NOW: Are You Paying Too Much in Overtime? (2024)

It could be your company culture: See the warnings signs, effects & disadvantages of excessive overtime, how much is too much overtime, PLUS: how to calculate it & manage your overtime better

Low productivity. High overtime bills. And an issue of morale. Studies show that too much overtime can be bad for everyone – from the employees to the business itself. But how much is too much?

We look at the warning signs, effects and disadvantages of paying too much in overtime, and show you how to calculate and manage yours better – for a better, more resilient organisation and a healthier company culture.

WARNING SIGNS OF TOO MUCH OVERTIME

One of the first indicators of excessive overtime is your wage bill. If all or most of your employee’s actual wages are consistently 30–45% higher than their salary, alarm bells should be going off – especially if it’s every month. See, overtime is a way to save costs on having to get external help, but if it’s every month or second month, it might be worth asking some questions about your overtime policies.

NOW: Are You Paying Too Much in Overtime? (1)

Your country’s labour regulations can actually be useful for this. In South Africa, for example, the average workweek is 45 hours. And overtime is paid at either 1.5 or 2 times (Sundays and holidays). And if you’re maxing those limits, you’ll see a 30–45% rise in your wage costs.

Another indicator is your employees’ health. Numerous studies have linked long working hours with poor employee health (see here), which includes stress, lack of sleep, hypertension, depression, anxiety and an increased risk of injuries at work (see studies here).

“As soon as people start working 50+ hours per week, their hourly output dropped across the board” – John Pencavel, Stanford University

So, if you notice a lot of sick leave, unhappiness at work, absenteeism and low morale, especially when it’s coupled with low work performance, it could be a question of too much overtime.

EFFECTS & DISADVANTAGES OF EXCESSIVE OVERTIME

OK, so we can agree that excessive overtime can be bad for employees’ health. But what about the business? Well, global work safety experts, Circadian, created this collection of study data to show how too much overtime increases health and safety risks, absenteeism and staff turnover while lowering productivity – all of which should be pretty scary to management.

Team development guru Jan Lengstorf caused quite a stir online with his comments on gaming giant Electronic Arts (EA)’s overtime policies. As he showed in this blog post, productivity is not linear and instilling “crunch time” to meet deadlines only works for about the first week or so – basically, he makes a very good argument for why overtime is UNproductive.

NOW: Are You Paying Too Much in Overtime? (2)

HOW MUCH IS TOO MUCH OVERTIME?

But you don’t even have to take his highly experienced word for it, there are many studies that prove overtime lowers productivity. Like this research by the International Game Developers Association that says: “Productivity drops immediately upon starting overtime and continues to drop until, at approximately eight 60-hour weeks, the total work done is the same as what would have been done in eight 40-hour weeks.”

Stanford University professor John Pencavel also showed in his study that as soon as a person starts working more than 50 hours per week, their hourly output dropped across the board.

So, from this, we can glean that more than 50 hours per week starts to get bad, but as soon as the overtime starts to run over several weeks, it gets you negative productivity.

“A high turnover rate, coupled with low productivity and lots of overtime could indicate low morale.”

HOW TO CALCULATE YOUR OVERTIME RATIO (PERCENTAGE)

There’s a formula for expressing your overtime as a percentage that’s pretty useful:

You take the total overtime hours worked
Divided by the total of the regular hours worked
And multiply that by 100%

NOW: Are You Paying Too Much in Overtime? (3)

For example, for a single employee who worked 45 hours, with normal hours 40, the overtime rate is: 45 / 40 x 100% = 1.125%. For multiple employees, you just add the hours up, but the ratio calculation should be roughly the same.

IDEAS TO MANAGE OVERTIME BETTER

One of the first things you should ask yourself when you have high overtime rates and costs, is what’s causing it?

Are you just understaffed? Do you find your teams having to redo work quite often? (See the dangers of duplicate work.) Or do you think that your employees’ productivity levels might be too low?

Also, have a look at your staff turnover and performance. A high turnover rate, coupled with low productivity and lots of overtime could indicate low morale. And believe it or not, your excessive overtime could have everything to do with your company culture.

NOW: Are You Paying Too Much in Overtime? (5)

EXCESSIVE OVERTIME & COMPANY CULTURE

If you take a look at what company culture is, you might know that two of the most obvious outward “symptoms” of a negative company culture shows up as poor performance – both on individual and company level – and your people and teams’ behaviour. Use this handy four-quadrant tool to measure and understand your company culture.

When you have high turnover and low production, coupled with behaviours like absenteeism, tardiness and frequent miscommunication or even regular disagreements and conflict, it could indicate some issues around your company culture – cultures of overtime and low morale are surprisingly common.

But the good news is that you can work just on your company culture and simultaneously take care of all those little bugbears that are killing your company’s profit and growth.

NEED HELP?

We are a change management company, and we specialise in helping companies figure out what’s hindering their growth & performance and then supercharge it with science-based organisational development that actually works.

And we are willing to send a team to your company right now to help you figure out what’s causing your excessive overtime – with no obligation from you!

Let’s figure out what’s going on, so we can help energise your people for your exponential growth.

BOOK YOUR FREE ASSESSMENT NOW

You might also be interested in…

See the real business costs behindworkplace exclusion.