Overtime vs. Hiring Additional Employees
Emily L. Slaugenhoup
Butler County Community College

Today’s economy is certainly struggling. With hard times, many employers are faced with tough decisions on how to save money. One area to be considered is the number of employees, their salaries, benefits, and bonuses. A company can save money depending on whether they hire additional employees to cover shortages and additional work or by simply paying current employees overtime to get the work done. There are numerous pros and cons to both. However, there is not always a clear answer. According to the Fair Labor Standards Act (FLSA), an employer must pay an employee overtime pay for any amount of work over forty hours. They do not, however, have to pay for work on “Saturdays, Sundays, holidays, or regular days of rest, unless overtime hours are worked on such days.” Overtime pay amounts to at least one and one half times the regular rate of pay. Weekend and night work does not require overtime or additional pay by FLSA standards, but an employer may make that agreement. (Wages) The cost of overtime can vary depending on the wage. The cost of hiring an employee can vary as well, but it can also be roughly calculated. The Huffington Post used GetHired.com to estimate the hiring costs. It used the costs of posting an open position, reviewing applications, screening applicants, preparing for interviews, interviews, and the final steps to come to a total figure. Posting an open position $37.50 - $456.50 Reviewing applications $587.50 + Screening applicants $100 + Preparing for interviews $31.25 Interviews $75 Final steps + $187.50 Total (variable) $18,795.25 (higher potential cost)
This estimate would be in addition to the salary paid to come up with an overall cost for hiring an employee. (Ciccone, 2012) Steve Earley conducted extensive research on the overtime vs. additional personnel in the case of the city of Riverside fire department. He found many issues associated with the dilemma including health risks, city budget issues, and department protocol. Ellen Perlman of Governing magazine stated that “overtime remains a key way of controlling staff levels to ride out revenue rollercoasters” (Perlman, 1997, p. 43). However, Earley concluded that overtime surpasses many firefighters’ salary, and this could lead to issues within the city if the firefighters become the highest paid employees. This could ultimately lead to budgeting problems when contract negotiation starts. (Earley, 2001, p. 11) Leeanna Mims, author of “Overtime Cost Reduction with Alternative Work schedules,” found that city officials are worried about an overabundance of overtime costs (Mims, 1999, p. 4). She discussed her city officials’ recommendation to switch the fire department’s schedule to twelve-hour shifts. Earley found other research that suggested ten-hour day shifts and fourteen-hour night shifts are overall more beneficial to the employees and the budget. Twenty-four-hour shifts leave firefighters fatigued and more accident-prone (Earley, 2001, p. 11). According to Mims, a twelve-hour shift reduced the cost of overtime and use of sick days and increased safety (Mims, 1999, p. 14). Mr. Earley also included the findings of a few other researchers (Earley, 2001, p. 12). Robert Brown assessed the cost of hiring additional employees or paying overtime and found that it was 13.10% cheaper to pay overtime. He based the cost of hiring additional employees on their salary, benefits, and hiring costs (Brown, 1998, p. 9). Thomas J. O’Connell used his research to conclude that “limited and judicious use of overtime spending coupled with strategic planning, data analysis and readily retrievable information” provided the best use of finances (O'Connell, 2000, p. 30). John Selberg determined that finding the cost of variables, such as sick leave, injuries, holidays, incidents, training, unscheduled shortages, and other benefits is crucial in estimating overtime costs. In doing this, Selberg established a “breakeven point” in which the fire department should hire employees to a certain point then pay overtime for the rest. (Selberg, 1992, p. 9). Looking at all angles of the issue, Earley found that overtime pay certainly has its disadvantages. After being used for so long, overtime can be hard to get rid of because it becomes standard routine. It also hurts employees physically and mentally after long hours, increasing the risk of incident. He even reported the findings of L. Glazner that showed “a correlation to firefighter work schedules and injuries with fatigue being associated with those injuries and mistakes of firefighters.” (Earley, 2001, p. 14) Earley had a hard time deciding the better of the two, overtime or additional personnel, after his research. Steve Earley went on to compile his own cost research and found the following rates:
Advertisement of Position|$30.00|
Application Review|$100.00|
Application Data Entry|$50.00|
Application Status Notification|$25.00|
Written Exam Administration|$147.00|
Written Exam Status Notification|$25.00|
Physical Exam|$269.00|
Total HR Cost|$646.00|

Staff Time for Oral Panel|$450.00|
Background Credit Report|$25.00|
Background Credit Report|$25.00|
Background Credit Report|$25.00|
Background Employment Check|$25.00|
Review of Completed Background Packet|$35.00|
Polygraph Test|$100.00|
Psychological Examination|$200.00|
Applicant Fingerprinting|$46.00|
New Employee Uniforms/Safety Gear|$2,801.00|
Total Direct Costs|$3,707.00|

|Salary|Hourly Rate|Overtime Rate|
Firefighter|$53,697|$18.44|$27.66|

The total hiring cost of a new firefighter is $4,353, plus the annual salary of $53,697. The total yearly compensation for a firefighter is $81,799. However, once Earley found the annual cost of hiring a new employee, he discovered that it was 43 cents per hour cheaper to pay overtime. (Earley, 2001, p. 24) Upon reviewing all of his information, Steve Earley recommended the fire department institute “a computer software program that can easily manipulate staffing data in order to evaluate staffing patterns and reasons for overtime” (Earley, 2001, p. 27). He also felt that the department should change the way vacation is scheduled, limit hours worked without a break, analyze sick leave, keep an updated potential hiring list, and reevaluate current benefits and leave time. (Earley, 2001, pp. 28-29) Ultimately, it seems that Earley believes a balance between hiring and overtime pay is what is best. Evaluating and comparing a company’s overtime pay and overall hiring costs are one way to determine what may be best for that employer. However, this can be somewhat tedious and may not produce an absolute answer. There are many other alternative to these options. One is the use of temporary workers. In times of high production, overtime pay can be eliminated with temporary workers. The only stipulation is that these workers do not exceed forty hours. The employer then has enough workers to cover the workload without incurring the costs of overtime or additional health insurance and vacation pay. (Richard) There are a few drawbacks to temporary workers, though. The standard hiring procedure must still be followed which includes all the same costs. There are some positions, such as seasonal jobs, that are exempt from overtime laws, which will also need to be considered when thinking about hiring temporary workers. The morale of the full-time, permanent employees may also be affected, which could potentially hurt the company and cost it more money in the long run. (Richard) When looking at the situation from the standpoint that an employer ultimately does not want to hire additional personnel, there are an abundance of other options. The employer can, obviously, offer overtime and cut back paid time off. They can also: Re-train your employees in order to increase their skills and effectiveness. Re-train your managers in productivity tools and approaches. Explain the situation and ask workers to do "more with less." Solicit and reward suggestions from employees, suppliers and customers that increase productivity. Increase the use of "distributed metrics" to help employees see their high and low productivity areas. Re-design key jobs to eliminate low value work and duplication. Increase production targets and use "stretch" goals. Implement quality or cost control programs to increase efficiency. Offer productivity incentives to your team. Offer individual productivity incentives. Shift pay to a "piecework" basis. Offer incentives for bottom performers to leave (or fire them), and then hire average or top performers to replace them. Do an assessment of each management process and minimize/stop doing low-value steps. Reduce team size or change team composition to increase effectiveness. Increase safety and stress reduction programs in order to reduce "downtime." Develop more effective scheduling programs to insure that shifts are not under- or overstaffed. Forecast future headcount needs so that you are not overstaffed.
(Direct quoted list from (Sullivan)) There has been a lot of extensive research on the debate as to which is better, hiring additional employees or paying overtime. Many fire departments seem to look into this issue. It seems to depend on the department as to which is better, but in the case of Riverside, overtime seems to be the winner. Employers have lots of other options to explore, however. Temporary workers and increased productivity are two of the main contenders. Ultimately, it depends on the company as to what would be the best decision cost wise.

References
Brown, R. (1998). Combination Hiring/Overtime Program: How to Best Meet Approbed Staffing Levels for the West Metro Fire Protection District. Emmitsburgh: National Fire Academy.
Ciccone, A. (2012, June 4). The True Cost of Hiring Employees. Retrieved April 7, 2013, from Huffington Post: http://www.huffingtonpost.com/2012/06/04/the-true-cost-of-hiring-infographic_n_1568295.html
Earley, S. (2001). An Analysis of the Utilization of Overtime Versus Hiring Additional Personnel. Riverside: National Fire Academy.
Mims, L. (1999). Overtime Cost Reduction with Alternative Work Scedules. Emmitsburg: National Fire Academy.
O'Connell, T. J. (2000). Examining the Financial Impact of Excalating Overtime in the Sunrise Fire Rescue Department. Emmitsburg: National Fire Academy.
Perlman, E. (1997, September). The Inflated Time Clock. Government , 43-48.
Richard, L. (n.d.). Can You Reduce Overtime by Hiring Temporary Workers. Retrieved April 7, 2013, from Small Business: http://smallbusiness.chron.com/can-reduce-overtime-hiring-temporary-workers-51740.html
Selberg, J. (1992). Development of a Model for Estimating Overtime Costs and Optimal Staffing Levels Needed to Maintain a Predetermined Minimum Staffing Level for the Germantown Fire Department. Emmitsburg: National Fire Academy.
Sullivan, J. (n.d.). Alternatives to Hiring More People: Tips for Managers. Retrieved April 7, 2013, from Innovative Employee Solutions: http://www.innovativeemployeesolutions.com/knowledge/articles/alternatives-to-hiring-more-pe/
Wages. (n.d.). Retrieved April 4, 2013, from United Sates Department of Labor: http://www.dol.gov/dol/topic/wages/overtimepay.htm