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The Real Cost of Overtime

According to the Bureau of Labor Statistics (BLS), approximately 55% of workers are in jobs that receive overtime pay. Almost 1/3 of the workforce regularly working more than 40 hours a week, with 1/5 working more than 50 hours per week. Overtime hours in manufacturing increased by a record 48% in the 1990s, according to a February 2000 report in the Monthly Labor Review (which is also published by the BLS), and has remained high throughout the last two recessions. Today, overtime is touted in many quarters as a way to “make ends meet” in this tough economy.

Even though the increased use of overtime has helped maintain growth in the U.S., it does have its costs. These costs manifest themselves into:

  1. increased risk for accidents and injuries due to greater chronic fatigue, stress and chronic disease which (in turn)
  2. increased number of sick days, as well as tardiness, absenteeism and morale which (in turn)
  3. creates a perceived need for more overtime
  4. and so on….

The end result of this counterproductive cycle is, not only, a reduction in productivity but increased costs (healthcare, workers’ compensation, etc.) that will directly impact a company’s bottom line.

Proponents of overtime usually only focus on the premium wages paid for the overtime hours. It is true that the payments of time and a half or double time only affect the additional hours worked; however, continuous overtime affects the costs of all the hours worked, through a reduction in productivity. It also raises some severe safety and health questions, both on the job and on the commute to and from work.

Even when overtime is not excessive, it is important to the health, safety and productivity of workers to monitor a company’s overtime practices. Here are several tips to reduce the likelihood of safety and health issues with overtime:

  1. Educate employees about the risks of fatigue and the steps that they can take to handle working longer hours.
  2. Set an annual “overtime cap”. Stories abound in the media of workers who earn overtime pay for 500+ hours per year. This amount of overtime is much too high. The Nuclear Regulatory Commission, in one of the few published recommendations on overtime, identified overtime as a factor contributing to safety incidents at nuclear power plants, and it recommends that employees work no more than 260 extra hours per year (or approximately 3 additional eight hour shifts a month).
  3. Leverage temporary workers to break the “continuous overtime cycle”. When overtime levels are too high, the counterproductive cycle (mentioned above) quickly sets in. Consider temporary workers to help fill coverage gaps and assist with fluctuating demand? With temporary workers, overtime costs are reduced because a firm only pays for the hours actually worked and is not responsible for overhead costs, such as unemployment taxes, workers compensation premiums and benefits.