How to Reduce Overtime Cost in Manufacturing

Boom times for manufacturing firms have led to expanded operations and increased headcount over the past year. However, this welcome growth has been accompanied by a spike in the overtime wages manufacturers pay to employees, according to a new report from Staffing Industry Analysts.

The uptick has shown recent acceleration, with average weekly overtime growing from 4.3 hours in the first half of 2017 to 4.5 hours in the second half of 2017, followed by expansion to 4.6 hours in January and 4.7 hours in February, according to seasonally adjusted data from the US Bureau of Labor Statistics.

Mounting overtime pay, where each overtime hour can cost “time and a half,” takes a toll on a manufacturer’s payroll expense. For example, a company averaging 4.7 hours of overtime is paying an overtime premium on 10.5 percent of hours worked (4.7 overtime hours/44.7 total hours) and paying an overtime premium amount equal to 5.3 percent of their payroll.

“For employers who need to keep their operations running smoothly, relying on overtime can have a dramatic, negative impact over time,” notes Nathan Coin, manager of divisional operations for Aerotek. “That is one of the primary catalysts for leveraging the flexibility of contingent labor to handle business surges that otherwise could result in drastically higher labor costs.”

Coin points to ramp-ups such as additional product demand during the holiday season and satisfying consumers’ increased thirst for sports drinks in the summer. Even when such accelerated activity is anticipated, he says, it is often more effective to fulfill it via temporary staffing versus full-time hires.

Average overtime use increased for nearly all of the individual manufacturing sectors when comparing seasonally adjusted averages for the first and second halves of 2017, signifying that overtime expense is a growing pain point broadly impacting the sector, says SIA.

Want to know more about containing overtime costs? Contact Aerotek now.