Rethinking Overtime: When It Helps and When It Hurts

Overtime has a mixed reputation in distribution centers.

To some leaders, it’s a flexible tool:

“We’ll just use OT to cover the surge.”

To others, it’s a red flag:

“Overtime is killing our budget and burning out the team.”

The truth is in the middle:

Overtime is neither good nor bad.
It’s either strategic or out of control.

Used well, overtime protects service levels, absorbs short-term spikes, and supports profitability.

Used poorly, it drives burnout, injuries, turnover, and long-term cost-per-case inflation.

This article breaks down when overtime helps, when it hurts, and how a managed labor model like FHI’s can help you use OT as a precision tool, not a crutch.

What Overtime Should Be

Overtime should be:

1. Intentional – planned, not panicked
2. Limited – used within healthy thresholds
3. Targeted – aligned with high-value work
4. Transparent – understood by both finance and operations

OT is most effective when it:

1. Smooths out short-term demand spikes
2. Covers short windows of planned transition or change
3. Avoids the cost and delay of ramping new headcount for very temporary needs
4. In other words, overtime should bridge, not carry your staffing model.

When Overtime Helps

✅ 1. Short-Term Volume Spikes

Examples:

• A large promotion or seasonal push
• A one-off inbound surge (big import week / PO drop)
• A short window before a new account launch

Here, OT can be cheaper than:

• Hiring and onboarding new staff for just a few weeks
• Overloading HR and supervisors with recruiting cycles
• Paying for idle labor after the spike passes

Key: The spike must be truly short-term, with a clear end date.

✅ 2. Strategic “Finish the Week Strong” Usage

Some operations strategically use light OT at week-end to:

• Clear docks
• Protect carrier turn times
• Hit weekly ship or receive targets

When controlled, this:

• Prevents backlog
• Improves carrier relationships
• Protects metrics like on-time ship/load

Think: 1–3 hours of targeted OT vs. random full-shift extensions.

✅ 3. Covering Planned Transitions

When:

• You’re onboarding a managed labor partner
• You’re restructuring shifts
• You’re implementing new automation

Temporary, strategic OT can:

• Support training
• Protect service while change is absorbed
• Avoid compromising customer commitments

Again: it’s time-bound and intentional.

When Overtime Hurts

❌ 1. When It Becomes the Default Staffing Model

If you hear:

“We’ll just use OT until things calm down.”

… every month, you don’t have a volume problem.

You have a staffing and planning problem.

Chronic OT leads to:

• Fatigue
• Slower work
• More mistakes and rework
• Higher recordable injuries
• Rising turnover

It feels cheaper than hiring — but it isn’t.

❌ 2. When OT Exceeds Healthy Thresholds

A good rule of thumb for most DCs:

• 0–8% OT → Very healthy, flexible
• 8–12% OT → Manageable, seasonal, or planned
• 12–15% OT → Warning zone – watch fatigue and turnover
• 15%+ OT → Unsustainable – burning people to hold the line

Once you’re living above 12–15%, OT cost and human cost become very real:

• CPC rises
• Attendance worsens
• Supervisors lose coaching time
• Safety and quality degrade

❌ 3. When OT Masks Structural Problems

Overtime often hides deeper issues:

• Poor inbound or outbound planning
• Bottlenecks and layout problems
• Bad slotting
• Inconsistent standards
• Insufficient training
• Chronic understaffing

If you removed OT tomorrow, would the system hold?

If the answer is no, overtime isn’t your solution — it’s your symptom.

❌ 4. When OT Is Used as a “Bonus Structure”

Some operations unintentionally train associates to depend on OT as part of their expected income.

The risk:

• People become resistant to productivity improvements
• They see any reduction in OT as a “pay cut”
• High OT expectations drive “hours over output” thinking

You want performance pay tied to throughput and quality, not just more time on the clock.

The Real Cost of Bad Overtime

Even if OT shows up as one number on a report, it quietly impacts:

• Labor cost per case (higher CPC from premium rates + slowing productivity)
• Turnover cost (replacing exhausted associates)
• Safety cost (injuries, claims, lost time, incident investigations)
• Training cost (new hires to backfill burnt-out staff)
• Service cost (late shipments from tired crews)

Overtime isn’t just a wage premium — it’s a risk multiplier when misused.

Building a Healthy Overtime Strategy

1️⃣ Decide What OT Is For

Define acceptable uses:

• Short, defined surges
• Specific account demands
• Planned transitions

And what it’s not for:

• Chronic understaffing
• Avoiding tough hiring decisions
• Papering over structural inefficiencies

2️⃣ Track OT as a % of Total Labor Hours

Look at it weekly:

1. By department
2. By shift
3. By day of week

Ask:

• Is OT clustered in certain areas?
• Does it spike after call-out heavy days?
• Is it happening more with certain supervisors or accounts?

Data tells you whether OT is strategic or out of control.

3️⃣ Tie OT Decisions to Cost-per-Case

Make OT conversations financial, not emotional.

Questions to ask:

• Does OT support additional volume that improves margin?
• Or is OT just preventing collapse at current volumes?
• What happens to CPC when OT rises?

If OT is not contributing to improved throughput or service, it’s likely eroding margin.

4️⃣ Combine OT with a Flexible Labor Model

The healthiest operations:

• Use OT sparingly
• Use managed labor to absorb peaks and cover gaps
• Use cross-training to shift internal labor where it’s needed most

Managed labor gives you a buffer:

• So you don’t hammer your core team
• So OT becomes a choice, not the only option

How Managed Labor Changes the Overtime Equation

A managed labor partner like FHI:

1. Provides additional, trained capacity
2. Embeds leaders who monitor OT and productivity in real time
3. Helps rebalance labor mid-shift instead of “just staying late”
4. Reduces dependency on OT as the only lever
5. Improves consistency across shifts and days

Instead of:

“We need everyone to stay late every day this week.”

You can say:

“We’re using a mix of core staff, managed labor, and limited OT to safely hit targets.”

That’s a controlled overtime strategy.

Overtime will always have a place in distribution centers.

But it should be:

• planned
• measured
• limited
• supported by the right labor model

Used right, overtime:

• protects service levels
• bridges short spikes
• supports financial performance

Used poorly, overtime:

• hides structural problems
• burns out your best people
• drives CPC and risk in the wrong direction

The goal isn’t zero overtime.

The goal is smart overtime — backed by labor stability and managed labor support.

FAQ / Q&A

Q1: How much overtime is too much in a warehouse?
Once OT regularly exceeds 12–15% of total labor hours, it usually signals staffing or planning issues and starts driving fatigue, errors, and turnover.

Q2: Is overtime cheaper than hiring more people?
In the very short term, sometimes. Over time, chronic OT becomes more expensive due to burnout, safety incidents, turnover, and inflated CPC.

Q3: What’s the best way to use overtime strategically?
Limit it to short-term spikes with clear end dates, specific priority work, and defined thresholds for usage.

Q4: How does managed labor impact overtime usage?
Managed labor provides flexible, trained capacity and onsite leadership, reducing dependency on OT and allowing operations to use overtime as a tool rather than a crutch.

Q5: What metrics should I review to decide if OT is healthy?
Track OT % of hours, CPC, turnover, safety incidents, and productivity trends by shift and department.

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