Overtime vs Hire Decision

How this works

Overtime and hiring pull cost in opposite directions. Overtime pays a premium, commonly 1.5x the regular rate, but only for hours actually worked, so it scales cleanly with the size of the gap and how long it lasts. Hiring pays straight time, which looks cheaper per hour, but adds a one-time hiring cost that has to be earned back over enough weeks, and if the new hire's standard capacity is larger than the gap, the unused hours are still paid for every week. This engine totals both paths in dollars and compares them directly.

The result is that duration and gap size both matter, not just the hourly rate. A short gap favors overtime because the hiring cost never amortizes. A gap smaller than one full hire's capacity favors overtime for the same reason, even over a long duration, because the hire is paid for hours the gap doesn't use.

Assumptions

• A new hire is paid for their full standard weekly capacity, not a partial or temp-agency rate
• Wage rates and labor burden are constant across the duration modeled
• The coverage gap is a steady weekly figure, not a variable schedule

Limitations

• Does not model partial, temp-agency, or contractor staffing options
• Does not model overtime hour caps or labor-law limits on consecutive overtime
• Does not model ramp-up time for a new hire to reach full productivity

Sources

Total-cost comparison structure follows the same pattern used in LTL vs FTL Decision and Repair vs Replace Equipment, applied to labor cost with standard payroll burden framing consistent with Automation ROI Planner.

Worked example

A 40-hour weekly coverage gap costs $1,950 a week in overtime at $25/hour and a 1.5x premium, including a 30% labor burden. Over 26 weeks that's $50,700. Hiring one person at the same $25/hour rate costs $1,300 a week plus a $2,000 one-time hiring cost, for $35,800 over the same 26 weeks, a clear win for hiring since the gap matches a full hire's capacity. Cut the same 40-hour gap in half to 20 hours a week, though, and hiring still pays for a full 40 hours of capacity every week: the total hire cost stays $35,800 while overtime drops to $25,350, so overtime wins even at the same 26-week duration. The gap size relative to one hire's capacity, not just how long it lasts, decides the verdict.

Common use cases

• Deciding how to cover a seasonal or project-driven demand spike
• Checking whether a persistent coverage gap has crossed the point where hiring pays off
• Setting an internal rule of thumb for when to approve overtime versus opening a requisition
• Estimating the labor-cost line to feed into Cost per Unit Decision Model