Construction Overtime: How It Affects Your Bottom Line

You’ve been there—the project is behind schedule, crews are clocking extra hours, and your inbox is filling up with change orders and frustrated messages from the field. It feels like the only way to stay on track is to keep the team working overtime. But at what cost?

Overtime in construction is a financial and operational leak that quietly eats away at your profit margins, increases compliance risks, and can send your labor costs spiraling out of control. In many cases, teams have to keep working past scheduled hours to complete projects, or they risk a domino effect of delays on other projects.

Many construction companies don’t realize how much overtime is draining their budget until it’s too late.

Overtime can be costly for contractors and construction companies—but it’s not just about reducing labor costs in construction. Overtime can also contribute to productivity loss and compliance risks. If not managed properly, excessive overtime can erode profit margins.

In this article, we’ll break down how construction overtime impacts your bottom line, where the hidden costs are hiding, and — most importantly — how you can control overtime before it controls your project. We’ll also show how hh2’s Remote Payroll can give you the real-time visibility and automation you need to rein in labor costs and stay compliant.

The Financial Impact of Overtime on Construction Companies

The most obvious construction overtime impact is financial. According to the Fair Labor Standards Act, which applies to nearly every construction company, overtime pay is 1.5 times the standard wage. For example, if a worker typically earns $20 an hour for their contracted 40 hours per week, any time over 40 hours must be paid at $30 an hour.

Wages for unionized workers are set according to their Collective Bargaining Agreement (CBA). Many union workers have higher overtime wages according to the CBA that companies need to honor, sometimes up to twice their standard wages for overtime work.

These significant cost increases for overtime work can lead to budget overruns. A project has a set budget for labor, but overtime work can quickly move that total above the budget. Excessive overtime can lead to inaccurate job cost tracking and budget mismanagement. In many ways, overtime has a budget ripple effect: it can overrun a current budget and cause issues and miscalculations for future projections that can lead to issues on other projects. Imagine a crew working 12-hour days to finish a school build before the first bell rings. Sure, the project gets done — but the overtime bill eats your margin and risks compliance penalties. hh2 Remote Payroll empowers teams to stay on track with budgets and schedules, preventing overtime costs before they occur. 

Aside from the overtime wage increases, overtime work can lead to other hidden financial costs, including the following:

• Diminished productivity and repeated work. Overworked employees tend to make more mistakes, which can lead to work that needs to be redone. Fixing mistakes can lead to even higher labor costs and having to purchase new materials.
  
  
• Safety risks and workers’ compensation. Construction can be dangerous. The more time employees spend working each week, the more time they have to potentially get injured. Not to mention the overtime fatigue that can make it easier for dangerous errors to occur. Safety issues can be costly for companies, leading to higher worker compensation costs.
  
  
• Employee burnout and turnover. Extra work can be more physically and mentally challenging for workers, leading to stress and anxiety. Those factors can increase employee burnout and cause workers to not return to the company. Increased turnover adds costs as contractors have to find and train new employees. 

Overtime Compliance Risks 

Aside from the financial impact, overtime also brings compliance challenges. Construction companies already face a wide range of compliance requirements, but overtime calculations and paperwork take it to the next level. Contractors must calculate wages correctly and keep the right records to avoid penalties and punishments.

Overtime introduces several compliance risks, including: 

• Prevailing wage and certified payroll considerations. Under the Davis-Bacon Act, construction companies must follow the prevailing wage for any government-funded project. Prevailing wage overtime compliance could impact overtime calculations, especially if the prevailing wage differs from an employee’s normal wage. 
  
  
• Federal and state overtime rules. The federal law requires overtime to be paid at a 1.5x rate, but state rules can add more nuance. Some state laws may require daily overtime or other record-keeping criteria that construction companies are required to follow.
  
  
• Record-keeping requirements. It isn’t enough to just pay employees for their overtime work. Construction companies must also keep documentation of the hours worked and the wages earned. Under the FLSA, companies have to keep records for at least two years. 

Understanding the compliance challenges unique to overtime payroll helps construction companies know their risk and required documentation and processes. Leveraging integrations of hh2 Remote Payroll, construction companies can keep accurate records and avoid compliance issues. 

How to Control and Reduce Overtime in Construction

Clearly, construction overtime is costly and opens the door to compliance issues. The best way to handle construction overtime is to avoid or reduce it as much as possible. Here are three ways to make that happen: 

Accurate Time Tracking and Workforce Management

Because overtime is tracked and calculated at a different pay rate than normal hours, it can be challenging to track manually. Plus, manual forms have to be completed and collected after overtime is done and everyone is tired. Automated time tracking solutions like mobile time clocks and geofencing streamline time tracking so supervisors know exactly who is working at any given time. With hh2 Remote Payroll, contractors can see overtime hours as they happen — allowing them to reassign crews, adjust schedules, and prevent labor costs from spiraling out of control. The system also ensures certified payroll compliance and accurate job costing, taking the guesswork out of overtime calculations.

Smart Scheduling and Workforce Planning

Data-driven scheduling can maximize each employee’s schedule without adding unnecessary overtime. Construction companies can use historic project data to anticipate labor needs and hire and schedule accordingly. Technology-based workforce planning helps allocate crews efficiently across projects to prevent overworking teams. 

Automating Payroll and Job Costing

Overtime can cause significant issues with a company’s budget. Integrating payroll with job costing software ensures accurate labor expenses, even with overtime. hh2 Remote Payroll helps automate overtime calculations to reduce errors in wage calculations that lead to compliance risks. 

Ultimately, your best tool in managing overtime in construction is technology. Cloud-based payroll solutions help manage overtime proactively to address labor and budget issues in real time. These systems leverage AI and automation to predict and prevent excessive overtime and make recommendations on how to allocate workers to stay on schedule and budget. 

Integrating hh2 with ERP software like Sage and Trimble streamlines payroll processes and construction payroll overtime tracking by providing a real-time view of time tracking and ensuring all calculations are accurate. 

The Future of Overtime Management in Construction

For decades, construction has been synonymous with overtime. But it doesn’t have to be that way. By using data-driven workforce management to make efficient staffing decisions, contractors and construction companies can have a better and more agile view of staffing.

Automating payroll and time tracking not only streamlines processes and ensures more accurate payments, but it also helps avoid excessive overtime that could be costly. 

There’s no better tool than hh2 Remote Payroll to reduce overtime costs. With robust AI and automation tools and numerous integrations with construction workforce management software, hh2 Remote Payroll makes it easy to manage labor costs and make real-time changes to avoid potential issues.