You sign off on the overtime line every week. It seems like a necessary way to cover gaps and reach production goals. Sure, you pay more per hour when you need people to work overtime, but it feels like a better, easier option than bringing in more workers.
The truth, however, is far different: The cost of overtime far exceeds the amount you pay per hour, making bringing on more workers a cost-effective consideration. Let’s take a closer look.
What Overtime Actually Costs
When you think about why you’d want to reduce overtime costs, you probably focus on premium pay. Each hour of overtime costs 50% more than a typical hour. That’s the visible cost, so that’s what stands out to you.
The real cost of overtime, however, includes:
- Higher payroll taxes
- Increased workers’ comp exposure
- Lower productivity
Payroll taxes and workers’ comp are direct costs you can see when you look more closely. The lower productivity is harder for individual businesses to measure.
Unfortunately, that lower productivity is a serious problem. One study from Stanford shows that productivity per hour falls sharply after 50 hours per week. Once you cross 55 hours a week, productivity falls so much that you don’t really get the same output from that person. You’re spending a lot of money, and you aren’t getting much in return.
Overtime Is a Symptom, Not a Solution
Overtime isn’t a solution to your staffing problem. It’s a symptom of your staffing model. It happens because companies don’t use flexible staffing models that account for turnover and increased production demands during peak times.
When you explore the root causes of overtime, you’ll often find problems like:
- Understaffing: You account for typical days, so you automatically need overtime work during production spikes.
- Turnover gaps: When someone leaves your company, the other employees have to pick up the slack. That means they end up working overtime until you hire a replacement.
- Reactive hiring: HR only starts looking for new hires when there’s an open position, which forces the remaining staff to work overtime for a longer period.
If you want labor cost reduction, you’ll need to address those root causes.
The Cycle That Makes It Worse
Unfortunately, your troubles don’t end there. Chronic overtime puts a lot of stress on employees. Eventually, it will contribute to higher turnover, which creates an even wider gap within your staff. If you don’t change your staffing model, you enter a cycle where overtime leads to more overtime.
The workers who remain won’t be able to fill those gaps. As they work more hours, they become increasingly fatigued, leading to more errors and a higher risk of injury. It doesn’t take long before these remaining employees no longer fill gaps. It isn’t their fault, but they’re contributing to an ineffective system that increases costs without increasing output.
What a Flexible Staffing Model Changes
What’s the alternative to the staffing model you already use?
A flexible approach that can scale with your production needs. Effective staffing efficiency solutions will put your core team at the center. Then, they build a staffing structure that supports that core team during peak times. Instead of forcing your existing team members to work overtime, you bring in temporary workers to fill in the gaps.
You can also take a temp-to-hire approach that lets you retain the best workers. That makes it possible for you to hire reliable employees instead of taking a risk on hires that only restart the turnover cycle.
What a Staffing Partner Makes Possible
Finding the right staffing partner makes flexible staffing solutions possible. When you need to fill gaps, your staffing partner gives you access to pre-vetted, trained workers who can work as needed. When you don’t need extra workers, your staffing partner can send them to other clients. Instead of vetting applicants, you let the staffing professionals handle that task. It simplifies everything on your end, and it protects you from the negative consequences of frequent OT.
HireQuest Direct already has a roster of qualified professionals who can adjust to your evolving production needs. Connect with an office in your area to take advantage of a flexible staffing solution run by a partner with decades of experience.
