scheduled” overtime may be somewhat of an anomaly, it's an extremely common practice in facilities today. The good news? It can be prevented, without understaffing. Get started by giving schedulers more visibility into hours worked, by employee. As a new monthly or weekly schedule is produced, make sure the scheduler calculates daily and weekly totals for each employee. If an employee is scheduled for overtime at the start of a pay period, take the time to find out why. There can be myriad reasons why scheduled overtime occurs:

  • Are you short-staffed and unable to cover shifts without overtime?

  • Was someone promised overtime when they were hired?

  • Is the scheduled overtime an oversight?

Be sure to evaluate and understand the reasoning behind each instance of scheduled overtime. Minimize scheduled overtime by establishing a policy against it without receiving approval from the DON or administrator. With these controls in place, you will quickly see that scheduled overtime can be prevented.

INCREMENTAL OVERTIME

Incremental overtime is a common source of excess labor costs, but it is often the least visible. Get your arms around it with some additional reporting. Schedulers should produce a report at the start of each day identifying each employee's scheduled time for the week, and how much time he or she has punched week-to-date (WTD). Add to this his or her remaining scheduled hours for the week. This report will highlight employees punching more than their scheduled hours and identify those projected to go into overtime (see table on p. 26).

In the example report depicted in the table, you can clearly see that Mary and Mike are punching more time than they are scheduled. Both are going to earn overtime for the week (assuming a standard 40-hour rule). Get control over this situation by addressing it as soon as possible. When you see a discrepancy, question the employee or his or her supervisor to find out if the extra time was spent providing care. Find out if it was approved or unapproved. Once employees are aware that you are paying close attention, incremental overtime will naturally decrease.

FRICTONAL OVERTIME

Frictional overtime is the most difficult to manage. You may have a perfect schedule that's closely correlated to your census, but then a nurse calls in sick and a CNA quits. Those shifts need to be filled quickly. This is when and where significant overtime risks begin.

It's common for schedulers to start calling the people they know will pick up shifts in order to find a replacement as quickly as possible. This practice will frequently lead to overtime. Consider the example report in the table. With this report in hand, prioritize calls to those people who are not projected to be in overtime. Be sure to consider part-time staff to fill unexpected open shifts, and call part-timers first. In addition, establish a time threshold for filling the shift. For example, if the call-off is for a shift tomorrow morning, give the scheduler the majority of today to find the most suitable replacement. Consider the “go-to” list of people who will likely incur overtime as your backup plan, calling them only if necessary.

Mark Woodka
Mark Woodka


Once open shifts are distributed more evenly to a broader group of people, you will experience a boost in staff satisfaction. Unfair allocation of call-offs and open shifts is one of the most common complaints I hear from facility staff. With this new process that promotes fairness, you'll see that staff members are happier.

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