Small businesses often experience large fluctuations in the demand for their goods and services. If a small company attracts a large new client or makes a breakthrough with consumers, it may suddenly have to ramp up production to meet increased demand. Asking current employees to work overtime is a way that employers can increase labor and production to satisfy demand spikes, but overtime is not always best way to deal with prolonged periods of high demand, due to overtime pay laws.
Overtime Pay Laws
In the United States, the Fair Labor Standards Act establishes standards for employment related issues such as overtime pay and the minimum wage. According to the U.S. Department of Labor, employers are required to pay workers one and one‑half times their normal pay rate for overtime hours. Hours worked in excess of 40 hours a week are considered overtime hours. The act does not limit the total number of hours an employer can require employees to work, or when work takes place.
Using Overtime to Meet Demand
The way that owners choose to institute overtime hours can vary. For instance, one business owner might require that employees work 10 hours a day on normal business days for a few weeks to meet demand. A different owner might require normal eight-hour workdays during the week, but require employees to work five overtime hours on weekends. In tech companies, employers may allow workers to put in overtime remotely from a home office. Regardless of the method that a business uses to institute overtime, increased labor hours let a company complete more work, produce more, and satisfy more consumer demand.
Meeting Seasonal Demand
While small companies can face unexpected spike in demand at any time that may necessitate overtime work, some businesses face predictable fluctuations in demand. For instance, a landscaping company in an area that experiences cold winters might have very little work to do during the winter, but experience a huge spike in demand during the spring and summer. Employers can require overtime during high seasons as a way to meet higher demand, although employees may not appreciate a long period of required overtime. Extended periods of overtime can potentially increase the chances of work-related of injuries.
Overtime vs. Hiring
While overtime provides a way to satisfy unexpected spikes in demand, it is not ideal for meeting demand that persists. Since employers have to pay workers at a rate of one and one‑half times their normal pay for overtime hours, it can be costly to use overtime as a long-term solution to high demand. Hiring additional workers is an alternative to overtime, which allows for more total labor hours without having to pay workers time-and-a-half. Businesses with seasonal demand can hire temporary workers to meet demand during high seasons.
- U.S. Department of Labor: Wages and Hours Worked: Minimum Wage and Overtime Pay
- The Wall Street Journal: Overtime Creeps Back Before Jobs
- Occupational and Environmental Medicine: The Impact Of Overtime And Long Work Hours On Occupational Injuries And Illnesses: New Evidence From The United States
- U.S. Department of Labor: Fact Sheet #23: Overtime Pay Requirements of the FLSA