By Nandita Bose

CHICAGO (Reuters) - Wal-Mart Stores Inc <WMT.N> has implemented a new system for scheduling workers at 650 U.S. stores, company sources and store workers said, as it aims to improve staffing levels during peak shopping times and offer more certainty over hours for employees.

The world's largest retailer has acknowledged in the past that customer service needed to improve as it was hurting sales growth. Wal-Mart is investing $2.7 billion on pay and benefits and has led major retailers in raising minimum wages to $10 per hour.

The new system, called Customer First Scheduling, was launched in all of Wal-Mart's 650 small-format Neighborhood Markets at the end of July.

The electronic system is able to prioritize scheduling for peak shopping hours by taking into account foot traffic and sales data from every department in each store. Staff are then allocated to the remaining shifts in order of importance.

A Wal-Mart official familiar with the matter who did not wish to be identified said the company is re-allocating hours in stores to specific times and specific departments based on when customers are shopping.

"More hours are also available during times when the store needs to complete work to prepare for high customer traffic," he said.

Wal-Mart began last year to try and improve customer service with faster checkouts and better-stocked shelves.

The new system also aims to give employees more certainty over shifts and should cut down on requests for employees to work at short notice, a senior Wal-Mart official who did not wish to be named said.

Labor activists, unions and politicians have been pushing retailers, including Wal-Mart, to offer more predictable hours for workers.

The system allows some workers to have a fixed schedule with the same hours and days for up to six months. Those with unfixed schedules will only be slotted when they say they are available and will not be expected to be available on short notice.

The new system is ostensibly designed to increase workforce retention, but it was not immediately clear how workers can get overtime hours, an important component of low-paying retail jobs.

Fears of a cut in overtime pay led to worker protests across three cities in China last month when Wal-Mart launched a new but different scheduling system for that market.

Electronic schedules generated by the new U.S. system, which Wal-Mart developed with workforce software company Red Prairie, have thrown up some early problems.

"Some days it will schedule one person on the entire front end from 7-11 a.m. and other days it just won't schedule at all until 1 p.m.," said a store worker who spoke on condition of anonymity.

"I didn't have a single cashier come in one day until mid-morning," the worker said.

(Reporting by Nandita Bose in Chicago; Editing by Leslie Adler)