Economic Concepts II
Actual Cost of Overtime...
Cost of Overtime Calculations
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When I was a younger man, I remember clients (or their parents who used to own the business) railing against overtime. Now remember, my practice Key Consulting, Inc. , is a practice built on "turnarounds" of severely wounded companies. Instinct told me that if Grandpa Steve knows all the math, then how is XYZ Corp. in default at Farmers and Merchants Bank?
The true cost of overtime is complicated and simple at the same time. Let's walk through it.
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So overtime wages are 1.5X the regular rate. Payroll taxes (FICA, MCARE, SUI) let's say run 9%. Employer share of the 401K is 3% of gross wages. So far so good.
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What is the true cost of the health plan in hour number 41? Was it not paid for in hours 1 through 40? Is that amount not fixed at $1,200 per month regardless of hours? Think that one through...
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If the company provides a benefits package, say life/disability, was that not paid for in hours 1 through 40? Is that amount not fixed?
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Did you know worker's compensation audits remove the overtime wages and charge at the standard rate? Go look that one up.
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So the overtime cost in our example is $3.82/per hour more than standard time. You thought 50% more didn't you?
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Units for a manufacturer. Hours for a law office. Square feet for a drywall contractor. You see that revenue stream out there? Grab it!!
