For larger employers and those with wage employees, variable pay tends to form a material part of the remuneration paid to employees (by variable pay we mean any pay that varies from pay period to pay period dependent on variable factors which may or may not include performance). Variable pay elements could include commissions, performance bonuses, overtime and certain allowances. Overtime tends to be the main element of variable pay, but this is not always the case.
Many employers track time using time and attendance systems, but very few monitor and proactively manage variable pay despite this being a sizeable cost for the organisation.
Significant cost savings can be made by following the process below:
- Data Collection – collect data on employee time through an appropriate Time and Attendance system and process (see our separate article on how to set this up properly) and preferably by collecting individual employee data in a suitable HR or payroll system (Note: it is difficult to proactively manage anything if you don’t have good data);
- Analyse the data to identify patterns:
- Which employees are racking up the most overtime (look at trends)
- Which departments / depots / locations / teams see the most overtime? Is this expected?
- Is the reason for the overtime clear?
- Staffing shortages
- Heavy project loads / specific projects
- Employees looking for extra pay – no discernible reason
- Is overtime being paid according to legislation, union rules?
- Are other allowances in line with union/bargaining council rules or have some allowances crept in because of legacy arrangements?
- Consider ways to improve work practices and/or communication
- Communicate the company policy to employees and managers;
- Utilise tools to notify managers where overtime is becoming excessive;
- Monitor and resolve employees claiming excessive overtime;
- Proactively plan for staff shortages by using alternative staff or changing shift patterns;
- Consider cross training in bottleneck areas to reduce the workload on key employees or teams;
- Identify scarce skills and bottle necks and implement plans to address these;
- Set targets for managing variable pay and track variable pay against output to make sure variable pay is reflected in improved efficiency / performance
It is also helpful to put a cost figure to overtime and variable pay and set targets for managers to reduce and hit lower targets.
While in South Africa we tend to focus on employees entitled to overtime under the BCOE, it is also important to consider work practices for salaried employees and make sure we as employers don’t create a culture of working overtime just for the sake of it. Where this is an issue consider better communication, limiting meetings to maximum lengths (of say 45min or an hour) and reducing the impact of team meetings.