Thursday, June 27, 2013

The True Value of Overtime

What is the real value of the overtime that I work?

Double pounders, double bubble - Oh yeah, I'm raking in the dough.

But is it really double?

On the surface, you think so. But when you start doing the math, the looks change. 

For instance, take a salary of $80,000 per year in Alberta. After the Federal government take their cut of 22%, and the provincial their cut of 10%, you're left with about $56,000

In that $56,000 per year, you perhaps have a family insurance plan. I really have no idea what the value of an insurance plan is. I'll make up a number just because I can. $1500 per person in the family that it covers. So for an average Canadian Family of 4 people, that's a value of $6000. The reason I mention this is because that amount will not increase in value the more OT you work. 

Basically, the $56,000 you make before taxes is really worth $62,000 with that worked in. But there's more. The taxes that you pay on your salary cover other things we take for granted. Roads, police forces protecting us, a military to protect National interests, basically the value of everything the government does.

A dollar value for this? Well, the average income in Canada is around $46,000, which is taxed at around 25%, so the value of the taxes you pay is around $12000.

The $56,000, which became $62,000 with your insurance, is now worth $74,000 with the value added that you get from government spending on society.

The value you get from an hour you work is now $38.50.

So you work an overtime shift, making double time. $80 per hour. But that is taxed at a higher rate than normal. So you are taking home 36% less than the $80. You are taking home $50 per hour.

Meanwhile, you're salary's intrinsic value is $38.50 per hour.

Conclusion:

For every hour you work on normal time, you get $38.50 overall gain. $29 direct financial gain, $3 in  medical/insurance gains and $6.50 in societal benefits.

For every overtime hour you get $50. You see no benefit from the $30 you pay in taxes. You see no extra benefits on your plan.

That overtime hour, the hour you spend away from your family, not learning or studying, or reading with your kids. In real money, you get 29% more than before - not double bubble.

From a company perspective. The $80,000 they pay you is actually more than that. If you come in to work extra time, they don't have to increase their resources to accompany extra employees. They don't have to invest in increased training, recruiting, and then the benefits packages on top of that.

They may pay you double time, but in the case of the government, they get a third of that back anyway.

Is it worth the trade off?

From a company perspective, it may actually be cheaper to pay heaps of overtime to current employees rather than hire more employees.


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