[dropcap2 variation=”purple”]I[/dropcap2]n a recent contact center strategy meeting, the Vice President of Operations talked about carrying over a strategy from the previous year of keeping overtime below five percent. Overtime was listed as a key performance indicator and minimizing it was critical to the management team’s bonuses. While in many environments where demand is flat, this overtime avoidance would be a worthwhile goal, in a contact center minimizing overtime can actually be financially irresponsible. The seasonal variations in workload, coupled with the peaks and valleys of call volume from day to day and hour to hour, make contact center staffing a unique challenge. Staff must be available to respond to customer contacts on a timely basis and getting the “just right” fit of workforce to workload is nearly impossible with traditional 8-hour, 5-day a-week staffing models. This article will explore the cost, service, and productivity tradeoffs associated with contact center labor strategy and how overtime should fit into the plan.

Three Labor Tradeoffs

There are many different approaches to staffing for a seasonal or variable work demand in a contact center. One approach that should be considered is to staff to “normal” call volumes and then utilize overtime to cover the peaks. Other approaches minimize overtime, but have their own inherent problems. Here are just a few of the approaches often used by call centers to minimize overtime and their associated risks.

1. Peak demand staffing: In an effort to minimize overtime costs and to staff for peak demand to always have enough labor to get the job done on short notice, many organizations hire more full-time staff. However, additional full-time employees are expensive due in part to all the fixed costs associated with health benefits, vacations and holidays, and taxes. These fixed costs are in place even when demand drops, resulting in idle, unproductive time.
2. Sacrificing service: A second option would be simply not to hire, avoiding overtime as well as fixed costs. While this might result in cost savings, a staff shortage would result in long delays, poor service, and likely loss of revenues. This understaffing strategy hurts bottom-line profitability, has a huge negative impact on customer service and loyalty, and stresses the existing staff.
3. Scheduling with traditional shifts: Using traditional 8-hour work shifts is limiting when trying to closely match the workforce to a volatile workload. Many different shift possibilities are needed to gain the flexibility typically to meet service levels without dramatically overstaffing, but this variety does not exist in many centers.

Clearly none of these three strategies are ones that are optimal for the organization. Let’s explore how some different staffing strategies can save money, improve service, and keep staff happier.

The following scenario comes from a contact center with 455 employees. The center has seasonal and variable demand and accurate forecasting is difficult. They know they cannot afford to miss critical calls, and staffing to the peak has traditionally been their insurance policy that almost all calls will be answered.

The chart shows the extreme choices this center can make to avoid either overtime or idle time. The current staffingstrategy is to staff to the peak (455 employees or 18,200 hours). To fully understand cost and service implications, it is important to look at the true labor costs associated with being either understaffed or overstaffed. Let’s begin with the use and cost of overtime, within reasonable limits as a way to flex up to meet variable and seasonal demand. Companies carry only the headcount they need during low-volume periods and flex with overtime hours to meet customer needs. Because employees are already trained and benefits are already paid in the first 40 hours (assuming 100 percent absorption of those hours), the incremental or adverse costs associated with this strategy are relatively low.

Labor Cost Breakdown

Labor costs must be broken down into three key components to fully understand how they work during different modes of customer contact volume. An accurate understanding of these costs is crucial to make sound financial decisions.

Average Wage: This is the base wage, not including benefits, typically paid to a particular group of employees within a contact center group. The average wage should be considered based on each queue or skill group. Temporary, part-time, and seasonal employees should also be considered.

Fringe Benefits (Burden): These benefits are typically fixed costs, including medical insurance, 401(k) plans, and dental plans, to name a few. Other items such as FICA, FUTA, and SUTA should also be included. They should be expressed as a percentage of the average wage.

Pay Ratio: This ratio represents the total hours an employer pays an employee over the course of a year divided by the hours the person actually works. This calculation incorporates costs including vacations, holidays, and other paid time off.

Once you have identified the average wage, fringe burden, and pay ratio, the three numbers can be used to get the fully loaded cost of one labor hour on straight time. For example, if the wage rate is $15, the benefit burden is 35%, and the pay ratio is 15%, the cost of regular “straight” time is: $15 x 1.35 x 1.15 = $23.29.

For overtime, the numbers change. We assume full absorption of labor during the first 40 hours. Every minute of the work period will not be 100% utilized and therefore one may want to use an occupancy goal as a baseline to determine full utilization. Assuming agents achieve the occupancy goal, starting with the 41st hour many of the costs go away because they are fixed and already covered in the first 40 hours. These costs include the entire pay ratio (vacations, holidays, and other paid time off are not typically increased based on overtime) and some of the burden associated with fringe benefits. Although health benefits are a fixed cost, taxes must always be paid on overtime and some retirement benefits are often included as well.

In our sample calculation, the cost of overtime would include an assumption of the same base wage rate of $15, an overtime penalty or multiplier of 1.5, and a benefit burden of 10 percent. Using these numbers, the cost of overtime would be $15.00 x 1.5 x 1.1 = $24.75.

Finally we take a look at the adverse cost of each type of labor. Adverse costs are the additional costs to the company of the mismatch from either being overstaffed or understaffed. If the workforce exactly matches the workload, then only straight time is needed and there is no adverse cost.