There are very few businesses where work is constant – with no significant feasts or famine, and even fewer businesses where the annual workload can be planned and executed with sufficient and foresight such that variations in workload can be reflected in variations in resources. Whilst increases in workload, temporary or longer term present challenges, it’s probably true that from a resourcing requirement, it’s easier and less painful to manage overload then underload.
Under utilised human resources is a waste and a huge negative in many differing ways, some measurable and some not:
- Lower output with little reduction in input costs leads to inefficiency;
- Staff lose motivation when at work with little work to do;
- Increased management input required to keep people busy;
- The temptation to slow what work is available down to look busy;
This paper explores three ways of increasing flexibility within our core workforce. This is based on an operational/production establishment which is relatively stable, but sees planned and unplanned variation in workload over a year which is not entirely within its own control. The approaches can of course be blended – some of one and some of another – to address the needs of many businesses. It presumes that there is some form of both input planning and some form of measurement of time on task, either via ERP systems or by more prosaic methods. It also presumes that the operational part of the business will need to react to sales, potentially through some form of Sales and Operational Planning (S&OP) process whereby sales, proposed sales, delivery dates, revenue, costs and resources are balanced to deliver a plan.
Increasing available resource by utilising regular overtime.
In this example, a business would resource to the standard demand – based on the plan or the output of the S&OP process. Most business operate their output based on a series of best guesses and applying previous experience, therefore even the best plan will be accurate only to a degree. Additionally, most business will presume a certain amount of both product and operator efficiency – in broad terms, how much of an operator’s time is productive time, rather than chasing parts, getting tools, setting machines or other non productive time. This is again likely to be accurate only to a degree.
A traditional working pattern has been to supplement the working week by overtime. In many cases, overtime becomes the standard requirement rather than a tool to be deployed when its required, so there is in most organisations a degree of regularity about overtime – so regular that it essentially becomes a part of the working week. The traditional ‘two nights and a Saturday’ has slipped into common lexicon in many operational environments, such that rather than creating additional resource, it becomes what is required to satisfy the standard workload! Employees can and do manipulate workload to ensure overtime, and managers do not in many cases have sufficient engagement to manage this more efficiently or worse, are ensuring their own overtime. Any potential for increased efficiency is therefore essentially lost.
Overtime is also a significant additional cost. In general terms weekday overtime adds a third or a half to the normal hourly rate, and weekend overtime can add a half or in some cases double the rate. Therefore 12 hours overtime a week could add 17 hours to payroll costs, with the premium alone adding at least a third of that.
Many companies do not place a contractual obligation on their staff to work overtime, and therefore rely either on goodwill or the economic circumstances of their operators to fulfil the need. In that case it is exceptionally difficult to plan for overtimeand unreliable. Not unnaturally perhaps, people prefer not to work overtime in good weather, so there is a natural reduction in availability during the summer, both from annual leave and a reduction in desire to work additional hours.
Relying on overtime to deal with work spikes therefore carries a degree of risk. An overtime culture as described above does not necessarily lead to improved efficiency, although the means of correcting that lie with the employer.
Increasing available resource by using Agency staff
A traditional means of dealing with fluctuations in work has been to employ what is effectively a buffer zone of staff who can relatively easily be deployed or released and which can protect the ‘core’ employees – those on permanent contracts. Agency staff have traditionally been part of many operational workplaces for exactly that reasons – when work is light they can be let go, and can be (hopefully) re-employed when demand increases.
There are some inherent difficulties with this approach; the quid pro quo for our ability to switch that resource on and off is a reciprocal lesser engagement of those staff with the business – Agency staff are more likely to leave, the management relationship can be complex and the costs of training are similar to employing our own staff. Additionally, many employees find themselves in the situation of employing Agency staff for some time, enough to acquire some employment rights such as pay parity. Any investment made in training or increased competence is lost.
Recent changes in legislation mean that where there was historically a potential cost saving and a fairly benign legal context, both have changed – Agency staff are required to have pay parity after 12 weeks as well as other new rights which are acquired through service.
In a technical environment – i.e. one for which the tasks require a material degree of competence – then the time taken to gain skills is lost time. Where the task is relatively straightforward, then it is perhaps a readily available and relatively easily deployable resource.
For such a strategy to work, it is vital to develop and maintain an employment strategy to enable you to get appropriate agency support. It will depend on the requirement, but either a wide pool of prospective employment agencies, or a co-ownership strategy with an existing agency can work. Patently costs and quality are key drivers, so this should form part of any supplier selection process.
Annualised Hours
Conceptually, annualised hours means that rather than the focus on an 8 hour day, or a 39 hour week, that the contractual working hours are based on an agreed annual limit, and, within certain parameters, both parties maintain a degree of flexibility in relation to when these hours are worked.
This means that essentially when work or demand is light that the business can reduce the working week from the ‘standard’ down to a minimum, and even to none at all. Conversely, when demand and workload is high, the business can increase the working week from the standard up to a pre-agreed limit. Both of these adjustments are made without contractual change or variation, as such flexibility is contained within the new contract of employment.
There are many models which detail how these schemes should operate; first principles are:
Based on a 37.5 hour week:
Hours per week 37.5
Weeks per year 52.143
Total Annual Conditioned Hours 1955 hours
Less Annual Leave (5 weeks) 187.5
Less Bank Holidays (8 days) 60
Total Working Hours 1707.5
Therefore, the business has 1707.5 hours to utilise to reflect demand which it can in theory deploy to match the resource requirement.
It is generally one of the guiding principles that staff working annualised hours are paid the same monthly (or weekly) wage regardless of the hours they work.
It will be a be a matter for each employer to determine some of the basis logistical elements such as:
- A decision on how leave is to be allocated and used; If the workplace is on long days then the benefit of using a days leave is greater than if the workplace was on short days, compounding the likelihood that resource is required more at that stage; an employer may wish to consider allocating leave in hours such that if planned attendance varies from standard days, then that is the leave subtraction for that day. This will likely encourage leave to be taken in leaner times, but consequently there may be more absences
- How will overtime be earned and calculated? Common sense dictates that over time can only be worked once the annual worked hours target is reached. This creates its own issues however;
- Staff may be used to routine and regular overtime as a pay supplement, and losing this may impede their desire to change to annualised hours;
- Dependent on circumstances, the employer may find that at the end of the year it requires almost all hours to be overtime hours, with consequential premiums. If matched to financial year, then the potential is for the year end traditional push to be more expensive;
- Unions may determine that any hours worked in excess of traditional conditioned hours attract a premium – patently this negates some of the advantages. On the flip side, it means that in the shorter working week any overtime would be at plain time, or weighed off against hours;
- Work requires very detailed planning and detailed time recording to maximise the business return. It works most easily in fast turnaround businesses, or those with a fixed but varied resource plan – so, planned time of high intensity and other time when staff may be waiting for work to pass on to them. There is a huge burden of risk placed on those who plan and execute the work, and the risk over overspend is much greater.
- Unions may seek to make a differential in premium between short term requirements for overtime and planned longer days.
- Hours planned, worked and required will need careful monitoring, measuring and management, especially against the Sales and Operational Planning process. Unless the employer has pretty accurate data on resource requirements with a reasonable degree of foresight, then it is likely that it will become too difficult to manage, resulting in significant overtime or in lost productive time;
- Employers will need to consider whether there are to be minimum worked hours per week or maximum hours per week. It will be in employees interests to compress hours into fewer days, so if the planned workload is 30 hours, staff may prefer this over 3 days which may not be operationally feasible.
- What notice of workload can you give, and what would staff expect? For staff to maximise the benefit of such a scheme, they would prefer as much notice as possible such that any down time can be used appropriately.
- Consideration will need to be given to how weekends are to be treated – are they normal working days with no premium?
- Employers may wish to break the year up into sections – quarters say – at the end of which a maximum carry over of hours is agreed, and payment made for anything above that.
- Is this something which is suitable for all parts of the organisation, and at all times? Can the organisation flex to suit longer or shorter working days?
- What are the impacts in support areas? Canteens, admin resource etc.?
- Employers may see a rise in unplanned absence during period of lengthened hours. Therefore you will need to consider how you deal with this.
- It is likely that staff will request that a percentage of the saved premiums be included in basic wage – this therefore increases pensionable pay, overtime and potentially holiday pay.
- Annualised hours are not suitable for everyone domestically, therefore there is a risk that changing someone’s working pattern could be detrimental to their home life. Careful consideration needs to be given to how flexible working requests are handled.
- Its likely that shift premia will form part of the Trade Union bid for consideration in financial arrangements.
- There continues to be a requirement to comply with Working Time regulations.
Whilst theoretically simple, there are many areas to consider. In general terms, Trade Unions are not automatically against this concept, they will recognise that there are significant benefits for the individual, but they are likely to insist upon specific safeguards to protect their members interests.
Set against all of that, as well as the fact that such a fundamental change to existing Terms and Conditions is potentially troublesome (and would need to be negotiated and agreed with employees), the move to such a scheme is complex, onerous and comes with significant risk. However, the operational rewards, as well as the increased flexibility for employees means it is an attractive option providing that the operational constraints can be addressed.
One step short of annualised hours is the concept of varying working patterns over the year, but planned in advance. For example, if there are quarterly outputs, there is the potential to work lower than conditioned hours at the start of the quarter, and increasing towards the end.
Similarly, if there is no real variation in output, then there is the potential to change working hours seasonally – for example reducing hours or days in winter to minimise potential exposure to disruption. Such arrangements are generally easier to manage, carry many of the same benefits but with a consequential reduction in management and administration but do require significant operational stability.
Can we help you with improving workplace resource flexibility? Call the ScotEng team on 0141 221 3181.
