If your organization is regularly paying overtime, you will likely benefit from taking a good look at the costs and the benefits of where those overtime hours are going.
The Costs
According to an article on Snelling.com, overtime hours in manufacturing increased sharply during the 1990s (48%!) and have remained high. For many, it has become a way to “make ends meet.” While the obvious cost of overtime hours is the higher pay rate compared to regular hours, the Snelling article points out another costly downside: Too much overtime can lead to fatigue, which in turn can lead to illness or injury, which, of course, lead to increased absenteeism. All of which have an impact on the company’s productivity, and in turn, the bottom line.
The Benefits
On the other hand, in some instances there is a clear cost benefit to overtime. SWPP.org reports that in certain situations, overtime (despite the higher rate per hour) can actually be a cost-effective solution. The article explains that, in call centers with seasonal spikes in customer demand, staffing correctly is tricky. In this case, overtime hours can be cheaper than regular hours when factoring in:
- the fixed costs of benefits associated only with regular hours
- the cost of paying workers who are idle,
- the trade-off of understaffing and sacrificing opportunities to connect with customers.
Track Your Overtime
In large companies and government entities, overtime is often used routinely on an as needed basis, and often there is no accountability or way to track its impact. When budget cuts need to be made, overtime can be a good place to look, but you need to understand when it is essential and when it is not.
Your HR software should provide the data you need to make good strategic decisions around overtime pay.