# As business owners what do you folks here think about paying Overtime?



## Jerrald Hayes (Apr 24, 2006)

mdshunk said:


> Wow... I can just barely believe what I'm reading. You're a genunie azz, aren't you?


Nice to meet you too mdshunk. 

Geez you guys have no patience here (ContractorTalk) at all. I'm trying to find out what a fair sampling of contractor from this forum think on this and you guys just can't seem to wait. What is the big deal? Show a little patience. 



mdshunk said:


> Are you specifically asking about unplanned and unbudgeted overtime?


 Yes


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## Jerrald Hayes (Apr 24, 2006)

I'm going to go for a bicyle ride since it such a good day. We can contiue the discussion again in a few hours.


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## mdshunk (Mar 13, 2005)

mdshunk said:


> Are you specifically asking about unplanned and unbudgeted overtime?





Jerrald Hayes said:


> Yes


Then why didn't you just ask that, then? 

Why are we impatient? Because you're asking a question that you feel you already know the answer to, and that's a wasting a guy's time that's he's otherwise freely giving to respond. Some people call people like you a trawl baiter. It's considered bad manners on forum sites to do this.


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## ProWallGuy (Oct 17, 2003)

Overtime is budgeted for in the initial bid, plain & simple.

If this thread ends up some sort of sales pitch, I'm trashing it.


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## mdshunk (Mar 13, 2005)

ProWallGuy said:


> If this thread ends up some sort of sales pitch, ...


S'zackly what I was thinking.


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## john elliott (Oct 23, 2005)

mdshunk said:


> Then why didn't you just ask that, then?
> 
> Why are we impatient? Because you're asking a question that you feel you already know the answer to, and that's a wasting a guy's time that's he's otherwise freely giving to respond. Some people call people like you a trawl baiter. It's considered bad manners on forum sites to do this.


Agreed. Having read Jerrald's stuff elsewhere I am quite sure he's got this all thought out, and is just waiting for enough people to say what they think until he says how it should be

John


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## dougchips (Apr 23, 2006)

mdshunk said:


> I feel like we're talking in Paul Burns_esque_ circles.


 I noticed the same thing.


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## realpurty2 (Aug 18, 2005)

If it will even remotely help put an end to the infinite loop he is obviously enjoying keeping us in..... here is how OT works for our company.

Labor Hours are calculated in the bid process. OT pay is bid into the contingency in case of unforeseen delays. 

Our schedule is either M-F 8hr days or M-Th 10hr days depending on what best suits the project. If the guys are in the middle of something that can't be left at quitting time, they roll into overtime until they get to a stopping point. The overage in labor hours is covered by the contingency which is already built into the cost.

If they get finished early, the unused contingency is distributed as bonuses for all who worked on that project. 

Is that what you were wanting to know? If not, I'm fftopic:


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## Mike Finley (Apr 28, 2004)

Jerrald Hayes said:


> However in my own business I sort of discourage it in that I think employees should spend their weekends in other pursuits. They should coach their little girls soccer team , go to theatre and film, take up gardening etc. In other words get a life outside of their job.
> 
> But what I'm really getting as it what is the Real True Cost of Overtime and if you do let your employees work OT how do you pay for it if you figured and contracted the job using your regular time billing rate?


#1 you might have just used the poll function, it probably would have gotten you a lot more responses, now everybody is gun shy to this topic.

Anyways, overtime and working weekends doesn't really have much to do with each other, you don't have to have employees working weekends to reach overtime. We work basically 7:30-8:00 starts to 5:00-6:00 quiting times, so it's not too hard to hit some 10 hour days.

As for the overtime issue, obviously unless you're some kind of retard, every owner understands that avoiding overtime helps increase profits. The exception would be a situation going into it where you had to plan for overtime and increased the labor costs for the project going in.

I would think it would also be pretty obvious that it would be better for most operations to have an additonal person on staff instead of having one person working 20 hours of over-time every week. There is the burn out issue, the financial issues of course, safety issues, and the biggest benefits of having another body around to do other things. If we have 120 hours of work a week to do it certainly makes more sense to have 3 guys working 40 hours a week instead of 2 working 60.


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## vwovw (Mar 9, 2007)

i do bonus... not over time. but i also 1099 them


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## mdshunk (Mar 13, 2005)

vwovw said:


> i do bonus... not over time. but i also 1099 them


Then you're automatically a scumbag until proven otherwise.


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## Mud Master (Feb 26, 2007)

mdshunk said:


> Then you're automatically a scumbag until proven otherwise.


 
:clap: :clap: :clap: :clap: md's rollin' out the punches today! 

How do you disperse overtime if you only have a budget of 40 hours a week? You don't. And if a situation arises where you NEED to and can't avoid it, you have to suck it up and pay it. Nothing worse than having to tell an employee you can't pay him his full check this week, or telling a builder you can't complete the project. Either way your rep. will be in the sh**ter.


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## Jerrald Hayes (Apr 24, 2006)

mdshunk said:


> Why are we impatient? Because you're asking a question that you feel you already know the answer to, and that's a wasting a guy's time that's he's otherwise freely giving to respond. Some people call people like you a trawl baiter. *It's considered bad manners on forum sites to do this.*



It is? That's news to me and I have been involved in professional online forums for contractors around the web since 1997 and have even hosted and run forums myself and don't think that's the case at all. 

To tell you the truth there is a method to what I am doing in using this form of inquiry and it's what known as the *Socratic Method*. Which is also sometimes know as "Teaching by Asking Instead of by Telling". Teachers all over use it because it often gets people to think and engage in critical thinking rather than just having things bounce off of the brains like happens when you are lectured down too.

I can recall going to a Journal of Light Construction sponsored seminar years ago where the fellow running the seminar (Irv Chasen of PROOF Management Consultants) used the Socratic Method and to this day I think of it as one of the most important teaching moments I ever experienced outside of college (where they also very often used the Socratic Method).

What happened then as Mr. Chasen asked us questions about business and we (the contractors there) didn't necessarily give the answer we thought he was looking for we would go back inside our heads, reexamine our own thinking behind what we had just said since we found it was not the answer and move closer and closer towards thinking out the problem on our own.

Then when Mr Chasen finally threw out the weight of what he was there to say many of us would have ah-ha moments thinking yeah that makes sense because we had just about gotten to what he was going to say on our own. The message and thinking you've just learned then sticks because you developed through your own critical thinking the reasoning for the new idea or message. 



mdshunk said:


> It's considered bad manners on forum sites to do this.


I happen to think it's real bad manners to be so pushy and rude calling me, a newcomer here an azz. I mean just WTF do you know about me?

I've been lurking around here for a few months since a couple of contractor friends of mine told me about this place so I read your posts and do know a little bit about you since I've read your stuff here. Have you ever been to the *JLC Forums*, *Fine Homebuilding's Breaktime*, or *Woodweb* and read any of my many hundreds of posts there? If you have I've never seen you.

I think you (plural) should learn to give a guy a break before you start to make snap judgments about him and what he has to say.

And it just so happens I do know who Paul Burns is since I have been here lurking for a while and I only asked you what you meant by that comment ("_I feel like we're talking in Paul Burnsesque circles._") to see if you would be courteous and polite enough to answer me...You weren't.


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## Jerrald Hayes (Apr 24, 2006)

Mike Finley said:


> #1 you might have just used the poll function, it probably would have gotten you a lot more responses, now everybody is gun shy to this topic.


Thanks Mike, while I have been lurking and reading the content here from time to time over the last year I'm a "New Guy" around here as far as posting is concerned and didn't even notice the polling option in the software the folks who run this place use.



Mike Finley said:


> Anyways, overtime and working weekends doesn't really have much to do with each other, you don't have to have employees working weekends to reach overtime. We work basically 7:30-8:00 starts to 5:00-6:00 quiting times, so it's not too hard to hit some 10 hour days.


 Yes, that is very true. I only used weekend in the context of I think employees should have a life outside of their jobs and more often than not employees earn their over time working weekends. 

I happen to have one employee who like to work a 40 hour 4 day workweek so that he can get a three day weekend to spend with his family and friends. Especially during ski season in fact, he wants that extra day on the slopes.



Mike Finley said:


> As for the overtime issue, obviously unless you're some kind of retard, every owner understands that avoiding overtime helps increase profits. The exception would be a situation going into it where you had to plan for overtime and increased the labor costs for the project going in.


 This is where the answer might very well surprise you.

This all comes out of a discussion I've been in another forum for about a week. I've actually been talking here and there about the True Real Cost of Overtime for a couple of years now and I'm taking it around the forums to see what contractors generally think on it.
Here's the explanation for the math that I gave in that other forum (actually two forums now, this now being the third):

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Lets say an employer pays a carpenter a wage of $25 per hour. And then lets say he burdened rate (wage+*Variable Overhead* cost) brings the cost of that carpenter to $31.25. The contractor (using a *Capacity Based Markup*) then marks up that cost 2.12 (the median markup rate for contractors using a Capacity Based Markup) to cover his or her *Fixed Overhead* costs to come up with a billing rate of $66.25 per hour.

If that employee works 40 hrs in a week those 40 hours have contributed $1400 towards the company's overhead costs that week which is the allotment you would expect that employee's work to do during that week ($66.25 per hr Billing Rate - $31.25 per hr. Burdened Rate = $35.00 per hr. Fixed Overhead Costs, $35.00 per hr. Fixed Overhead Costs x 40 hrs = $1400). So if all the employees work 40 hrs., during a week all the Fixed Overhead Costs, have been covered for that week.

Therefore if the company's overhead costs for the week are all paid for at the end of a 40 hour week if that employee then works putting in 8 more hours of overtime since his or her associated Overhead Cost for the week have already been covered then in theory if the contractor continues to bill for the overtime at the regular rate he or she has earned an extra surplus of $280 for that time. That's obviously not the end of it there though in that the contractor by law has to pay the employee time and a half for that overtime so that works out to the $25 per hr. regular wage x 1.5 which comes to $37.50 x 8 hrs = $300. (While W.C. is based on payroll it is based on regular time and not the time and a half wage so it doesn't figure in to the equation).

So if a contractor (with these wage and markup figures) has an employee work 8 hours of overtime it only costs that contractor $20 ($300 - $280 = $20) which is for all intents and purposes a wash ($20 / 8 hrs = $2.50 per hr.) .

If a contractor charges the client time and a half for that time for that premium time ($66.25 x 1.5 = $99.38) the contractor then makes a surplus of $245 for that extra eight hour day.

I'll never argue that the contractor shouldn't get that extra $245. Far from it in fact. The contractor has delivered a premium value added service in having that employee work overtime to speed up the delivery of the project so they've earn that premium. But the math involved is not at all what most contractors think it is.
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The point I'm making above is if you can charge more for OT you certainly do. If your working T&M and the owner/client approves the use of OT you should certainly charge a premium for it. Same thing if you are on a fixed price job and the client asks for acceleration then you charge for it.

But lets say your on a fixed price job and for whatever reason your a day behind through no fault of your own and with no penalty (in other words you were behind because of something like a rain delay and not just behind because something took longer than usual). Would you work the weekend paying your people OT even though you figured the job at the regular time rate just so that you can start another job you had previously scheduled to start on Monday and therefore put of it's start until Tuesday? The answer is you work the weekend OT at the regular rate (it's a wash) but because you are able to then start the next job on time you haven't lost any throughput days.

The theory there is a little bit envolved for discussion here tonight and it's known as *Throughput Accounting*http://en.wikipedia.org/wiki/Throughput_accounting (wikipedia). But in that case I just described if the contractor doesn't put in the weekend work regardless of the work being done at the regular rate the contractor would lose the Net Profit earning from that lost throughput day so not working the weekend at a wash would end up costing him or her money in the long run.

My whole point (Alan Hanbury's too) is that *Marginal Cost* difference between Regular Time Hours and Overtime is not nearly as big as most mistakenly contractors think it is.

Hey in the example I put forth above the OT actually cost the contractor money. It ended up costing 20$ per day per person for OT. How often have in our careers managing projects have we heard ourselves say "What I would give for just one more day"? Is getting back a day in the schedule worth an extra $20 bucks to you?

This all came to mind recently because just the other week I was eaves dropping on two contractors talking about overtime while drinking coffee in a deli and one of the guys was saying he pays his people straight time for overtime (which is illegal) since he "hadn't figured OT into the cost of the original bid". I was thinking aside from the fact that he was illegally robbing his employees pockets he hadn't really figured anything since OT doesn't really cost the contractor anything ( like I said, it's a wash).

The "not figuring OT into the cost of the original bid" is an excuse or rationalization I probably hear at least once every year from some contractor somewhere. In fact my first job ever in the trades 30 years ago my boss used to say the same thing and over the year and a half I worked for him I probably put in 50 days of OT that I never got fairly compensated for.


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## Jerrald Hayes (Apr 24, 2006)

In the example I just outlined I wrote about a hypothetical contractor using a *Capacity Based Markup* because that is what we use and I teach. In an article (*Myths, Mistakes and Misinformation*) in his column in the February issue of Profession Remodeler magazine wrote about the same thing and given that I know he practices and teaches the other form of markup methodology (the *Uniform Percentage Markup Method*) the thinking and logic still applies there too. It's just a different set of numbers and a slightly different route to get you there.

From that article:

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*COPYRIGHTED MATERIAL REMOVED by Nathan (A link is good enough)*
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What do you all think? Do you agree or disagree with what he and I are saying?


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## mdshunk (Mar 13, 2005)

If you want me to read that entire blog your just wrote, I'm going to have to send you a bill for my time.


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## mdshunk (Mar 13, 2005)

Jerrald Hayes said:


> I happen to think it's real bad manners to be so pushy and rude calling me, a newcomer here an azz. I mean just WTF do you know about me?.


Yes, that probably is bad manners also. I also consider it calling a spade a spade.


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## realpurty2 (Aug 18, 2005)

ProWallGuy said:


> If this thread ends up some sort of sales pitch, I'm trashing it.


Sounds like it's about time for PWG to pull the plug..... all those links in his long post are shameless hidden ways of drawing attention to their website in hopes you'll hang around and read more.


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## dougchips (Apr 23, 2006)

Jerrald, welcome to the site. I thought Paul had some long post, you set a new record.


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## Mud Master (Feb 26, 2007)

Jerrald-------DUH!!!!!!!!!!!


And those links to other forums...not cool dude.


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