Episode
34
Thu, 03 Sep 2026 12:15:00 +0000
Overtime can look like a labor problem.
Your people are staying late. Payroll is increasing. Margins are getting squeezed. So the obvious solution seems to be: cut the overtime.
But that can be the wrong place to start.
The more useful way to think about it is this:
Overtime is a symptom. It’s not the problem.
When unnecessary overtime keeps appearing in a business, there is usually something happening deeper inside the operation.
And the problem frequently comes back to three areas:
Flow. Scheduling. Ownership.
Fix those, and you can begin fixing overtime at the source.
Overtime can feel harmless when you look at a few extra hours in isolation.
But the numbers add up quickly.
Imagine an employee normally earns $22 per hour. At time and a half, that becomes $33.
Ten hours of overtime costs $330.
Put two employees in that situation and you're already at $660.
Repeat that across weeks, employees, and projects and you're looking at a meaningful amount of money that can disappear from the bottom line.
That's why business owners need to stop treating unnecessary overtime as something that simply “comes with the territory.”
The question isn't just:
How do I stop paying overtime?
A better question is:
Why does my operation keep creating the need for overtime?
Persistent overtime frequently points back to three operational problems.
Where does work pile up?
Every operation has constraints. If work is being released faster than your bottleneck can process it, adding more work doesn't make the business faster.
It creates a pile.
And eventually somebody has to stay late to deal with that pile.
Your job as the owner isn't necessarily to make everybody work harder.
It's to improve the flow of work through the business.
A scheduling problem can create an overtime problem even when you have good people doing good work.
Jobs overlap.
Too much gets released at once.
The wrong resources are available at the wrong time.
Deadlines arrive and suddenly overtime becomes the emergency tool used to save the schedule.
But overtime shouldn't become your default scheduling system.
Who owns the labor hours?
Who owns crew output?
Who owns flow?
If the answer is always “the owner,” there's an accountability problem.
Your foreman or production leader should understand that labor hours, crew output, and flow are part of the role.
Without ownership, overtime can easily become nobody's problem until payroll arrives.
You can't fix what you can't see.
Start by making overtime visible in your financial and operational reporting.
Separate regular labor from overtime and make sure your shop and installation labor are being tracked correctly.
Then track overtime daily:
Don't assume the overtime is random.
Track it consistently and start looking for patterns.
You may discover that overtime repeatedly clusters around certain jobs, departments, processes, or bottlenecks.
That's useful information because now you have somewhere to look for the root cause.
Walk your operation and ask a simple question:
Where is the work piling up?
Depending on the business, the answer might be engineering, drafting, finishing, production, installation, customer selections, delivery, or something else entirely.
Once you've found the bottleneck, remember an important operating principle:
The speed of the bottleneck determines the maximum speed of the overall flow.
Pushing more work into an already overloaded constraint doesn't solve the problem.
It makes the pile bigger.
And that can create even more overtime.
This distinction matters.
When business owners see jobs falling behind, the natural reaction can be to ask everybody to work harder.
But your people may already be working hard.
What they need is a smoother system.
The objective is consistent, efficient production — not alternating between periods of chaos and periods of inactivity.
So instead of asking:
“How can my people work harder?”
Ask:
“How can work move through this business more smoothly?”
Good communication can help reduce overtime because problems get identified before they become emergencies.
A daily production huddle doesn't need to be complicated.
Ask:
What got done yesterday?
What's stuck today?
Where do we need help?
Keep the meeting focused on identifying and removing problems rather than assigning blame.
Your foreman should eventually be able to lead this meeting while production staff contribute information from the floor or field.
Once you start improving visibility and flow, change how overtime gets approved.
Instead of treating overtime as the automatic solution whenever production falls behind, require approval.
You may also consider flexible or additional labor where appropriate rather than repeatedly burning out your existing team.
The goal isn't to eliminate legitimate overtime at any cost.
It's to stop using overtime to cover up a recurring operational problem.
Work in progress — or WIP — can become another source of chaos.
If you keep starting jobs without finishing existing work, resources become scattered across too many priorities.
One useful rule is:
Stop getting started and start getting done.
Review WIP regularly.
Look at what's open, what's stuck, and what needs to be completed before more work enters the system.
Reducing operational clutter can make it much easier to identify where labor hours are actually being consumed.
Your foreman or production leader needs clear ownership.
That includes:
Then keep the conversation alive.
Ask regularly:
What's slowing you down?
Accountability isn't a one-time meeting.
If you introduce a new system on Monday and never discuss it again, don't expect it to become part of how the business operates.
One useful metric is the Labor Efficiency Ratio (LER).
At its simplest:
LER = Revenue ÷ Direct Labor
For example:
$500,000 revenue ÷ $150,000 direct labor = 3.33 LER
The purpose is to understand how much revenue the business generates for each dollar of direct labor.
Tracking that number over time can help you see whether labor efficiency is improving as you address overtime, scheduling, bottlenecks, and flow.
A hard overtime cap shouldn't necessarily be your first move.
If your people have relied on overtime for years, abruptly eliminating it can create serious resistance.
And if the underlying operational problems remain, banning overtime won't magically fix them.
First improve the system.
Then, once the appropriate changes are in place, you can move toward a rule where overtime requires a genuine operational need or emergency.
When the system can no longer use overtime to hide problems, those problems become visible.
And visible problems can be solved.
This is one of the most difficult parts of the conversation.
Some employees may have built their household finances around overtime income.
Simply removing that income can create real consequences for them.
Respect that reality.
But also recognize the underlying business problem: overtime may have effectively become part of their compensation system.
Rather than blindly cutting it, think carefully about how compensation and incentives should work.
Pay good people well.
But don't automatically use time-and-a-half labor to compensate for operational problems somewhere else in the business.
If you're trying to get overtime under control, remember these three principles:
No plan = overtime.
No flow = overtime.
No ownership = overtime.
If you're continually paying unnecessary overtime, don't immediately assume your employees are the problem.
Look at the system.
Find where work is piling up.
Make the numbers visible.
Improve scheduling.
Control WIP.
Build accountability.
And remember:
Overtime is the symptom. Find the real problem.
Connect with Us:
.svg.webp)
