Employee Overtime

There's an up side and a down side to working (and paying) employees overtime. Here, owners and workers discuss the management of labor hours. October 25, 2006

I am the shop foreman of a 5 man shop; as such, I am paid a salary. The others in the shop are paid on an hourly basis, time and a half after 40 hours/week. I went home sick Friday and one of the guys called me Saturday AM very upset because one of the owners came in and said from now on they are to work no more than 40 hours per week. If they are over, they should go home early on Friday. They go out of the shop to do site work or installs on a regular basis and a lot of times donít get back to the shop before quitting time. Does this sound right to you? They are not happy about this at all.

Forum Resonses
(Business and Management Forum)
From contributor H:
As a shop owner and employer for over 25 years, I can understand his point of view. As the foreman, you should too. Many times, but not always, installers get back to the shop after closing time because they stop on the way back for drinks, food, etc. He does not feel like paying for this. Perhaps he is aware of this happening?

What incentive does any employee have to work and get the job done in a timely fashion, especially if they are paid by the hour? I'm sure he does not want them to hurry and do shoddy work, but not to create overtime by wasting time, either.

It's a rock and a hard spot for you, and as foreman you are paid to be on the side of management. Tell your guys to make sure they are not goofing off. Get the job done and get back to the shop. If they were salaried employees, rest assured they would return to the shop on time. I am not advocating anyone working for free. Just do what you're paid for the best you can.

From contributor P:
I agree that OT is often abused. A couple of solutions: have the installers go directly to the jobsite in morning, piecework on the installation. Paying guys for travel time can be a killer.

From contributor F:

My son works at one of the biggest shops in Oregon. Often they're asked to work overtime to get the work out on time, then comes Fri and about 4 hours before the shift is over, they're all sent home early. If you're going to push people to the limit, and underpay them, at least let them earn the overtime.

From contributor J:
It is amusing to me when employees complain about not being allowed to work overtime, as though their boss is screwing them out of what they deserve. How dare the boss not want to pay $15 an hour to an employee that is only worth $10. What a jerk this employer must be. Everyone knows that employers are rich and make tons of money on every job no matter how much labor costs.

I have seen this problem before. The company has tons of work and the employees work overtime for extended periods. They get used to this and adjust their debt load accordingly. New trucks, new cars, new boats, four wheeler, jet ski, all on credit. The company slows down and overtime goes away. Many of the employees feel as though they got a pay cut and that is the reason they cannot pay their bills.

If the boss thinks that he can meet his deadlines without overtime, then why would he want to pay more to get the same amount of work done? The bottom line is it is the owner's company and if he decides that he needs to not allow overtime, then that is the way it is. Do your work and have your guys do theirs without complaining.

From contributor C:
There are usually two sides to every story. I would calmly ask the owner, the next regular work day, what happened on Friday. He may know something that you do not. I agree with the others that, as foreman, you are being paid to manage the company's assets and look out for the best interests of the company. That includes controlling expenses, eliminating unnecessary expenses, and looking out for the bottom line. I also know that personnel can be one of the company's most important assets, and should be treated fairly at all times. Before I would take any action, or say anything that sounded like I was taking a position, I would find out the rest of the story.

From contributor G:
I think it comes down to how petty the owners are and how well they communicate. Do you find it odd that they waited until you weren't there to make this proclamation? It reminds me strongly of a time a few years ago, when the owners thought the OT was being abused, passed an edict against OT and then didn't know how to back themselves out when the overtime was really needed.

From the original questioner:
Wow - thanks for all of the quick responses. I also was a business owner for a long time and am sensitive to the need to control cost and that point is well taken. Contributor C, you are correct - I will wait to hear all of the info before I make any statements.

I have been told they donít want to pay overtime if possible, but here is the deal. It is not a case of abuse on the part of the employees. Nearly always when working on site, they are supervised by me or an owner of the company. About 50% of the OT occurs because they are asked to arrive early to travel to a job that is 2 or 2 1/2 hours away.

They respect me and work hard for me and I want to see them treated fairly. Donít get me wrong - they need a push sometimes, but all are good workers. They show up on time and donít complain about the extra work. They donít show up hung over and donít steal or cheat the company. (They did pass this damn virus to me on a long weekend, though!). The amount of money in question is not a lot - on average, 4 or 5 hours a week, 10 would be extreme. By my way of thinking, this is less than the cost of making 2 trips to finish a job.

In the 14 months I have worked there, I have never heard the owner who oversees production say ďthanks for the hard work,Ē he's never bought lunch for them (I do on occasion). If he did throw them a couple of extra bucks or pass on a gift, they would pass out. If he is in a good mood and it is a long ride home, he might spring for a soda at the Quick Stop, but thatís about it. They feel they are not respected at all for what they do, and this in another insult. I am sure this will lower the already poor morale in the shop.

From contributor J:
The facts are that overtime cost the company more for the same work. I don't understand why this is in question. If those guys have their 40 hours work done in 4 days, then they get a three day weekend. How is this a problem?

I think the real issue is not the overtime; it is feeling like the boss appreciates their work. It is quite possible that this guy is a jerk. That is not the same thing as not allowing for overtime. He did not disallow overtime because he was trying to be a jerk or because he was being insensitive. He eliminated overtime because he is worried about the cost.

As for it not being a lot of money, that depends on your view of a lot of money. 5 employees average $14 on hour. % hours of overtime each at $21 adds up to $525 per week, not including taxes. In his mind, this is money that comes right out of his pocket. I think your boss might be a jerk, but not because he doesn't want to pay overtime. He can't really go back to the customer and increase the labor for the job, so no overtime just makes sense.

From contributor I:
It is entirely possible that the owner(s) have realized that too much overtime has been performed either this year so far or last year, whereas the costs have skyrocketed more than they should have. Remember it's not only more payroll, but also more workman's comp insurance that is added to expenses for the company. Last year a company I know of had 60k added to their expense of operation because of overtime. Now they do not perform any overtime work. If it's not done by Fri., then it's completed the next week. Maybe that's one reason for the sudden shut down of overtime.

From contributor V:
You guys are all correct to some extent. Overtime is used and abused more than any other benefit. One of the purposes behind the overtime laws is to create more jobs. It is far cheaper to hire a new employee than to pay time and a half to 5 guys for 8 extra hours each a week.

Back in 1998, then governor Pete Wilson of California changed our overtime laws from 8 hours a day to 40 a week before you got overtime. You should have heard the screaming. No longer could you come in late Monday, leave early Friday, do 40 hours in 4 days and take home 48 hours pay. Unfortunately, Gray Davis caved to the unions and went back to the 8 hr a day/40 hour per week rule, and the slackers went right back to their old ways. You should see the articles in the L.A. Times about the overtime abuse on part of cops and fireman.

More than one shop has gone bust because of the abuses... Unless there is physically too much work in the shop, it's probably an abuse in some form.

From contributor E:
The problem is that if overtime is on the table, you'll find it's quite often necessary. We needed to work a lot of overtime late last year, and no matter how many people we put on to try and compensate, it didn't seem to make a difference. We deliberately reduced our workload and said that no overtime was permitted.

We ramped our workload up again, and the instruction was given that OT needed to be approved at least 48 hours beforehand. We also allowed only 2 senior people to work OT, and then if OT was required, it was to be done by apprentices first, then the next cheapest person, and so on.

The main problem is, if people are allowed to, and expect to work overtime, you'll find that somehow that overtime always ends up being worked. If people know that they don't need to work hard/fast to get something done, because the boss will happily pay them overtime, then overtime they will work. And uncontrolled overtime is a major profit killer.

From contributor X:
This subject should be discussed in a Company Rule Book, explaining the company's rules for work requirement. Back in the 1950's when I worked in a small grocery store, we were taught the company's rules to go by. Are we getting that lax in our duties that we neglect our responsibilities to others?

Employees should quit whining about the overtime pay not being there and be thankful they have a job. Employers should also realize that if they want something done, they have to pay one way or another. No man's labor is free. Plan ahead for those unexpected problems and plan your employee's time as well. You're supposed to be running the show. Run it. Life was tough back then and is tough now. No free rides for anyone. That's business.

From contributor R:
As an owner and employer of 70 people, I am frequently faced with the need to work overtime. I am very careful in estimating my work to include overtime premium in the price of the job when I know it will happen during a busy time, and all of our out of town installations are priced with overtime rates since my installers like to work long hours and get home sooner. I find that my company is most profitable when we are working between 45 and 48 hour weeks, because the overhead is well covered at 40 hours and the extra production is highly profitable. Please note that I mention extra production - I have noticed that after 48 hours, very little gets done. People get tired and more mistakes get made. When we decide to work overtime, we ask for help, and we establish specific tasks that have to be accomplished, especially if we run a crew on a Saturday. Just working extra hours is not usually useful, but if you set a goal to be accomplished in the overtime period, it usually gets done and is worthwhile.

What an owner should be discouraging is unproductive overtime, but forbidding willing people to work extra to help the company make more money is self destructive. Also, if you go into the situation assuming that your employees are dishonest goldbricks, that's the kind of workforce you will end up with. It's better to hire carefully and set high expectations, and then reward those who achieve. At my place, the slackers self select themselves out of the work force pretty quickly.

From contributor T:
Overtime is nothing less than a reward for not getting the job done on time and is habit forming. There are times when it cannot be prevented - that is a decision for the owner or foreman - no one else. My guys push really hard when we need it and I still keep them on 40 hours when we don't - it's a two way street.

From contributor R:
"Nothing less..." is strong language. I believe that productive overtime - and again I stress productive - is highly profitable, especially when it's accounted for in the price of the job.

And by the way, it is not "...far cheaper to hire a new employee than to pay time and a half to 5 guys for 8 extra hours each a week..." as posted above. A new employee must be trained, must be added to the insurance rolls, must have all same benefits as existing employees, etc. and must be a risk for unemployment insurance if let go when the work slows down. Better to work some overtime to get through short term overloads or to accomplish a set goal beyond your normal production.

I would also point out that you are not paying a $10/hour man $15/hour when he is on overtime - for a 48 hour week, this man is making $10.83/hour, which isn't really that much of a premium. (40 hours at $10, 8 hours at $15 divided by 48 total hours). If you are really getting 48 hours production, it's a bargain.

I prefer not be on overtime constantly because the returns diminish over time, but just like my second shift, overtime is a tool to maximize the use of my fixed costs, create customer satisfaction and bring more money to the bottom line.

From contributor V:
If the owner has made a decision to eliminate overtime, for whatever reason, why not support it as his foreman (as it is your job to do)? I really doubt that advice from a bunch of strangers here would change his mind, and only a fool would reference an online forum as an authority anyway. The hourly employee who called you is obviously looking for a sympathetic ear, hoping you will plead his case. You as foreman are in the middle, and as an owner I would expect to give you the word upon your return to work on Tuesday as to my decision. You are certainly in a position to ask why tactfully, but whatever reason is given, use caution in how much is passed on to your subordinates.

Overtime that is bid into a job represents more profit and better utilization of the fixed assets as pointed out previously, however we all know that most overtime develops as a result of lower than expected productivity, screw ups, material delays, equipment break downs, etc. Those are not reimbursed by the customer, and the resulting overtime is a 50% increase in labor costs. Overtime hours cost 50% more per hour, not 8.3% all week long.

If you are working consistent overtime, you need additional help, as I stated earlier. The real resentment will come from the hourly employees who develop a taste for the overtime, went out and bought a new truck, content that it is a regular fixture of the job, and suddenly finds that the overtime didn't last as long as the payments on the truck.

I owned a printing plant for 38 years before getting into wood. Workload there is totally unpredictable from week to week, and competition prevents you from charging overtime to the customer in most cases. If you want the work, you eat the overtime. If you refuse to do the job because of the added costs, you potentially lose the customer. Production in that business is registered in hours and days, not weeks like in the cabinet business. I have personally had years when employees were close to doubling their salary with overtime, gotten used to the extra pay, and when it ended they have actually come to me and asked for hourly increases to "make up" for the lost overtime. In their mind they took a pay cut when the work week was only 40 hours... Some times more like 30 that they dragged into 40 to get a full check, short as they thought it was.

From contributor T:
How can an owner possibly figure overtime into a job? Cabinet jobs are normally bid 3 to 6 months in advance. He has to overbook or there will be lots of 30 hour weeks. How many houses are ready on the exact day they are scheduled for? Very few. I understand your frustration, I have been there. You will be amazed how good your job can be if you simply get on the owner's side with a positive attitude. You may think he's making a lot of money, and he may be, but I'll guarantee you he has seen some very lean years and worked for a lot less than any of his employees would accept.

From contributor L:
If year in and year out you have 10-15% overtime hours, then the base rate you charge yourself should be based on the net rate with OT.

Journeyman $10 per hour
2400 hours worked $27,000 net compensation
Base cost is 11.25 per hour + OH and is in all bids.

As contributor R mentioned, there are advantages to overtime. Any time spent getting set up and started/stopped now gets amortized over a larger number. We have tried to work 5 9's for years. When you get over 10 hours in a day, men get worn out and it's hard to perform. Last year we did 10 weeks of 5 10 to 12 hour days and then 5 on Saturday. We had lots of pizza lunches, shirts and gifts to show our appreciation at the end.

Installation that includes travel time is one of the most difficult costs to control. If you are using employees that work both in the shop and the field, it is much harder. If you have employees that are installation only, then look at having them report to the job and get paid for their time working on the job. If they come in the plant and pick up tools and parts everyday, then you can't do this.

From contributor N:
Contributor R, thanks for your posts. They have caused me to reevaluate my position on overtime. It's my company's policy to not work overtime. We do on occasion - maybe 3 days worth per year or something on that order. So it's not like it's forbidden - but if an employee chronically works more just to pad their paycheck, that's grounds for disciplinary action.

The thinking behind having a policy of no overtime is like this: 1) Management should run the company and staff the company appropriately so people aren't overworked; 2) Employees tend to be less productive and less safe when they work too much; 3) It increases direct labor costs.

But you're right that if you are customer-focused, there are times when overtime may be unavoidable. And you're also right that the actual cost is probably less than it seems. You outlined a few of the costs associated with not working overtime that I hadn't considered.

From a manager's standpoint, the problem happens when overtime becomes the natural course of events and people are always working 10 hour days or every Saturday. It seems to lead to a deprivation of people's personal lives, and then if it gets cut back, you may have some disgruntled employees.

From the original questioner:
Thanks to all. As usual, you all have been very helpful to me. In my situation, I think I will do my best to make the employees understand the owners' decision and the owners understand we need to be more careful in scheduling to make the best of site work time.

From contributor P:
One thing I think gets overlooked is that we have plans for every detail, but then don't put a time frame on the job. Managing people by getting angry because they took too long is reactive. Setting a schedule and targets is proactive. I recommend the book, "The Game of Work".

From contributor O:
Absolutely, contributor P. If you tell someone that something needs to be done, an average employee will let it take as long as it takes. If you tell them you want it done by 1pm tomorrow, and it's not (and your timeframe was reasonable), then you're in a position to start asking questions.

I had my paint shop supervisor off for a week ago - we've got 2 tradesman in there (one who is always in the spray booth) and 3 apprentices, who are excellent boys. The first day, they got bugger all done. The second day, I went out there first thing, then at lunch time. I gave them goals of what I wanted achieved from start to knock off. Every day they exceeded the targets I set for them.

From contributor A:
If overtime is chronic, when do you hire someone else to fill out those overtime hours? I always thought overtime was a once in a while, as needed thing. Do the full time people do any non-skilled labor work? Could you hire a low skilled person to take some of the workload off? In my shop, I hate to pay someone high wages to sweep the floor. Or rough sand. Or feed wood into a planer. Or empty the dust collector. OrÖ

From contributor R:
We have not been very good about setting goals for the normal work week, but as I mentioned in my first post, when we work a Saturday, we pick the crew and set a specific goal to be accomplished - it usually gets done. If we just come in and work some more hours, there is no noticeable benefit.

From contributor P:
I wasn't trying to be provocative. Actually, you were the only who mentioned setting targets or goals. Truthfully I have never viewed OT as a big deal because as has been stated, if you amortize your overhead over a 40hr week, the difference between the overhead and the OT cost is negligible.

But also, as has been stated, the OT becomes the goal. The goal is best pursued through targets. I used to (now in a different situation) keep graphs on everyone. When they came into the office, they knew how they were doing - not my opinion based on whatever. This concept, however it is pursued, has as much value as Lean, in my opinion. The "team" concept, if Home Depot is any example, is unworkable. (Now Iím being provocative.) Not to say there is anything wrong with getting everyone involved, but if there is no accountability, you have a team who gets along great but doesnít produce.

From contributor N:
Contributor A, clearly you have not been reading the 'Pro Shop' column in Woodshop News. Among other pearls of wisdom one can glean from this article, Scott Grove explains how using a less-skilled person for more menial tasks is counterproductive because you have to "think for them" and make sure they aren't "messing something up". Better to have a $20/hr journeyman empty those dust collectors! All right, I'm being sarcastic. I just thought that article was really irresponsible, full of bad business advice, and your comment reminded me of it.

From contributor A:
So that's why the shop owners clean the toilets!

From contributor Y:
I totally agree with contributors R and L. Productive overtime can be profitable, but there are always people who will abuse the productive part.

From contributor W:
I notice a trend with the business owners here. It seems that the employee is always goofing off and screwing around and therefore deserves less. If your employees are that bad, maybe it's time to look for others. I very rarely see any employers on this site say how good their employees are. You all complain about how lousy they are and how they don't earn their pay. Why is this?

The statement that it is cheaper to hire a new employee than pay overtime is way off. It is far cheaper to pay overtime than to hire another employee. An employee costs more than twice what he is paid to the employer. You can pay an employee overtime for half as much as a new employee.

From contributor A:
As an owner, one of the most important things I'm looking for is someone that wants to be part of the team. Individuals can not be more successful than the shop as a whole. Unfortunately, most employees I've had do not understand that. They are in it for what they can get out of the shop, not for what they can contribute.

I offer a good wage (my floor sweeper makes $10/hour up to my highest paid positions that can make over 40K a year), good growth opportunities (I have more work than we can do and more is out there), and good working conditions (company paid lunch on Fridays, no set hours, no questions as long as work gets out). Oh, and a company paid cruise for each employee and their spouse each year if profit margins and sales goals are reached.

I have one employee that is out on maternity leave. I let her come get parts (we do a monthly manufacturing run of approximately 500 units of 4-7 parts each) and assemble at her home so she can stay at home with her baby.

Out of 7 employees in the last 2 years, one has turned out to be worth keeping. The rest have taken advantage of me and the shop (and the other employees) in one way or another. I've been to unemployment court because one dude quite my shop to go to another shop and got fired. He thought I should pay him unemployment. One dude had to go because I found out he was loading his car with any wood that he could fit in the back and was working on his own projects and not shop projects. One dude left when I pointed out he was producing $0.85 work for each $1.00 he was paid and we needed to work on his production. One dude admitted he was whacked out on painkillers one day while at work.

The employee pool has become extremely shallow in my area. It is to the point that I outsource a good bit of work to another one man shop because I can't get a decent employee. It seems most of the people that come in here have a bad work ethic.

I would love to go through the bad apples to find a few really good ones. The problem (again in my area) is all the good apples seem to already have jobs and the owners will do whatever it takes to keep them. Schools don't teach woodworking anymore. They teach construction, but I need someone that can lay laminate, not frame a house. Recently I reviewed over 40 apps, called 10 in for interviews, 3 showed up and none were qualified for different reasons. So no, I can't just hire more people.

I know of 2 shops that have closed since January because they can't get employees. I am building my shop to depend on employees as little as I can. Automation, CNC, etc. And I'm still looking for that one real good employee that can come in and help me bring the shop to the next level and be very well paid.

As far as overtime goes, past about 10 hours a week, production decreases rapidly. If I have 2 people doing 10 hours a week, let's look at it. 2 people at $15/hour (15x1.5) = $23/hour on overtime. So the 20 hours OT costs me $460.

Assuming I let the part time person take over the lower skilled, simpler tasks, instead of $15/hour, they make $12/hour. No time and a half, so the 20 hours of work now costs me (20x$12.00) $240.

Even when I factor in the cost of benefits, the taxes, etc, the best business decision, for those 20 hours of work, is to hire an additional person. This is why OT should be an occasional thing, not a way of doing business.

From contributor W:
That was an excellent response, one of the best I've seen on the subject. Do you think it would be worth it to hire an 18 year old kid and train him to do what you want, all the while letting him know what is in it for him in the long run? It's a shame that the labor pool is the way it is now.

I will admit that I work (if you can call it that) for the government and I wish I could get a job that pays this much, but I actually get to do some work at. I am so sick of not working. I just want to work 40-50 hours a week. Problem is that I make $25 an hour and no one is willing to pay that.

From contributor X:
It's management's fault if too much overtime is set forth. Whatever happened to the time studies that were done to figure out costs? Let's see... When I first went out to bid the job, it took me an hour and a half to get there and get back. That's 3 hours of travel time. And from past time studies of other products we installed/built, it took one man 9 hours to do that job. Let's also figure a wasted 1/2 hour on the job site hauling tools and getting acquainted with what has to be done. Another 1/2 hour cleaning up the job site and hauling our tools back to the truck. Hmmm. Drive time of 3 hours plus l hour makes 4 hours, and let's not forget at least another 1/2 hour when they get back to the shop to unload and reload the truck, etc. Let's also add another 1/2 hour for incidentals such as gas/fill-ups, bathroom breaks, etc. Well that 5 hours and I have 3 hours left to do the work on the job site. It would take one man 3 days to do that job. 2 days if he worked and 1 1/2 hour overtime. Let's also consider the cost of gas/wear and tear on machinery, the saving of time on gas/fill-ups and bathroom breaks. If we had the manpower, we could send 3 men for one day and get the job done and make a saving with the hope that everything went right. If we did that, do we allow for extra $$ on a return trip?

Time studies are a must for management to help them bid a job effectively. Those employees who wish to become employers someday should keep records also for future use. How you allot your time and spend your money is your decision, but do so by planning it out. Overtime pay can be held to a minimum.

From contributor S:
Tough situation. Seems some guys are inadvertently going over and not getting the money. As an employer, it's a bit of on obligation to try and pay overtime. But when times are tough, and everyone knows about it and agrees, it is okay not to pay overtime. The affected parties should review and try and be grateful they have forty hours work. If everyone worked 3% harder to compete with each other and lose weight, they might all get raises.

From contributor V:
Try to pay overtime? If an employee works more than 8 in a day or 40 in a week, he has a legal right to it.. .and can't agree to work without time and a half either. You'll lose in court every time with that management skill

From contributor U:
At least you're getting paid overtime. Right now my employer told us that if you work any overtime, you have to bank your hours for vacation time. How legal is that? And being that this is not legal, what would you say I should do about it? I can't exactly afford to get the federal government involved.

From contributor O:
Sounds like "Flexi-Time" - isn't uncommon.

From contributor A:
In Florida, "flex time" was for management only. At least it was when I was last in corporate America. The general staff was paid OT for any time over 40 hours in a week. We did call a 4 day work week "flex time" because the time was "flexible" in that they did a week's hours of work in 4 days instead of 5 days. The banking of hours was only for management types. However, once in management, OT was expected and it was unofficially expected that you would not bank the time.