Overtime vs Hiring: A Case Study
Dr. Steve McQueen
This report aims to address the debate over whether it is more beneficial to hire new employees when faced with shortages, or cover the shifts with overtime. The issue is examined from the viewpoint of Columbia University’s Department of Public Safety, and takes into account factors and costs as found therein. This report includes a graphical comparison of the costs associated with each option, and analyses and discusses the greater expense of hiring.
One of the most debated topics in management is whether it is more beneficial to hire new employees or pay overtime to increase production or coverage. Many factors go into this decision, including benefits, duration of the period of extra work needed, and even type of work involved. In Columbia University’s Department of Public Safety, this issue gets more attention than at most places of business. Minimal staffing levels, union regulations, and round-the-clock posts – among other factors – conspire to make this decision one that is faced often. When all factors are considered, is it better for the department to hire new officers when coverage is lacking, or to utilize overtime to staff positions as needed? Executive Summary
In almost all instances, it is more cost-efficient to fill gaps in coverage with overtime rather than hiring new officers in this department. This report will examine the factors involved, analyze the financial implications, and discuss exceptions to the findings. Explicit and implicit costs to the department will be discussed, along with their relevance to the decision-making process. This report will also compare the costs of new hires and overtime to find an equilibrium point beyond which the decision should change, and introduce the concept of diminishing returns. Finally, it will summarize the process and discuss application. Definition
In Columbia University’s Department of Public Safety, there is a minimum level of on-duty staffing required at all times. Department employees are licensed, uniformed personnel belonging to the Transit Workers’ Union, Local 241. Management is required to ensure sufficient coverage on a daily basis, while conforming to the guidelines of the collective bargaining agreement. Sick time, vacation time, requests for guard services or special details, and emergencies such as natural disasters can create shortages in coverage that need to be addressed. Failure to cover these openings is not an option, and so management is left with two choices: hire additional full-time personnel to cover the openings, or pay overtime – at the rate of one-and-one-half times normal salary. Spending large amounts on overtime raises concerns in multiple areas, such as yearly budget reviews and union negotiations. This report aims to examine the issue in depth, and decide which option is more fiscally appropriate in a given situation. Factors and Costs
As previously mentioned, there are numerous factors that influence this decision. The following are the most critical points that must be considered: * Department employees are unionized. Due to contractual agreements, the department must maintain all currently occupied positions. Any vacated position must be filled, somewhere in the department; for example, if an officer resigns, the department must fill that vacancy, whether in the same position or laterally, or be found in violation of the collective bargaining agreement. * Note that this is regardless of shortages, and only applies to permanently vacated positions. If the department has three extra officers on a given tour, and one resigns, the department may not continue to operate with two extras; rather, it is necessary to hire a new third extra. If an officer goes out on extended disability, however, it is not contractually necessary to fill that opening. In these cases, the department can cover the...
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