It is not uncommon for the Effective Overtime Rate

It is not uncommon for the Effective Overtime Rate and the Effective Labor Rate to be only slightly different.

The straight-time rate absorbs nearly all of the financial and utilization burdens in the Effective Labor Rate analysis. As a result, the real cost of an overtime hour is calculated differently because the Effective Overtime Rate is solely based on straight time plus the overtime premium, FICA, Medicare, and Efficiency Rate.

The Efficiency Factor for Overtime Hours ought to be decreased in accordance with workplace analysis findings and statistics that indicate that working overtime is less efficient primarily due to fatigue.) Overtime typically only carries over taxes from FICA and Medicare.

A company’s hourly base rate is simply multiplied by the premium rate, plus FICA and Medicare costs, to determine the Effective Overtime Rate. The overtime premium is subject to FICA unless the employee has reached the FICA wage cap. Medicare is always in effect.

It is not uncommon for the Effective Overtime Rate and the Effective Labor Rate to be only slightly different. When a business or operations manager must decide whether it is preferable to finish a project on a specific day even though overtime pay will be required, this information is helpful.

The Effective Overtime Rate for 1.5 times the hourly rate may be $28.25, while the Effective Overtime Rate for 2.0 times the hourly rate may be $37.68, based on the earlier example of the $17.50 hourly rate.

To put it another way, if the job site manager tells management on Thursday after lunch that the current project will only take about half a day to finish on Friday, should they allow this crew to work a few extra hours on Thursday so they can start a new job on Friday morning? What do you think, then? Do you authorize a few hours of overtime or tell the crew to return to the job on Friday and be prepared to start a new one on Monday?

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