Overtime vs Hiring: 5 Key Factors

Inevitably, every organisation experiences periods of increased demand that current work arrangements cannot meet. If output is to increase, leaders must decide between hiring additional hands or paying for staff overtime.

There is a third option: say no to the additional revenue and get fired at the next shareholders’ meeting.

As this can have long-lasting effects on company bottom line, here are five considerations that will help you make the best decision.

1. Calculate Additional Wages

Of course, there are lots of hidden and indirect costs involved in hiring, but to keep things digestible, we’re limiting this section to overtime rates versus the salary of a new staff member.

Overtime Rates

According to the Employment Act 1955, a regular working week in Malaysia cannot exceed eight hours a day or 45 hours a week.

For every hour of overtime on a normal working day, employees must receive at least 1.5 times their usual wage. They also need two hours of break, so overtime only legally begins after ten total hours at work.

For rest days, employees can be paid their usual rate for half days and at least double that for full days.

For public holidays, it’s at least double the usual rate for normal working hours and triple that for every hour of overtime.

If paying double for the same level of skill makes your sphincter clench, remember that overtime hours are directly based on need, so while you pay more per hour, those hours are necessary.

New Hire Salary

Assuming you hire a full-time employee, not only are their wages a permanent addition to monthly operating costs, you’re also committing to payroll obligations – meaning the real monthly cost exceeds the figure on the pay slip.

Here’s the list of obligations and their rates:

1. 12 – 13% for Employee Provident Fund (EPF)
2. 1.75% for Social Security Organisation (SOCSO)
3. 0.2% for Employment Insurance Scheme (EIS)
4. (if applicable) 1% for Human Resources Development Fund (HRDF)

Every RM1 of monthly wages costs the company approximately RM1.16.

You do the math from here – determine the extra man hours needed and calculate how much it would cost to pay for overtime versus an entirely new salary. We’ll end this section by saying that in general, looking at wages alone, hiring costs more.

Of course, you can’t look at wages alone, so on to the next factor we go.

2. Consider Specialisation Needs

If you threw a rock into a crowd of people, what are the odds of hitting someone qualified to handle the additional workload?

A good chance, you say?

Sounds like the role doesn’t need highly specialised skills or years of experience and your existing staff members are overqualified. In that case, it makes more sense to hire someone new and pay regular wages instead of double or triple rates for menial work.

Of course, specialist tasks shouldn’t only go to senior staff members, which brings us to the next factor.

Note: Don’t throw rocks into crowds of people; it’s real bad for teeth.

3. Evaluate Onboarding Infrastructure

Your highly capable team members were once greener than a field of grass, and so were you.

Skills can be learned and experience can be shared, and organisations with the proper onboarding processes can accelerate learning and development of new hires. What takes years to learn on your own could be taught in significantly less time with the right hiring and training.

An effective onboarding infrastructure has key components such as:

• Onboarding Manuals
• Mentorship Programs
• Training Workshops
• Communication Tools and
• Performance Evaluation

With these in place, training is efficient and reliable, making it easier to hire new employees for more technical tasks. We don’t want to sound cynical, but this skill transfer also reduces the chance of any one employee becoming indispensable – never a good thing!

No, it’s far safer to rely on systems – so ensure yours are robust.

4. Think Long-Term Sustainability

As either option leads to increased revenue, we urge you to think of what works best as a permanent arrangement. The surest way to answer that is by understanding the length and frequency of the increased demand.

A permanent growth phase absolutely justifies hiring a new member, but if you know this is a situational spike (or you’re just not sure), try reaching an agreement with existing staff that certain times of the year likely come with overtime requests.

The key phrase here is ‘certain times of the year’.

Unless they owe money to loan sharks, no employee would ever want to commit to indefinite overtime and forcing is a great way to cause burnout and high turnover.

And with that, we arrive at our final factor.

5. Review Internal Processes

We don’t want to get your hopes up, but you may not need to hire new people or pay for overtime.

It could be that unclogging some bottlenecks in your workflows unlocks new levels of productivity from your current staff, in which case hallelujah, all that demand is not just additional revenue but pure profit.

Of course, there might be nothing wrong with your internal processes. Experience has taught us at MISHU that when overtime is required, more often than not, your team is already stretched to their limit – and that would absolutely require a new employee.

But still, as part of your due diligence, an internal review is in order.

6. Let MISHU Solve Your Hiring Issues

Reviewing internal processes is no easy task, especially as organisations transition from giving staff reign to a more centralised chain of command. The best time to set a foundation for future hiring and overtime policies will always be yesterday, but today comes in at a close second. 

See how MISHU, a leading HR consulting service in Malaysia, can help craft the perfect policies for your organisation, ensuring a seamless transition and efficient workforce management.