Posted on 10-Jan-09 by The Timekeeper

In a recent article in the Capture Business Profits blog, Merra Lee Moffitt points out a down economy doesn’t necessarily mean a reduction in the amount of work you have to do to maintain your business — in fact, you could find yourself and your employees putting in extra effort trying to land sales. So you may feel you can’t afford to cut employees (not to mention that laying off loyal workers is really uncomfortable).

But payroll is one of, if not the, largest expense for many small businesses. And in tough economy, you need to keep a lid on expenses. So how can you cut payroll expenses without cutting employees?

Ms. Moffitt offered a number of creative suggestions, including (among others) limiting or eliminating overtime, cutting hours or instituting alternative work arrangements, and (my personal favorite) getting a better handle on time and attendance tracking.

All good ideas. But you need to steer clear of the potential pitfalls, or you risk paying more in penalties, judgements and fines than you saved in payroll expense.

The Problem with “Eliminating” Overtime

Let’s first consider the suggestion to eliminate overtime for salaried non-exempt and hourly employees. Maybe your employees are used to deciding for themselves whether to work overtime, or maybe they routinely work overtime as a matter of course (even if it’s not strictly 100% necessary). Telling your overtime-eligible employees they can’t work overtime without management authorization can eliminate needless expenses.

The pitfall to avoid: You can tell these employees they’re not allowed to work overtime without permission. And you can discipline them if they do work unauthorized overtime. But if a salaried non-except or hourly employee works the hours, with or without your permission, the law says you still have to pay them at overtime rates.

You can’t get out of that, even if you didn’t give permission for the overtime.

(Of course, salaried exempt employees can work overtime without subjecting you to additional payroll liablity, so prohibiting them from working unauthorized overtime won’t save you any payroll money. Just be sure before you classify someone as “exempt,” they really are. Misclassification of employees is a whole ’nother can of worms, and you really don’t want to go there. Trust me on this one.)

The Alternative Workweek Alternative

The second suggestion, experimenting with alternative workweek schedules, can also help reduce expenses. For instance, you can simply reduce your standard work week from 40 hours a week to 35 hours a week. That could save you a lot of payroll expense (just be sure your overtime-eligible employees don’t need to keep on working a 40 hour week to get the job done, or you won’t end up saving much of anything).

The pitfall to avoid: as pointed out by WorkForce.com, depending on what alternative arrangements you implement, you could open yourself up to increased expenses and potential liabilities.

For instance, say you decide to close your office one additional day a week. This could save money on utilities, because you don’t have to light and heat/cool your facilities, as well as saving your employees the cost of gas for one round-trip commute. Both good things, of course.

But if you decide to accomplish this by having your employees work four 10-hour days so they still put in a 40-hour week, this could be a problem. In some places, such as California, you’re required to pay overtime based on daily hours worked, regardless of the number of hours worked for the week. So even though your employees would still only be working a 40-hour week, you’d still have to pay for 10 hours of overtime because they worked over eight hours a day.

It gets more complicated if you have your employees working different numbers of hours on different days, say, in order to balance the workload. So, for instance, if it works out an employee puts in 38 hours one week and 42 hours the next, you will owe that employee for two hours of overtime. Even if you only pay the employee every two weeks, so both weeks are on the same paycheck, the Fair Labor Standards Act says you can’t average the hours between the two weeks to 40 hours each. You have to pay based on the hours they work on a week-by-week basis.

It can get pretty complicated, depending on what you plan to do. Best to check not only the FLSA, but also all the state (and local) wage and hour laws applicable to your jursidiction before you decide on what specific alternative work arrangement you might want to try.

Time to Track Time

The third suggestion, though, is just plain awesome. Getting better at tracking time and attendance is a great idea, no matter what condition the economy is in.

Honestly, I can’t think of any pitfalls of having more accurate time and attendance records.

In fact, a recent article in Small Business Computing cited time and attendance software as one of the basic business technologies it makes sense for a small business to acquire, even when the economy is tight. According to the article:

Labor is a huge cost component for many small businesses, yet most don’t use readily available time-and-attendance products that could give them a clearer view of how they’re spending their labor dollars, help them use resources more efficiently and reduce costs and absenteeism.

To start with, the law requires you to keep accurate time records for overtime-eligible employees. Beyond that, you want to track employee time to make sure you’re getting value for the money you’re paying. Even a few minutes late arriving and a few minutes early leaving, maybe a few minutes extra for lunch, can add up. The more employees you have, the quicker it adds up — and pretty soon you find you’re paying for hours of time every week that employees aren’t actually working.

The cost can total up to thousands of dollars a year.

When you add in the cost of payroll processing, calculating time worked, entering totals, correcting clerical errors… well, spending a few dollars on a high-end electronic punch clock (especially one that automatically totals up employee time, saving you that work), a bit of software or a web-based time and attendance system starts to make some real economic sense.

So, of course, do what you need to do to trim expenses. And if you can do so without letting go employees, by all means do so.

Just be sure you watch what you’re doing so you don’t end up getting yourself in more trouble — and costing yourself more money in court costs in the end than what you saved on payroll.

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