Cost Comparison: Hiring New Employees vs. Overtime

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Abstract

This report seeks to understand the ongoing discussion concerning the advantages of hiring new employees versus using overtime to cover shifts during shortages. It specifically looks at this matter from Columbia University’s Department of Public Safety's perspective, considering the factors and costs involved. Additionally, the report presents a graphical comparison of the costs associated with both options and explores and discusses the higher expenses tied to hiring.

One of the most debated topics in management is whether it is more beneficial to hire new employees or pay overtime to increase production or coverage in the Columbia University’s Department of Public Safety.

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Many factors, such as benefits, duration of the period of extra work needed, and type of work involved, play a role in making this decision. Due to minimal staffing levels, union regulations, and round-the-clock posts, among other factors, this decision is frequently faced at the department. Considering all these factors, should the department opt to hire new officers when coverage is lacking or use overtime to staff positions as needed?

Executive Summary

This report focuses on the cost-effectiveness of using overtime rather than hiring new officers in the department.

It will assess various factors, analyze the financial implications, and discuss any exceptions. Both explicit and implicit costs to the department will be examined and their significance in decision-making will be emphasized. Furthermore, this report will compare the costs of new hires and overtime to determine a point where the decision should be altered, taking into account the concept of diminishing returns.

Ultimately, it will provide a summary of the process and explore potential applications.

The following text is a definition:

In Columbia University’s Department of Public Safety, there is a minimum level of on-duty staffing required at all times. The department employees are licensed, uniformed personnel who belong to the Transit Workers’ Union, Local 241. Management must ensure sufficient coverage daily, while complying with the collective bargaining agreement guidelines. Shortages in coverage can occur due to sick time, vacation time, requests for guard services or special details, and emergencies like natural disasters. It is crucial to address these openings and failure to do so is not an option. Management can either hire additional full-time personnel or pay overtime at a rate of one-and-one-half times normal salary to cover these openings. However, spending excessive amounts on overtime raises concerns regarding yearly budget reviews and union negotiations. This report aims to thoroughly examine the issue and determine the more financially appropriate option for a given situation.

Factors and Costs

As mentioned earlier, there are several factors that impact this decision. The most crucial points to consider are as follows: - The department has unionized employees, therefore it is obligated by contractual agreements to maintain all currently filled positions. Any vacant position must be filled within the department, either in the same role or laterally, in order to comply with the collective bargaining agreement. - It is important to note that this obligation remains regardless of any shortages and only pertains to permanently vacated positions. For example, if the department has three extra officers on a specific shift and one resigns, the department cannot continue operating with only two extras; they must hire a new third extra. However, if an officer is on extended disability leave, it is not contractually required to fill that vacancy. In such cases, any shortages can be managed through alternative methods.

The option to hire remains available, but the requirement to retain positions also applies to newly created positions. In other words, if a new officer is hired while a disabled officer is on leave and then the disabled officer returns to work, the department is now obliged to permanently keep both positions filled and maintain a new minimum level of staffing. * Newly hired employees receive 80% of their salary for the first two years, followed by 82.5% in the third year, 85% in the fourth year, and then 100% from the fifth year onwards. * Overtime pay is calculated at one-and-one-half times the regular salary for any hours worked beyond 40 in a week. If an employee works a shift on all seven days of the pay period, work performed on the seventh day is paid at twice the regular salary. * Any mandatory overtime worked without at least one hour of advance notice is compensated at double the regular rate. This information is important because if additional personnel are not hired to cover staff openings, any unexpected shortages may result in mandatory overtime without prior notice.

Most posts on campus require continuous coverage 24 hours a day, 365 days a year. This means there are three distinct tours with their own unique dynamics for coverage. For example, the 8x4 tour has the highest concentration of senior officers, so they accrue more vacation time than junior officers. During the summer months, when vacation picks are popular, two officers are allowed out at a time. As a result, the 8x4 tour is perennially short two officers all summer. Additionally, since the campus is both a medical research facility and a university, there are more open posts during the 8x4 tour than any other. So, the location of the shortage matters. Shortages on the night tours are easier to handle because there are fewer posts. However, there is also night differential to consider: any officer working between 4pm and 8am earns an extra $1.80 per hour for night differential. Nonetheless, night differential has no impact on this decision as it is a separate fixed bonus from salary.

New employees must undergo a minimum one-month training period before being allowed to work independently and without supervision. This not only reduces the effectiveness of new hires for the first month, but also diminishes the productivity of the officers responsible for training them.

The department offers officers for hire on campus during special events as a service. The cost for this service is $50 per hour per assigned officer. If there is extra coverage needed during the requested guard service, an officer may be reassigned from a non-mandatory post, resulting in substantial savings for the department. By utilizing existing personnel rather than paying for overtime and hiring an additional officer, the department can significantly reduce its overtime budget.

For the purposes of this report, it will be assumed that there is no coverage for overtime in order to maintain a empirical comparison of salary costs. Officers are paid on an hourly basis, which makes them a variable labor cost. If the amount of time worked during a pay period changes, the officer's salary for that period will change accordingly. For the purposes of this report, it will be assumed that labor costs are fixed. All officers who are not assigned to overtime always work exactly 40 hours per week, while those assigned to overtime always work in increments of exactly 8 hours per additional shift. The act of deducting pay for tardiness will not be taken into consideration.

The department pays 37.7% of each officer's salary for their benefits package. This payment remains in effect as long as the officer is on the University's payroll, regardless of whether they work or get paid. This cost is incurred by officers on vacation, sick leave, or disability. While the cost of benefits is important for analysis, the fact that disabled officers still incur this cost when not paid by the department is not relevant here.

Measurement

The comparison between the costs of a new hire and overtime is the most obvious consideration when trying to determine how best to fill coverage. As previously mentioned, overtime costs are calculated as one-and-one-half times the salary (S). The equation to represent the cost of overtime is COT=h(1.5S), where h represents the hours worked. On the other hand, new hires have a cost of 37.7% of their salary, which can be represented by the equation CNH=h(1.377S). It should be noted that new hires always start with a salary of 80% of the full pay. However, officers who have been working for more than two years have a gradually increasing pay scale. At the rookie wage scale, one eight hour shift of salary amounts to $149.20. For a third-year officer, this increases to $153.84, and for a fourth-year employee, it rises to $158.56. After completing four years of employment, the wage scale reaches its maximum at $186.48.

A new hire always works 5 shifts per week, resulting in a calculation of CNH=5(1.377)(149.2), which equals CNH=1027.24. However, COT varies depending on the number of overtime shifts required that week and the seniority of the officer handling the overtime. When plotting these equations together, we obtain the first graph below titled "Weekly Salaries, New Hires vs Overtime at Each Level of Seniority." As anticipated, officers receiving full pay are significantly more expensive to cover with overtime compared to other officers. Nevertheless, even at this increased rate, there would need to be shortages exceeding 3 positions per week to justify hiring a new officer. For all other seniority levels, it is cheaper to cover 4 shifts of overtime per week than to hire a new employee. To simplify matters, this report will henceforth consider an average salary level and assume that all officers working overtime earn that pay rate.

After applying the assumption that full pay is removed as an outlier, it is always more cost-effective to fill four shifts of overtime than to hire one new officer at each level of seniority.

The graphs illustrate the comparison between weekly salaries and the average overtime rate for new hires and the day shift. Based on the data, it can be concluded that the inclusion of night differential does not affect the decision, as it equally increases costs for all.

Comparison: Weekly Salaries of New Hires vs Average Overtime Rate for Night Shifts

Analysis

The graphs demonstrate that small to reasonable shortages, usually four or fewer per week, result in significantly higher costs for new hires. However, this underestimates the actual cost due to the department's requirements. Since each tour needs to be fully staffed and officers must be assigned to a stable tour based on their contracts, each tour must have its own graph. The graphs clearly show that if there are five or more shifts of overtime per week, it is always more cost-effective to hire a new officer, although this is not entirely accurate. If there are expected to be six shifts of overtime each week, but they are evenly distributed with two shortages per tour, hiring one new officer will not cover the five tours of overtime, but only two.

According to Bob Thomas (2006, p.13), the addition of officers does not result in an equal reduction of overtime hours based on actual hours worked. Thomas states that while adding officers can decrease overtime, it also leads to disproportionate cost increases, demonstrating diminishing returns. This effect is evident in the previous graphs presented in this report. Essentially, hiring more officers past a certain point will result in decreasing utility for each new hire. While additional officers will contribute to utility, the cost per unit of utility will be much higher, ultimately creating an inefficient outcome.

The measurements in this report indicate that only severe shortages justify the hiring of a new employee based on cost-effectiveness. However, there are other factors to take into account. One crucial factor is the department's contractual obligation to hire a new officer whenever a position becomes available. The use of overtime to fill coverage gaps often raises concerns about fatigue. A report by Steve Earley for the Riverside Fire Department (2001, p.14) mentioned studies that found a connection between the number of hours worked and work-related injuries.

The department has implemented measures to address this issue. Employees are not allowed to work more than 16 consecutive hours and are strongly discouraged from working 7-day weeks. Overtime is distributed in a rotation based on seniority, ensuring fair distribution among officers. Based on the convincing data, it is recommended that overtime be used to cover shortages instead of hiring whenever possible.

Works Cited

Earley, S. (2001). An Analysis of the Utilization of Overtime Versus Hiring Additional Personnel. Riverside, CA. Thomas, B. (2006). Corrections Overtime Planning Study. Olympia, WA.