Memorandum

City of Lawrence

City Manager’s Office

 

TO:

David L. Corliss, City Manager

FROM:

Diane Stoddard, Assistant City Manager

Lori Carnahan, Human Resources Manager

Marlo Cohen, Management Analyst

Michelle Stevens, Management Intern

CC:

Cynthia Wagner, Assistant City Manager

Jonathan Douglass, Assistant to the City Manager/City Clerk

DATE:

July 7, 2010

RE:

Overtime Study Report

 

Executive Summary

Early in 2010, the City Manager asked Staff to examine the City’s use of overtime in anticipation of the 2011 budget discussions. The following individuals worked on a team to address these overtime issues: Diane Stoddard, Assistant City Manager; Lori Carnahan, Human Resources Manager; Marlo Cohen, Management Analyst and Michelle Stevens, Management Intern.

 

The City of Lawrence utilizes approximately $1.6 million annually in overtime and premium pay.  Approximately 80% of the City’s workforce is classified as non-exempt and required to be paid overtime in accordance with federal Fair Labor Standards regulations.  The bulk of this overtime is used in five departments, Utilities, Fire Medical, Police, Public Works, and Finance. Usage of overtime as a percent of payroll has remained steady over the past four years. By analyzing the overtime used by the five departments, and having  follow-up discussions with Department Directors, we have been able to determine the top drivers of overtime by department.  Additionally, we have made several recommendations for further discussion regarding how to possibly further reduce overtime expenses, some of which require no service delivery changes and minimal policy changes, and a number of which require significant policy changes or service delivery changes. 

 

This study only examines overtime utilization. Many City departments also utilize compensatory time, which allows for the accumulation of time off at the rate of 1.5 hours for every hour of overtime worked. This system was automated fourth quarter of 2009, during which time City departments accumulated 1483.9 hours. Parks and Recreation, the Street division of Public Works and other support departments currently utilize the compensatory time process. The increased use of compensatory time is something that can be explored in other parts of the organization. However, it should be noted, FLSA guidelines indicate employees cannot be mandated to use compensatory time in lieu of being paid overtime.

 

Background

In 2009, the total cost for overtime and premium pay for nonexempt employees in all departments was $1,639,486, which is 3.6% of the gross payroll. Generally, City policy states that overtime and premium pay, such as on-call and call back, are paid at 1.5 times the regular rate of pay. Attachment A and Attachment B outline basic policies covering overtime and premium pay for nonexempt staff.  Below is a chart summarizing all overtime expenses from 2006-2009 by department. It should be noted that it does not include offsetting revenue, for example, reimbursement by the University of Kansas for Fire Medical game day overtime.   The total reimbursed amount for 2009 for the Police and Fire Medical departments was approximately $228,000, which would need to be subtracted from the totals in the chart below. 

 

OVERTIME payroll Data 2006 – 2009

Department

2006

2007

2008

2009

Total

Fire Medical

$380,323

$526,605

$415,630

$496,104

$1,818,662

Utilities

$341,908

$363,677

$400,234

$376,703

$1,482,521

Public Works

$313,314

$371,104

$371,109

$307,672

$1,363,200

Police

$445,026

$286,341

$393,237

$411,146

$1,142,514

Finance

$40,396

$38,348

$35,006

$34,239

$147,989

Legal Services

$18,699

$6,729

$11,238

$8,622

$45,287

Parks & Recreation

$15,724

$4,293

$4,432

$1,172

$25,621

Planning & Development Services

$5,784

$3,911

$5,335

$3,063

$18,094

Administrative Services

$4,590

$1,447

$681

$766

$7,483

City Manager’s Office

$2,576

$393

$135

$0

$3,104

Information Systems

$2,029

$365

$491

$0

$2,885

Overtime Dollars Total

$1,570,369

$1,603,213

$1,637,528

$1,639,486

$6,450,597

Gross Payroll Dollars

$40,602,818

$43,697,916

$44,802,136

$45,835,608

$174,938,478

Overtime as a Percent of Payroll

3.87%

3.67%

3.66%

3.58%

3.69%

Budgeted FTEs

798.25

827.67

820.92

809.17

-

 

Peer Cities and Lawrence Public Sector Employee Overtime Information

In order to gain comparative data that can be used to examine Lawrence’s use of overtime, as well as understand how other cities’ policies regarding overtime compared from a market standpoint, peer city information on overtime was collected.  Additionally, overtime information was collected from Lawrence public sector employers.  Attachment C, Comparative Overtime Information, provides this data.  Based upon 2009 information from other cities, it appears that the overall 3.6% overtime as a percent of total payroll is the lowest percentage of payroll submitted and was 1.37% below the average and 0.43% below the median.  Additionally, related to the inclusion or exclusion of certain types of leave in overtime calculations, it appeared that area cities have varying policies.  The City of Lawrence includes vacation, holiday and sick leave as hours worked in the calculation of overtime. 50% of Lawrence peer cities include vacation and holiday while 33% include sick leave.

Hours Worked and Overtime Policies in Peer Cities

 

City

Vacation

Holiday

Sick Leave

Lawrence

X

X

X

Shawnee

X

 

X

Overland Park*

X

X

 

Olathe

X

 

X

WYCOKCK

 

X

 

Topeka

 

 

 

Lenexa

 

X

 

*Overland Park Fire includes sick leave

 

Lawrence public sector employers, including Douglas County, Lawrence Public Schools, and the University of Kansas, were surveyed regarding how overtime is calculated.  Of these, in most cases, overtime was paid only after 40 hours in a week period, with some minor exceptions.  Also, none of the entities included vacation or sick leave hours in the overtime calculation.  Neither Douglas County, nor the Lawrence Public Schools included holiday time in the overtime calculation.  However, holiday time is included in overtime calculation at the University. 

 

Methods and Analysis

Staff determined the best way to analyze overtime data was to examine the leading causes of overtime hours worked in the five departments that paid the most overtime as a percentage of payroll.

 

Department

Total 2009 Overtime

Percent of 2009 Department Payroll

Utilities

$376,703

7.0%

Fire Medical

$496,104

4.8%

Police

$411,146

3.7%

Public Works

$307,672

3.4%

Finance

$34,239

3.1%

 

The main objective was to determine the primary causes of overtime. Therefore, not all divisions within each department were selected for the overtime study, only those with a significant amount of overtime. Overtime data was collected from nonexempt employee time reports in four pay periods in 2009. Staff purposely selected these four pay periods because they contain heavier amounts of overtime and were evenly spaced throughout the year. The data cannot be annualized.  The overtime study data can be found in Attachment D.

 

Any overtime incurred during each pay period was then classified based on City or departmental policy. Staff then met with Department Directors to discuss business reasons and seek clarifications for the incurred overtime. The table below outlines the primary cause of overtime for the data reviewed.

 

Primary Cause of Overtime by Department for Study Period

 

Department

 

Reason

Percentage of Total Overtime Hours

 

Primary Cause

Fire Medical

Cover a vacant shift

40%

Minimum Staffing Requirements/ Service Delivery

Police

Excess of daily shift

51%

Service Delivery

Utilities (All Divisions)

On-call/Scheduled Overtime

37%/23%

 

Service Delivery/Staffing Patterns

Finance

On-Call/Call-back

Both at 41%

Service Delivery

Public Works (Solid Waste)

Hours Worked on Holiday

66%

Service Delivery

Public Works (Streets)

Scheduled Overtime

41%

Service Delivery

Public Works (Traffic)

On-Call

69%

Service Delivery

Public Works (Central Maintenance)

On-Call

49%

Service Delivery

Public Works (Engineering)

Hours Over 40

 in a Week

68%

Support Service Delivery

 

The following was identified as the reason for the primary cause of overtime:

 

Four of the five departments indicated they are in process of reviewing and evaluating their overtime policy. Some have indicated they have already made changes since the time period in the study.  Examples include:

 

There are some forms of incurred overtime and premium pay that are best practices and are required due to current service delivery expectations. For example, on-call and call back in response to emergency events after-hours, holidays, and weekends is less expensive and more responsive than providing additional employees and associated benefits to staff 24/7. There are also expectations for service delivery, such as commercial trash pickup on holidays and late in the day water reconnections, that incur overtime.

 

Recommendations and Items for Possible Further Discussion

In addition to changes already implemented by departments to reduce overtime costs, we have identified additional opportunities for further discussion.   It should be noted that some of these items may require changes in current service levels, City personnel policies, or future changes to Memorandum of Understanding (MOU) agreements with Police and Fire Medical employee organizations, which are subject to negotiations with those groups.

 

Recommended for further discussion and evaluation:  The following items could be discussed further for possible future implementation. Prior to implementation, further discussions should occur  with city employees and a thorough employee communication plan should be developed .  An initial estimate of savings related to the implementation of the following items is $45,000-$50,000 annually, excluding any possible future changes related to MOU-covered employees, which would result in a higher estimate. 

·             Standardize overtime policies amongst departments.  As the memo summarizing the City’s overtime and premium pay policies indicate, there is currently significant deviation from department to department regarding the calculation of overtime.  Standardization will assist with ensuring that appropriate policies are followed, and would streamline the implementation of time and attendance software.

·             Change overtime policy so that overtime is calculated based on a work week (i.e. 40 hours in a seven day period) rather than on a daily basis. This accounted for approximately 7% of the overtime study hours.  Several departments already count overtime on a work week basis, while others are on a daily basis.   Employees who accrue overtime on the basis of a daily shift include non-exempt personnel in Planning & Development Services and the Solid Waste Division of Public Works, in addition to MOU-covered employees in Police and Fire Medical.  A change in this policy may result in estimated savings of $5,000 annually for non-MOU covered staff.  If MOU-covered employees were included, the annual amount would be greater.  More study would be needed in order to determine an estimated amount of potential savings. 

·             Change overtime policy to exclude all forms of paid time off, except holidays, from the calculation of hours worked for the purpose of overtime.  Paid time off that would be excluded from the calculation include vacation, sick leave, wellness leave, personal leave, compensatory time, etc.   Paid time off, excluding holiday, and daily shift overtime accounted for approximately 17% of the overtime hours based upon the study.  Based on a study completed in 2007 (Attachment E) that looked at the entire first quarter of the year, there was an estimated payroll savings of approximately $15,000 in the quarter as a result of excluding sick leave, vacation, wellness leave, and emergency leave days.  Excluding the Police and Fire Medical overtime, of which a large percentage would be accrued by MOU-covered employees, the savings would drop to approximately $7500.   Based upon this information, a potential initial savings of approximately $30,000 annually may be achievable.  If MOU-covered employee overtime is included, this amount may increase up to approximately $60,000 annually. 

·             Continue to explore the enhancement of overtime record keeping with the implementation of time and attendance software in order to monitor, evaluate and adjust overtime utilization when necessary.  This will help to provide opportunities to monitor ongoing overtime expenses and track these expenses more easily than manual review of time sheets.  Proceed expeditiously with Solid Waste Division purchase of automated timekeeping devices, which will be compatible with anticipated time and attendance software, in advance of time and attendance software implementation. 

·             Reduce Finance on-call costs by approximately $10,000 - $15,000 by

o   utilizing existing on-call Utility staff for emergency water shut offs between 5pm and 8am weeknights, weekends, holidays;

o   considering options to reduce or eliminate on-call pay for 5pm – 8pm  after-hour restoration of water services by doing one or more of the following:  changing staff schedules so that overtime is not incurred, reduce after hour service hours, or evaluate after-hour service fees to align with actual costs of service for an afterhours restoration of water service.  Finance has estimated it costs $40/hour to provide these after hour services. Finance has suggested condensing all of the trip charges to one charge of $25 and a $15 afterhours charge, totaling $40.

·             Reduce Utilities overtime by adjusting the work schedule and associated work plan to 32 hours during weeks with a holiday, rather than maintain 40 hour work week and incur 8 hours of overtime.  This would reduce the amount of work that staff would be able to accomplish during weeks with holidays, but also reduce overtime costs.

 

Recommended for Further Study:  The following items would require additional study to determine what savings may be possible as a result of implementation.  Additionally, these items also require further discussion. 

·             Review all City services that require utilization of overtime to determine continuation, modification or discontinuation of service and/or establishment of fees that cover overtime expenses. For example,

o   Saturday commercial trash collection

o   After-hours water services restorations

o   Fee for special events to cover after-hours services such as street closures or trash collection

·             Leave benefits, which accounted for 42.2% of Fire Medical overtime based on the study, combined with minimum staffing requirements in Fire Medical may point to the need to examine additional extra-board or other coverage of shift that can be completed at a more economical rate than overtime.  Fire Medical staff, in conjunction with HR Division staff should further explore these possibilities.

·             Examine possibility of reclassifying positions of Field Supervisor, Inspections Supervisor, Utility Field Operations Manager, Water/Wastewater Maintenance Manager, and Water/Wastewater Treatment Manager, to exempt from overtime from the current non-exempt status.  In 2009, these positions earned $141,260 in overtime pay, which is 8.6% of total overtime paid. A survey of market cities indicate that generally these positions are classified as nonexempt. Additionally, excluding overtime from these supervisory positions may have the unintended effect of increasing overtime for non-supervisory positions.  Therefore, Staff recommends that this issue be studied further.

 

Conclusion/Next Step

It appears that there are opportunities to examine for potential reduction in overtime costs.  Some opportunities may be easier to implement, requiring few policy changes or service delivery changes.  However, other opportunities may require greater change for the organization.  Some opportunities require further study.  The overtime study group also believes that it is important to have additional discussion on all of these items prior to implementation. 

 

Attachments

 

A)     City of Lawrence Employee Handbook Overtime Policy

B)      Overtime and Premium Pay for Nonexempt Staff Memo from February 1, 2010

C)      Comparative Overtime Data

D)     Overtime Study Data

E)      Overtime Study Completed August 2007