The True Cost of Overtime: Why an OT Hour Isn't 1.5× the Wage
The classic OT calculation forgets that payroll taxes and workers' comp ride on overtime pay too. Here's the burdened version, the annual premium, and the hire-or-overtime decision.
Every trade forum has the same exchange: overtime is expensive, someone says, 1.5 times the wage. And that number — $37.50 for a $25 tech — is repeated so confidently that it becomes the planning figure. It's wrong in the same direction every costing shortcut is wrong: it uses the bare wage as if payroll taxes, workers' comp and benefits stopped existing at hour 41.
The burdened version
- Burdened straight rate = wage × (1 + burden %)
- Burdened OT rate = burdened straight rate × multiplier
A $25 technician at a 31% burden costs $32.75 an hour straight time. At time-and-a-half, the OT hour is $32.75 × 1.5 = $49.13 — nearly $12 more than the forum number, on every OT hour, because FICA, unemployment and comp premiums are percentages of actual pay, and actual pay just went up 50%.
A worked peak
An HVAC company runs that tech 8 hours of overtime a week through a 12-week summer rush. Ninety-six OT hours at $49.13 is $4,716 of labor. The same hours at straight time would have been $3,144. The premium — the multiplier's true cost — is $1,572 for the season.
| Line | Calculation | Amount |
|---|---|---|
| Burdened straight rate | $25 × 1.31 | $32.75/hr |
| Burdened OT rate | $32.75 × 1.5 | $49.13/hr |
| OT hours | 8 × 12 weeks | 96 hrs |
| OT labor cost | 96 × $49.13 | $4,716.00 |
| Premium beyond straight time | 96 × $32.75 × 0.5 | $1,572.00 |
What the premium is worth
For a seasonal peak, $1,572 is cheap: it buys flexibility that scales to zero in October, and no hiring process does that. The same premium every week of the year is a different object — about $6,800 annually at this rate — and at that point the comparison isn't overtime versus nothing, it's overtime versus the straight-time hours of another person. Run the annual premium through the hire comparison before the peak becomes the schedule.
Passing it on
Genuine rush work — the call that must happen tonight — should carry the burdened OT rate plus a premium for the disruption, and customers who create the urgency accept that. What it shouldn't do is absorb OT that exists only because an estimate slipped: billing the customer for your scheduling is the fastest way to lose a repeat client. And where OT is chronic and unpriced, the effective hourly rate on those jobs collapses silently — which is the job-costing conversation, not the payroll one.
Cost your overtime with the overtime calculator →
Frequently asked questions
How much does an overtime hour really cost?
The burdened wage times the multiplier. A $25 wage with 31% burden is $32.75 burdened; at time-and-a-half that's $49.13 per OT hour — not the $37.50 the bare wage suggests. Payroll taxes and workers' comp apply to overtime wages exactly as to straight ones.
What is the overtime premium beyond straight time?
OT hours × burdened wage × (multiplier − 1). A tech running 8 OT hours a week for a 12-week peak at $32.75 burdened: 96 hours × $32.75 × 0.5 = $1,572 of premium — what the multiplier alone costs above paying those same hours at straight time.
When should I hire instead of paying overtime?
When the premium becomes permanent. Seasonal peaks are what overtime is for — it scales to zero when the work does. Run the premium annually: if a full year of OT premium approaches the cost of a hire's straight-time hours, the payroll is the cheaper way to buy those hours.
Tools for this
Ready to run the numbers?
Open the Overtime Cost Calculator and apply this guide with your own figures.
Open the Overtime Cost Calculator →