7 Strategies to Reduce Overtime Costs for Your Retail Business

Retailers often face the challenge of balancing staffing needs with financial efficiency, and one of the significant pain points is overtime costs.

Retail operations leaders are very aware that while overtime is sometimes necessary, it can quickly escalate operating expenses and impact the bottom line.

In this blog post, we’ll explore proven strategies to manage and reduce overtime costs without sacrificing the quality of operations or employee satisfaction.

Understanding Overtime in Retail

According to the Bureau of Labor Statistics, employees across industries average roughly 3 hours of overtime per week. A QuickBooks study stated that 30% of retail workers clocked overtime in 2019.

Before we jump into strategies to reduce overtime, let's understand why overtime occurs in retail in the first place.

Several factors can lead to overtime, including:

• Unexpected staff shortages
• Holiday rushes
• Poor scheduling practices

It's important to first understand the main causes of overtime in your business in order to tackle the problem effectively.

Strategies to Reduce Overtime Costs

1) Schedule smarter

The foundation of reducing overtime costs? Adopt smarter scheduling practices across your retail business.

Matching staff to demand doesn’t automatically mean hiring more employees. Practicing smarter scheduling means thinking strategically and getting to the root of the problem of overtime costs.

Take the time to evaluate how your demand and your current staffing stack up. Are you paying for too many employees who aren’t needed? Or are you paying overtime for employees when more staff is needed?

It sounds obvious, but ensure you have the right amount of staff available when the store is busy, and that you aren’t overstaffed when things are slow. This means analyzing your historical store traffic and sales data to find patterns, so you can better plan for the future. 

And the more you incorporate this analysis and reflection into your regular scheduling process, the better you’ll get at scheduling smarter. By looking back at what went well and what could be improved, and looking forward to any key events or holidays that might cause a spike or lull in traffic, you’ll be able to better align your staffing levels to demand.

Check out our retail scheduling guide for more tips on how to schedule smarter.

2) Use sales forecasting tools

Demand forecasting ensures the right number of employees are scheduled for each shift, given your expected sales and foot traffic.

However, manually forecasting by analyzing your store performance and traffic data isn’t scalable. Managers simply don’t have enough time to do it effectively on a recurring basis. There are also too many potential data points to evaluate if you really want to be strategic about scheduling: employee availability, historical and predicted sales and foot traffic, individual staff performance, etc. 

That’s where sales forecasting tools come into play. A forecasting tool or software automatically analyzes all of this data for you to forecast your future demand, enabling managers to quickly and easily make smart scheduling decisions.

For example, Shiftlab has AI-powered demand forecasting that predicts labor demand down to the hour. To do this, our forecasting engine uses historic sales data, recent trends, and event effects to accurately predict the labor demand for each location.

Having the right tools to do demand forecasting helps your team eliminate human error and bias, save time, and set your stores up for success when planning staffing levels.

3) Use breaks strategically

Breaks may seem like just a mundane, sometimes inconvenient “check-the-box” task, something you need to do to stay compliant with regulations and give your team a breather throughout the day.

But in reality, one of the biggest culprits of overtime costs is employees not taking breaks. Underutilized breaks often impact overtime and understaffed peak sales hours — and retailers usually don’t have insight into that impact until the end of the quarter.

As a retail manager, scheduling your team’s breaks strategically is an opportunity to maximize productivity and decrease overtime.

Using scheduling and time clock software like Shiftlab also helps here. Shiftlab’s scheduling automation platform places breaks strategically while adhering to compliance rules. 

With the platform, your managers can schedule breaks at specific times and enforce them with integrated break compliance forms. They can also send break reminder notifications to employees so they never miss a break.

And using the demand forecasting data you’ve gained from the step above, store traffic patterns can inform you when to schedule these breaks to ensure you’re covered during peak hours. Not only can you find the right downtime to give your teams a break, but those breaks enable your employees to stick around longer — so a 9-5 shift turns into a 9-6, giving you better coverage in those peak sales times.

Long story short, don’t discount breaks as an important strategic tool for reducing overtime and increasing productivity. You can learn more about break strategies in this blog.

4) Track labor hours accurately with a time clock app

If you don’t have an accurate idea of how much time your employees spend on the clock, then you can’t accurately calculate your labor and overtime costs — it’s that simple.

Having a time clock app makes understanding your labor costs much easier. Look for one with built-in features to prevent time theft and overtime. Shiftlab’s Time Clock app is integrated with our scheduling platform and includes:

• Automated punch corrections: cut back unbudgeted labor hours and make payroll easy

• Early clock-in prevention: saves you from paying for unbudgeted labor hours

• Real-time overtime alerts: set and enforce break and overtime rules to stay compliant

• Centralized timecard management: reduces payroll prep by up to 90%

When you can proactively fix and prevent timekeeping mistakes, your overtime costs are almost guaranteed to go down.

5) Track labor strategy execution with reports and dashboards

It’s one thing to have a labor strategy in place to reduce overtime costs — it’s another to consistently report on its execution and performance to leadership.

Are you waiting for HQ to produce a trending hours report to identify who’s unexpectedly clocking more hours?

Shiftlab’s leadership dashboard will show you this data the second it happens. These reports let you see when a teammate, store, or district is trending out of projections. Our subtle caution indicator will also alert everyone that there’s still time to adjust before the week is up — no more waiting on Excel or Google Sheets from the back office.

With our Schedule Performance Dashboard, you can:

• See your labor plan in advance for all locations
• Know how the team is executing against the forecasts
• Receive real-time alerts when something isn’t going to plan

Having a reporting module that brings together time clock, sales, and scheduling data ensures your strategy execution is on point.

6) Set alerts with real-time data

It’s important to be aware when employees are approaching overtime so as a manager, you can evaluate and make changes if necessary.

But between customer demands, meeting employee needs, staying within budget, and other day-to-day responsibilities, there’s a lot for managers to juggle.

Having access to real-time performance data can make all the difference. 

With Shiftlab’s Store Pulse, managers can set up overtime alerts on their smartphone — empowering them to make faster, smarter decisions about issues as they arise. They can also view overtime trends and make adjustments to the schedule or budget in one place, so there aren’t any surprises when it comes to payroll.

7) Use employee scheduling software

Our last tip for reducing your overtime costs is to use a dedicated platform for your employee scheduling process.

Employee scheduling software enables you to easily implement all of the above strategies — empowering your team to schedule smarter and reduce overtime by ensuring staffing levels match demand.

The best employee scheduling solutions bring all of your scheduling information, store and employee performance data, timekeeping data, and compliance details into one place. Then it analyzes that data to create the best, most strategic schedules for your unique business. Here are the top features we recommend looking for in your scheduling software.

By accurately forecasting demand and workloads and optimizing schedules, you minimize the need for overtime in the first place.

Final Thoughts

Reducing overtime costs is a strategic must for retail leaders. While overtime may sometimes be unavoidable, implementing the seven strategies listed above can help keep it in check and contribute to healthier profit margins. 

Learn how Shiftlab’s automated scheduling and smart timekeeping platform can help you cut overtime costs!