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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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