The Premium Pay Challenge – It’s Not Rocket Science

Premium Pay

Is your hospital struggling to meet its financial targets? Most are, and yet many executives are often uncomfortable, unprepared, or under-resourced to scrutinize one of the largest expenses on the income statement…salaries and wages. Over the years, I’ve heard many reasons for this, including:

“We have collective bargaining agreements. There is nothing we can do.”
“Staff shortages create our overtime.”
“We’ve already done that.”

In spite of these perceived (or real) challenges, it is rare that an assessment of a hospital, of any size, does not yield opportunities for reductions in the use of premium pay. Identifying the drivers and specific reasons for premium pay utilization are essential. The list varies from organization to organization; however, here are some common themes:

  • Restrictive bargaining terms
  • Competition for staff
  • Disparate practices resulting from mergers and acquisitions
  • Staffing shortages
  • Poor scheduling practices
  • Inadequate information and reports
  • Outdated and inconsistent timekeeping practices

    Setting a Solid Trajectory

    What prevents highly competent, responsible and motivated leaders from addressing the use of premium pay? Perhaps it is priorities or bandwidth. Perhaps the pain point is simply not great enough to exhaust limited resources needed to tackle the job. Perhaps it is the “big, black hole effect” with too many unknowns, making the starting point elusive. If the latter analogy resonates with your organization, consider adopting these 5 key steps to alleviate the anxiety.

    5 steps to Reduce Premium Pay and Unnecessary Wage Expense

    Step 1: Review payroll data
    Gain an understanding of the pay codes in use and determine which departments are high users of premium pay. This will enable the scope of the work to be more manageable and will also minimize the impact on resource utilization. Use the variation in data from department to department to aid in developing goals.

    Step 2: Develop and communicate organizational goals
    Establish targets and timelines that are achievable. These can be customized from data gleaned in the payroll review or from more formal benchmarking sources. In some departments, depending on operational challenges, interim and stretch targets may be needed. Except for organizations in dire financial circumstances, involving leaders in the development of the targets will increase buy-in and success. Create a mechanism for measuring progress to goals, preferably one that can be readily shared with all staff in order to engage them in the process.

    Step 3: Use data consistently and frequently
    Automate reports and distribute to department managers on a consistent basis. Depending on the type of data, timing of distribution may vary from daily to bi-weekly. Ideally reports with overtime or incentive shifts (a shift paid at premium rates where overtime would not otherwise be required) should be distributed daily so the information is current and underlying causes of the incidents can be readily determined and addressed.

    Step 4: Identify and resolve inconsistencies
    Review any collective bargaining terms and compare them to timekeeping practices. Understand and address variation to reduce the inconsistencies. Be aware that some bargaining agreements require notification periods, even when changing from a non-compliant practice to one that is compliant, so engage your organization’s labor relations counsel for assistance. Educate leaders and timekeepers when next steps are determined.

    Step 5: Create a culture of accountability
    Review departments that are high users of overtime and other premium shift practices. Department leaders should identify the underlying causes and develop action plans to address challenges and barriers. Review the action plans on a routine and regular basis with senior leadership to measure progress and identify barriers that require assistance.

    Time for Take-Off

    Deployment of these key steps will place your organization on a turbo-boosted path to reducing premium pay and move closer to the financial targets, while promoting long-term stewardship of resources. As a rule of thumb, reductions in premium pay from a fully implemented premium pay reduction program can range from 1% to 3% of salaries and wage expense.

    In order to ensure a successful launch, secure the right talent to help you steer with precision and assist in anticipating the many hurdles that are typically experienced in this complex type of journey. Having the right team that can apply this process will help to make it a success the first time.

    It’s time to get started, and remember, no space helmet is required for this mission.

    By Theresa Brandon, Managing Director, Novia Strategies

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