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Overtime, a new hire, or a second shift: which is cheaper?
There is a crossover point in hours per week. Below it overtime wins, above it the hire wins, and a second shift is a different question entirely.
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Is it cheaper to pay overtime or hire another person?
Compute the crossover in hours. On an illustrative 26 an hour base, loaded overtime costs 42.70 an hour while a new hire costs 34.06 an hour fully loaded — but the hire must be paid for 40 hours whether or not you need them. Dividing the annual cost of the hire by the overtime rate gives a crossover around 1,715 hours a year, or 33 hours a week: below that, overtime is cheaper despite the premium; above it, the hire is. A second shift is a separate calculation, because it unlocks equipment capacity without capital spending but adds supervision, utilities and usually a shift premium.
The instinct is that overtime is expensive because it is paid at a premium. Overtime is expensive per hour and cheap in total, because you buy exactly the hours you need. A new hire is cheap per hour and expensive in total, because you buy 2,080 of them whether you need them or not.
The two hourly rates
The new hire's hourly rate is 20 per cent lower. The total is the problem.
The crossover
Divide the annual cost of the hire by the loaded overtime rate: 73,245 ÷ 42.70 = 1,715 hours a year, or 33 hours a week.
- Need 8 extra hours a week? Overtime costs 17,765 a year. The hire costs 73,245 and you use 416 of their 2,080 hours. Overtime wins overwhelmingly.
- Need 14 hours? Overtime 31,089 against 73,245. Overtime still wins.
- Need 20 hours? Overtime 44,413 against 73,245. Overtime wins.
- Need 26 hours? Overtime 57,737 against 73,245. Closer, and now other factors decide.
- Need 33 hours or more? The hire wins, and above 40 hours it wins decisively because you have run out of reasonable overtime capacity anyway.
The arithmetic is clear and it is routinely ignored, in both directions: businesses hire at 12 hours a week of genuine need and businesses run 30 hours of weekly overtime for years.
What the arithmetic leaves out
The second shift
A second shift is not a bigger version of a hire. It answers a different constraint.
If your limit is equipment or space rather than labour hours, a second shift produces more output from the same assets. The comparison is not overtime versus hiring; it is a second shift versus buying another machine. Against equipment costing 62,000 plus installation, a shift premium and a supervisor are frequently the cheaper answer by a wide margin.
What a second shift adds: a shift differential, a supervisor or lead who must be there, utilities and heating outside normal hours, maintenance windows that get squeezed, and a quality gap if the second shift is less experienced. What it avoids: capital expenditure, a new lien, and a long-term payment.
It also has a minimum viable size. A shift of two people with a supervisor is a real fixed cost; if you only need 20 extra hours a week, a second shift is the wrong instrument.
The overtime creep test
Run this monthly rather than annually. Total overtime hours divided by total regular hours gives an overtime ratio; track it as a line on your monthly close. A ratio drifting upward for three consecutive months means demand has structurally changed and the comparison above should be re-run, because overtime that was cheaper at 14 hours a week stops being cheaper at 34 without anyone noticing the crossing.
There is a second reason to watch it. A business running heavy sustained overtime has a fragile cost structure: the output depends on a small number of people being willing to keep working long weeks. Lenders do not read overtime ratios, but the operational risk is real and it shows up eventually as turnover, rework or an accident.
The decision procedure
- Measure the actual extra hours required per week over the last three months. Not the peak week — the average, and the distribution.
- Compute your loaded overtime rate and your loaded hire rate with your own burden percentage.
- Divide the annual hire cost by the loaded overtime rate to get your crossover in hours.
- Compare to the measured requirement. If the requirement is within five hours of the crossover, the qualitative factors decide.
- Ask whether the constraint is people or equipment. If it is equipment, price a second shift against the capital purchase before doing either.
- If the extra demand is seasonal, price temporary or contract labour as a third option, and see what contractors and employees each do to your funding file.
If you are borrowing to fund any of these, note that overtime needs no financing, a hire needs the ramp funded, and equipment needs a term facility. The cheapest option on the arithmetic is often also the one that requires no credit application at all.
Where this applies
Related questions
Is it cheaper to pay overtime or hire another person?
Compute the crossover in hours. On an illustrative 26 an hour base, loaded overtime costs 42.70 an hour while a new hire costs 34.06 an hour fully loaded — but the hire must be paid for 40 hours whether or not you need them. Dividing the annual cost of the hire by the overtime rate gives a crossover around 1,715 hours a year, or 33 hours a week: below that, overtime is cheaper despite the premium; above it, the hire is. A second shift is a separate calculation, because it unlocks equipment capacity without capital spending but adds supervision, utilities and usually a shift premium.
Which funding products does this apply to?
Working Capital, Business Line of Credit, Equipment Financing, Payroll Financing. Each has its own page listing the funders in this directory that offer it and what each one publishes about its terms.
Is this specific to restaurants?
It is written around how a restaurant business actually generates and collects cash, which is what makes its funding problem different. The mechanics transfer; the arithmetic may not.
Who writes this?
The Find Me Funders research desk. Some drafting is AI-assisted, and every page that is says so at the top, including whether a person has checked its claims yet.
How do I know a figure here is right?
Where a page carries the green notice, its claims were checked against the sources listed at the end and a reviewer is named. Where it carries the amber one, nobody has verified it yet and you should confirm anything you plan to act on.
Are the examples real deals?
No. Every worked example is labelled illustrative and exists to show the arithmetic. What any particular lender charges is on that lender's page, where it publishes it.
Why do you never say what a typical rate is?
Because we cannot source it. A market average assembled from lenders who do not publish prices is a guess with a decimal point on it. Where a lender publishes a figure, we show that figure and say where it came from.
Is this financial or legal advice?
No. It is general information about how these products work. Outcomes depend on your contract and your state, and a lawyer or accountant licensed where you are is the person to ask about your situation.
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