How to Calculate the Real Cost of Overtime
Calculate direct overtime cost and review the operating conditions that may be creating recurring overtime pressure.
Key takeaway
The overtime premium is only part of the question; recurring overtime can also signal scheduling, demand, training, or process problems.
Calculate the direct wage cost first
Start with overtime hours multiplied by the applicable overtime wage rate. Keep the calculation tied to the same reporting period used for your revenue and labor analysis.
Then look for the repeating pattern
Break overtime down by employee, shift, day, location, job type, or manager where possible. A concentrated pattern is often more actionable than the total.
- Late customer demand
- Call-outs or absence coverage
- Understaffed peak periods
- Poor scheduling
- Rework or repeat jobs
- Training gaps that slow completion
Test one change at a time
Change the highest-confidence operational driver, then measure overtime in the next comparable period before claiming a saving.
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