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Is It Cheaper to Pay Overtime or Hire More Staff?

August 2nd, 2019

Eventually, almost every business owner or decision-maker faces a familiar choice. Orders are piling up, business is steadily increasing, and you need more hands to handle the workload (unless you’re ready to turn customers and clients away, which most of us would rather not do). So which path should you choose: Hire a new person (or several), or simply pay your existing teams overtime and expect them to stay after standard working hours are over?

Of course, for some businesses, the decision makes itself. If you simply can’t expect your workers to stay late (because you know their personal schedules, public transportation, or the limits of workplace don’t allow that flexibility), you’ll need to let them go at five and hire a new pair of hands. And the same is true in reverse; if you know that it’s unreasonable to simply put the word out and attract hundreds of resumes from well-qualified candidates, you’ll have to work with the teams you have, end of statement.

But if either option seems reasonable, factor these metrics into your decision.

Crunch the numbers.

Sit with a calculator and make some assumptions. Assume you WILL, in fact, be able to find qualified candidates and bring them on board within three weeks. Assume you WILL be able to convince your teams to stay late and pick up some extra cash. Then run a comparison based on the period in which you expect to be swamped.

Take a look at that time period.

Are you dealing with a seasonal rush that will ebb as soon as the busy season ends? Or are you dealing with what appears to be steady and sustainable growth in your orders, deliveries, and invoices? If this looks like long term growth, save yourself some headaches and start your candidate search now. Find the very best available and invest serious resources in attracting them, onboarding them, training them and retaining them. This may mean ensuring that your salary offers are competitive.

On the other hand, if this is a seasonal rush, just keep a short-term view and cut costs where you can. Look for temporary helpers who can pitch in with minimal onboarding and training. Or of course, you can just cut the cost of hiring altogether and pay time and a half until the rush settles down in a month.

Anticipate problems.

New workers bring a social shake-up that can be somewhat unproductive—at first. Over the long term, the social fabric resettles and work returns to normal. But will you lose more money during that time than the contributions of the new hires are worth? Remember that new employees also come with necessary, but expensive, mistakes. The same can be said of overworked or tired employees who are pushed past their limits.

In the end, you’ll need to roll the dice but enter into the decision with as much data in hand as possible. For more on how to get the most out of your hiring resources, turn to the experts at Merritt.

Which is More Cost Effective: Hiring Additional Employees or Paying Overtime?

January 13th, 2012

Your employees are paid by the hour and your scheduling practices are designed to accommodate the flexible requirements of your business. Most of the time, you have just enough people on site to finish what needs to be done by the time the shift changes or the day ends. Every now and then, an isolated incident carries the day into overtime, and until now, you’ve had the budget resources to reward the hard working employees who stay till the job is finished.

But what do you do when your labor needs almost, but not quite, outstrip the capabilities of your regular workforce? What happens when you have just enough work coming in to justify keeping employees after hours, but not quite enough to add a few new full time positions? Before you make a long term decision, take these important steps.

Put your math skills to work

How long will this high tide last? If the recent increase in work represents a sign of company growth, then congratulations. And remember that it takes money to make money. If the tide is only expected to rise, be optimistic and calculate the cost of genuine, sustained expansion in your enterprise. If this tide of extra work can’t be explained, or will likely recede when the busy season ends, calculate the cost of three weeks, five weeks, or six months of estimated overtime. In either case, gather the data you need to make an informed decision.

Look around

Listen carefully to your employees and take a close look at how your resources are currently being used. Are these overtime tasks really necessary? What skills are required for the positions that use the most overtime hours? Are these skills expensive, i.e., will hiring and training costs for a new position be significant? And finally, are there any unskilled tasks that your most expensive employees are spending time on during regular hours? Maybe you can create an inexpensive support position so your high-cost employees can focus on completing skill-specific tasks within standard shift periods.

Consider a short term plan

Schedule a meeting between hiring managers and HR staff to discuss the merits of a short term position. Determine the cost of staffing such a position and have your managers weigh the benefits and drawbacks. Their suggestions will likely depend on the training required for the position, the difficulty of recruiting applicants with necessary skills, and how willing potential candidates may be to accept a temp-to-per offer.

For additional guidance and help with common staffing issues, contact a staffing company in Connecticut at Merritt Staffing and arrange a consultation with our experts.

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