How to use the overtime vs new hire calculator
- Enter the extra hours needed per week and for how many weeks.
- Enter the regular pay of the people who would work the overtime and the overtime multiplier, plus a percent for payroll costs on wages.
- Enter the new hire's pay, weekly hours, monthly benefits and one-time hiring and training cost.
- Compare the totals, the cost per needed hour and the weekly overtime hours at which the two cost the same.
Formula
Overtime = hours needed x weeks x regular pay x multiplier x (1 + payroll %)
New hire = hire hours x weeks x pay x (1 + payroll %) + benefits per month x 12 x weeks / 52 + one-time cost
Break-even weekly hours = new hire total / (overtime cost per hour x weeks)
The new hire is paid for all of their hours, even when you only need some of them.
Twenty extra hours for half a year
With 20 hours a week for 26 weeks at $28 and a 1.5 multiplier, plus 10% payroll costs, overtime costs $24,024.00, or $46.20 per needed hour.
A new hire at $24 for 40 hours with the same 10%, $600 a month in benefits and $3,500 to hire and train costs $27,456.00 + $3,600.00 + $3,500 = $34,556.00, or $66.45 per needed hour, with 520 hours beyond what you need. Overtime is $10,532.00 cheaper. The two cost the same at 28.8 overtime hours a week. At 40 needed hours, overtime would be $48,048.00 and the hire $13,492.00 cheaper.
Where the break-even sits
Overtime costs more per hour, but you pay only for the hours you need. A new hire costs less per hour, but you pay for all of their hours. So the more extra hours you need, the better a hire looks. The break-even number shows where the lines cross for your figures.
If the need is short or uncertain, overtime keeps you flexible. If it is steady and long, a hire is usually the better value, though recruiting takes time that overtime does not.
What is not in the numbers
Long hours can slow people down and raise errors, and a new person takes time to reach full speed. Neither is a cost in this tool, and both can matter. Rules about overtime, such as who is owed it and at what rate, depend on your policy, contracts and the rules that apply to you, so set the multiplier accordingly.
For related costs, see the overtime calculator, the employee cost calculator and the labor cost calculator. The FTE calculator converts hours into full-time equivalents.
Assumptions and limits
- Every pay rate, multiplier and cost is a number you enter, and the defaults are examples.
- The payroll percent is applied to wages in both options. Enter your own figure, or 0.
- Fatigue, errors, the time it takes to hire, productivity of a new person and the value of work done in spare hours are not modeled.
- Benefits are a monthly cost converted to the weeks you choose.
Frequently asked questions
Is overtime cheaper than hiring?
For small or short needs it usually is, since you only pay for the hours worked. For large, steady needs a hire often costs less per hour. Enter your figures to see where the break-even falls.
What multiplier should I use for overtime?
Use the one your policy and the rules that apply to you require. The default of 1.5 is an example and not a statement about what is owed.
Why does the new hire cost per needed hour look high?
It divides the whole cost, including hours you do not need, by only the hours you need. If you can use the spare hours, the real cost per useful hour is lower.
What are payroll costs on wages?
They are extra amounts an employer pays on top of wages, such as certain taxes. The percent is a number you enter, so use your own figure or 0 to leave it out.