Overtime and Productivity: Finding the Right Balance

7/2/2015 - By Zachary Farrington

-This excerpt is from our Summer 2015 Dimensions Newsletter-

With the summer season now upon us, many contractors are taking advantage of longer days to keep pace with growing backlogs of work. Often that means scheduling crews to work overtime.

Is scheduling overtime a good management practice? Numerous studies over the years have attempted to find a definitive formula for determining when overtime is cost-effective. While there is no simple answer that applies in all situations, there are some basic guidelines that can help inform your decision.

Overtime Pros and Cons
The most obvious advantage of overtime is it can help you be flexible and responsive to unexpected changes, adding temporary capacity without incurring the long-term costs and obligations of additional employees. In a tight labor market, the promise of regular overtime is also sometimes used as an incentive for attracting employees.

On the other hand, a clear downside to scheduling overtime is the immediate wage premium it entails. Paying crews time-and-a-half or double time can quickly eat away profits on a fixed-bid project, unless there is a bonus provision for completing work early. Overtime premiums can also be a source of contention on cost-plus and construction management contracts.

Studies by various industry groups suggest that an even greater cost associated with the continued use of overtime is the negative effect it has on worker productivity – not just during overtime hours but during the regular workday as well. Some years ago a benchmark publication by the Associated General Contractors of America summarized various studies’ findings this way: “After seven to nine consecutive 50- or 60-hour weeks, productivity is likely to be no more than that attainable by the same work force in a 40-hour week.”

Moreover, the AGC paper argued, worker productivity will continue to diminish as the overtime continues, eventually canceling out all the production gains from the early weeks.

Other potential disadvantages of using overtime include increased absenteeism, fatigue and accidents. A study by the Bureau of Labor Statistics concluded: “Injuries … increased as hours increased, not only in absolute numbers but also in rate of incidents. In most instances, the number of injuries (per hour worked) was very much higher at the longer hours.”

Scheduled overtime can also disrupt the orderly sequence of activity on a project. This can lead to space and scheduling conflicts among various trades, and even idle time as crews wait for materials to arrive.

Using Overtime Wisely
Despite the disadvantages, there can be times when overtime is unavoidable or even desirable. Here are four principles to remember when using overtime:

1. Use it judiciously. Most of the disadvantages associated with overtime result from using it as a standard operating practice. Completion schedules should be realistic and allow sufficient flexibility to absorb some unexpected delays. Any large-scale change orders should trigger an extension of the scheduled completion time.

2. Watch for signs of pacing. Parkinson’s Law says work expands to fill the time available for its completion. Workers may not even be aware that they are engaging in pacing, subconsciously slowing their output to match the time allowed. Monitor daily or hourly productivity metrics closely whenever overtime is scheduled.

3. Keep a close eye on safety and worker fatigue. Just one accident can quickly eradicate any benefits attained from an accelerated schedule.

4. Double-check legal and contractual requirements. On cost-plus contracts, make sure the customer receives all required notifications of the use of overtime. And, of course, be careful to comply with any applicable labor union contract provisions, as well as federal, state and local labor regulations.

Our firm can help you analyze labor, scheduling and other management practices. Click here to learn more about our construction industry expertise.