Overtime vs New Hire Break-even Calculator
Overtime feels flexible, but chronic overtime is often the most expensive way to buy labor. This calculator compares it with the loaded cost of hiring, including the output you lose when people work tired.
Your numbers
Total hours across the team that overtime currently covers.
Output lost per paid overtime hour from fatigue, errors and slower pace.
After vacation, holidays, training and sickness.
Your results
Simplified. It ignores overtime payroll taxes, shift coverage rules, union terms, benefit eligibility and the risk of burnout turnover.
Overtime cost vs hiring cost by weekly hours
Sweeps Extra hours needed per week from 10 to 150, holding your other inputs fixed.
Map overtime by work center
Optional: we can outline how to report overtime against production orders and work centers from your ERP and payroll.
Optional. The tool and every export work without this. No spam.
How to use it
Enter the total extra hours your team works per week and the number of weeks it recurs. If it is seasonal, use only the seasonal weeks. Enter the overtime multiplier from your policy or agreement and a realistic fatigue loss, then the burden on a new hire and the one-time cost to recruit and train. The chart shows overtime growing smoothly while hiring cost rises in steps, one step per additional hire.
The method
The effective cost per useful overtime hour is the wage times the multiplier divided by one minus the fatigue loss. Hires are the annual hours needed divided by productive hours, rounded up. Annual hire cost is paid hours times wage times burden plus the one-time cost spread over the years you expect to keep the person. The break-even compares one hire's annual cost with the cost of overtime hours.
- Productive hours are lower than paid hours because of leave and training.
- Rounding up hires shows the step cost of capacity.
- Fatigue is a judgement, so test 0, 8 and 15 percent.
Reading the result
With the defaults the team needs 4,500 hours and three hires, and overtime is slightly cheaper. The break-even is about 35 hours per week per hire. Below that, the hire sits underused. Above it, hiring wins. Also weigh the factors this model leaves out: quality, safety incidents, retention and the lead time to fill a role.
Common mistakes
Teams compare overtime pay with base wage only and forget burden, or ignore that overtime hours are less productive. Another error is hiring to cover a one-quarter peak. Export overtime hours by work center from payroll and the ERP to confirm the need is persistent before you open requisitions.
Frequently Asked Questions
How much does fatigue really reduce output?
It varies by job. Research on long hours shows output per hour falls and error rates rise, but the size depends on the task and the weeks of sustained overtime. Use your own scrap and rate data by shift if you have it.
Should I include recruiting cost?
Yes. Recruiting, onboarding and slow early output are real costs. Spread them over the number of years you expect the person to stay, which is why a turnover estimate matters.
What about temp or agency labor?
Agency labor carries a markup but no long-term commitment. Run the same model by replacing the hire cost with the agency bill rate times productive hours, and compare the three options.
When is overtime clearly the better choice?
When the extra hours are short, seasonal or uncertain. Overtime is a variable cost you can switch off, while a hire is a commitment that has to be covered even in a slow quarter.
Netray can help join payroll, work center and order data from your ERP so overtime patterns are visible by line and by week.
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