If you think you are working too much overtime, then you probably are. I know I am!
The payoff for overtime work appears to be a very good deal for the employee. Better think twice!. Thanks to the rising burden of taxes, the overtime income actually received from working longer hours is much less than one might think. That is because every extra hour worked is taxed at the worker's highest marginal tax rate. In some cases, overtime work may even push the worker into a higher tax bracket. It turns out that even if the worker receives time and a half for overtime, a surprisingly large share of the bonus wages goes straight to the tax collector. Ok, NOT surprising! And it's bad for your health. I read somewhere that a sixty percent increase in heart-related illness in those who work for three hours or more overtime per day, based on an eight hour shift. Even more so, I imagine, for those of us who work a 10 or 12 hour shift and then overtime! This may have to do with the type of people who work the overtime, since we tend to be aggressive, competitive “type A” personalities. Or, it may have to do with the anxiety and depression that occur when we work too hard and do not have enough time to sleep/relax. Decide how much overtime is reasonable. In my case, some overtime may be necessary, particularly during the holiday season or other busy times, but generally more than 8 hours per week of overtime is not worth it to me. Overtime can be a boon, particularly to families struggling to make ends meet. Like anything else, though, it is best in moderation. (I have to learn this word,.....moderation. Hmmmmmm) It is important to make sure your job is working to your advantage, not putting a drain on your resources and your health.
Take as an example a single working mother who is a nurse working at the community hospital. Assume her annual income is $40,000. Her job pays her a wage of about $20 per hour. As do most middle-income single heads of households, she struggles to make ends meet and pay the monthly bills. Now assume that her boss asks her on Friday if she wants to come in on Saturday, work eight hours of overtime, and earn time and a half. Sounds at first like a great deal. She calculates in her head that she will earn $30 per hour. That will net her $240 to pay the bills mounting up at home. Right?
Wrong. Her net pay, after taxes, will be much lower. On her overtime earnings, she will have to pay a 28 percent federal income tax, a 7.65 percent federal payroll tax, and roughly a 6 percent state income tax (assuming she lives in an average-tax state). In addition, her employer must pay a 7.65 percent payroll tax on her behalf. Let's calculate how all of those taxes will affect her take-home pay.
The table shows that her $240 gross pay shrinks to $144 in take-home pay. Including the payroll taxes paid by her employer, the government nets $114 on the deal. That includes $63 in federal income taxes, $14 in state income taxes, and $37 in employer- and employee-paid payroll taxes. In other words, the tax collector gets about 45 percent of the total compensation for the woman's extra work effort.
The Government's Take | |
| Overtime Pay | $240.00 |
| Federal Income Tax | $63.20 |
| State Income Tax | $14.40 |
| Employee-Paid Payroll Tax | $18.40 |
| Total Employee Taxes | $96.00 |
| Employer Payroll Tax | $18.40 |
| Worker's Take-Home Pay | $144.00 |
| Government's Take | 114.40 |
The actual hourly take-home pay for giving up her Saturday is not $30 per hour, it's closer to $18 an hour. Or to put it another way, of the eight hours she works on Saturday, three and a half go to paying taxes.
I'm not suggesting that the members of Congress thought of this revenue windfall when they erected all the existing barriers to hiring new workers, such as employer mandates. But it is interesting that government profits from its own anti-employment policies. So the next time your boss asks you to work overtime, you might want to tell him that, thanks to Uncle Sam, the extra effort is just too taxing. And realize that being a mom is a full-time job in itself. You don’t get a second chance to make memories once that time is over.
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