Is workforce non-compliance costing your organization millions of dollars?

December 8, 2016

Alan Bateman, Healthcare Industry Strategy Director

This is the second of a two-part series on the risks and costs associated with workforce management compliance. In the first part, "Would Your Hospital Pass a Workforce Compliance Audit?", we explored the legal risks of non-compliance and the steps necessary to monitor and manage compliance. This post will explore how non-compliance can increase your labor costs.

Do you know how much it costs your organization when an employee waits for the clock to advance one more minute before swiping out? That one minute could be costing you a million dollars (more on that later). How many dollars does it cost the organization when an employee works through lunch? Or, what is the cost of timecard errors that are the result of manual edits?

These are examples of “Payroll Leakage,” which is any unintentional overpayment to employees. Other scenarios that contribute to leakage include systems that have not kept up with changing policies, timekeeping practices that have gone unchecked, gaming, and so on.

Payroll leakage, which can run from .005% to 2.5% of total payroll, often comes out of a lack of policy compliance. While an organization cannot totally eliminate leakage, it can be measured and once measured, managed.

Managing compliance to policies provides an opportunity to control costs and reduce leakage. For example, there are policies and labor laws that require breaks after working a certain period of time. In healthcare, there are exceptions when the needs of the patients require caregivers to cancel their lunches or breaks. Lunch breaks are unpaid in most organizations but when canceled, employees get paid for the worked time. If the lunch breaks are 30 minutes, this could translate to a half an hour of overtime by the end of the week for each employee.

In practice, management may notice that overtime is starting to creep up and that the number of lunches that are being canceled is also increasing. An analysis may reveal a number of root causes including, scheduling and staffing issues, department workflows, or vague policies. Once identified, management can take corrective action.

So how does one minute cost a million dollars? Most organizations have policies where clock punches or swipes are rounded to the nearest quarter hour. An employee who punches out seven minutes after the hour would have their time rounded back to the top of the hour. This gives the employee seven minutes to get from their work station to a clock. If that employee waits one minute and clocks out at eight minutes after the hour, the time is rounded forward to the quarter hour and the employee picks up an extra fifteen minutes of pay. Assuming they work 40 hours in a week and punch in and out on time for all other shifts, that extra fifteen minutes would translate to a quarter hour of overtime by the end of the pay period. It is not uncommon for hourly employees to pick up an extra half hour to an hour of overtime per pay period. It doesn’t take many employees gaming the system every pay period over the course of year to add up to a million dollars.

This practice is tolerated by organizations because they can’t quantify or don’t report on hours worked beyond an employees scheduled time. The overtime this causes is simply written off as “incidental.”

There are three steps an organization can take to manage and enforce compliance of their workforce management systems.

  • Perform a complete audit of policies, procedures and systems
  • Assign a person to be responsible for monitoring compliance on an on-going basis.
  • Train and certify all users of your workforce management systems to ensure they are educated on proper procedures and can identify compliance issues.

Don’t let one minute cost your organization millions of dollars. How does your organizations manage compliance with your labor policies? Please share some of your best practices.
  • Healthcare
  • EMEA
  • North America
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