Why You Should Not Depend on Overtime Pay?

It can be very tempting to depend on overtime pay. While many of us would hate to admit it, some of us also include our overtime pay in our financial plan. Unfortunately, changes in your company’s philosophy or earning concerns can limit or prevent any overtime pay.

A lot of companies do offer overtime pay for workers. As an employee, you usually must maintain a certain level of productivity to be eligible for overtime. Additionally, there needs to be enough work available, in order for your supervisors or managers to justify the overtime. In other cases, your department may be so far behind in work that overtime is required of all workers.

Most people do not complain about the extra money from working overtime. Usually, a company will pay you time-and-half (1.5 x your normal hourly rate) for any hours worked over the standard work week of a full-time employee. This is not a bad deal if you can stand to work more than 40 hours in a week or a lower amount, such as 37.5 hours, depending on your company’s definition of a full work week.

If you are accustomed to working overtime, you might slip your overtime pay into your financial plan. This extra cash may be used to reduce debt obligations or to pay for a vacation that could otherwise put a damper on your financial goals. In other instances, you might project your yearly budget based on future overtime hours. However, this may prove to be unwise if you do not work enough hours of overtime to cover your projected expenses.

Some of us depend on overtime hours to pay our bills on time. Unfortunately, this can be a dangerous way to plan your financial future. What if your company decides to suspend or severely limits overtime pay? How will you manage to pay all of your bills? In this situation, you might find it necessary to get a second job or take an equity loan on your home. It is best for you not to put yourself in this predicament. So, try to live within your means; therefore, your expected expenses should be based on your base salary and not your overtime pay.

Disclaimer * This article should not be construed as financial advice.  Always consultant your tax accountant or financial planner before making changes to your financial plan.