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Overtime Pay: A Tax-Free Future on the Horizon? 

Washington is buzzing with proposals that could fundamentally change how overtime pay is taxed, carrying significant implications for both employees and businesses across the nation. A recent House-passed bill, part of a larger Republican-backed package, proposes to make overtime earnings exempt from federal income tax for a temporary period (2025-2028). While this bill still needs to pass the Senate, clients are already asking about its potential effects. 

What Could This Mean for Employees? 

The most obvious and immediate effect for employees would be an increase in take-home pay for overtime hours worked. This could provide welcome financial relief, particularly for hourly workers who rely on overtime to boost their earnings. 

For instance, an employee earning $28/hour in base pay (with overtime at $42/hour) who works 8 hours of weekly overtime could see their annual take-home pay increase by approximately $3,840. This calculation assumes their annual overtime earnings of $17,472 (8 hours/week x 52 weeks x $42/hour) would no longer be subject to a potential 22% marginal federal income tax rate. For such an employee, this boost in net income would be equivalent to a roughly 6.6% increase on their annual base salary. 

Some employees complain that overtime pay is taxed at a higher rate than regular pay. This perception often arises because overtime pay is taxed at their highest marginal income tax rate, while regular pay benefits from lower blended rates due to the progressive federal income tax system. This proposal would eliminate that concern about overtime earnings. 

Eliminating taxes on overtime could incentivize working extra hours, potentially helping to fill labor shortages in certain sectors. However, workers unable or unwilling to take on overtime could be disadvantaged, especially if overall wage growth slows as a result of an increased labor supply for overtime shifts. Higher-wage employees who work significant overtime could be the biggest beneficiaries, depending on the final structure of the exemption. 

What Could This Mean for Businesses? 

For businesses, this proposal offers potential advantages in attracting and retaining talent. In a competitive labor market, the prospect of tax-free overtime could make companies that offer additional overtime more attractive to potential hires and help retain existing employees willing to work additional hours. This can be especially useful for employers in tight labor markets. If employees become more willing to accept overtime shifts, this could also ease staffing pressures during peak periods. 

However, businesses might be tempted to rely more heavily on overtime for existing staff rather than hiring additional full-time or part-time employees. While this could offer short-term cost savings on benefits, it risks employee burnout, reduced productivity, and higher turnover in the long run. 

Lastly, businesses must understand the financial impact of offering more overtime versus adjusting their workforce size. Hiring fewer people and working the remaining employees’ additional hours could have a significant impact on the labor cost structure. Depending on the current mix of employees, the amount of paid time off, and the benefit package, the net effect could vary widely. It is critical that your organization understands these tradeoffs based on its unique structure.  

Moving Forward: Preparing for Potential Change 

The discussion around eliminating taxes on overtime pay is still evolving. For now, it remains a proposal, not a law. However, its potential to reshape paychecks, workplace dynamics, and a company’s labor costs makes it a critical development for business leaders to monitor closely. 

Understanding the potential consequences will be crucial to having a well-thought-out plan if overtime earnings become exempt from federal income tax. The legislative landscape is dynamic, and proactive preparation can provide a significant advantage. 

State-Level Considerations 

It’s also worth noting that several states are exploring exemptions for overtime from state taxes as well, following the lead of Alabama, which implemented such an exemption in 2024. This indicates a broader trend that could further amplify the impact of tax-free overtime on businesses and employees. 

Next: Modeling financial impact and develop strategic response 

Is your business prepared to analyze the financial impact and adapt your strategies if overtime pay becomes tax-free? 

At Shiftwork Solutions, we specialize in helping businesses like yours: 

    • Model the potential financial impact of such legislative changes on your labor costs. 
    • Evaluate and optimize your current staffing and overtime utilization strategies. 
    • Understand your workforce’s appetite for overtime. 
    • Develop proactive workforce plans to maintain a competitive edge and support employee well-being. 

Don’t wait for these changes to catch you off guard. Contact us today for a consultation at 415-763-5005 or email us at contact@shift-work.com to discuss how we can help you prepare for the potential future of overtime pay and ensure your business is positioned for success. 

The 32-Hour Workweek: What It Means for 24/7 Manufacturing

How can a 24/7 operation maintain full coverage and control labor costs if every hour beyond 32 requires overtime pay?

When we first explored the idea of a 32-hour, 4-day workweek, we looked at the broader implications for employers and employees alike—highlighting both the appeal of a better work-life balance and the real risks of rising labor costs and staffing complexity.

Now, by popular demand, we take a closer look at how this plays out in 24/7 operations—and what leaders need to weigh as interest in this concept continues to grow.

The Future of Work Is Shrinking 

Momentum is building behind the idea of a shorter workweek—specifically, a 32-hour threshold before overtime kicks in. U.S. lawmakers have introduced related legislation, and global pilot programs have shown promising results: higher employee satisfaction, improved work-life balance, and even productivity gains. 

While this shift is relatively straightforward for office environments, continuous operations—such as manufacturing, logistics, and food processing—face a more complex challenge:

How can a 24/7 operation maintain full coverage and control labor costs if every hour beyond 32 requires overtime pay? 

How Schedules Work Today 

Most companies use one of two basic scheduling models: 

Monday–Friday Systems (1, 2, or 3 Crews) 

    • Typically 8-hour shifts 
    • Covers 40 hours per week per employee 
    • No built-in overtime 
    • Common in non-continuous operations 
  • 24/7 Systems (4 or 5 Crews) 
    • Designed to cover every hour of the week 
    • 4-Crew Systems: Average 42 hours/week per employee, with alternating 36- and 48-hour weeks (some built-in overtime) 
    • 5-Crew Systems: Average 41.6 hours/week, using the fifth crew for training and relief 
  • These models are optimized for the current 40-hour threshold. But if the overtime trigger drops to 32 hours, the math—and the economics—change significantly. 

The Cost of Compliance 

If a 32-hour workweek becomes law, any hours worked beyond that would require overtime pay. For 24/7 operations, this presents two options: 

    • Absorb higher labor costs, or 
    • Redesign schedules to reduce weekly hours without sacrificing coverage. 
  • Which Models Can Adapt? 

Here’s how different crew models stack up under a 32-hour threshold: 

1, 2, or 3-Crew Systems

    • Option 1: Keep schedules unchanged. Employees work 40 hours, but 8 are now overtime—resulting in a 10% pay increase and higher labor costs. 
    • Option 2: Redesign schedules to cap at 32 hours. Requires hiring more staff and managing staggered days off—also increasing costs. 

4-Crew Systems 

    • Currently average 42 hours/week with 44 hours of pay. 
    • Under new rules, pay would rise to 47 hours for the same work—a 6.8% increase. 
  • Avoiding overtime would require complex overstaffing strategies that may not yield financial benefits. 

5-Crew Systems 

    • Most adaptable to change. 
    • If all 5 crews are used for coverage (instead of reserving one for relief/training), each crew would average 33.6 hours/week. 
    • Only 1.6 hours of overtime per week—significantly reducing cost impact. 
    • However, this sacrifices training and relief capacity, potentially requiring a 6-crew model—a concept not yet widely adopted. 

Strategic Action: What Leaders Should Do Now 

To prepare for a potential shift, organizations should: 

    • Audit current schedules: How many employees regularly exceed 32 hours? 
    • Model alternatives: What would a 5-crew rotation look like in your operation? 
    • Evaluate trade-offs: Is it more cost-effective to pay overtime or hire additional staff? 
    • Think beyond cost: Consider fatigue, turnover, and how your choices impact your ability to draw top talent. 

Proactive planning will position your organization to adapt quickly—whether or not a mandate arrives. 

Our Perspective: Shiftwork Solutions 

At Shiftwork Solutions, we’ve helped 24/7 operations across the country design sustainable, cost-effective schedules. With our data-driven modeling tools, we help businesses: 

    • Balance labor costs with operational needs 
    • Design schedules that support employee well-being 
    • Navigate major transitions with minimal disruption 

Let’s map out your options—while you still have time to shape the outcome. Whether you’re preparing for a 32-hour workweek or simply exploring alternatives, we can help you get ahead. Call us now at (415) 763-5005, or complete our contact form, and we’ll reach out to you. 

Management By Walking Around: A Tale of Two Plants

Two plants took completely different approaches to leadership. One hums like clockwork. The other scrambles to stay on track. Curious what made the difference?

A few years ago, I visited a food manufacturing plant where the HR manager’s office was tucked away behind a reception area. The door had a glass window—but it had been painted over with an opaque green. Curious, I asked the HR manager about it. He replied, “This way, employees can’t see if I’m in. If they know I’m here, they’ll come in all day, and I’ll never get anything done.” 

That moment stuck with me. 

The consequences were predictable. The plant was dirty. The workforce felt ignored and disconnected. Their concerns went unheard. Attendance was poor, turnover was high, and both performance and quality suffered. 

In contrast, I recently toured another food manufacturing facility. This time, the plant manager led the tour himself. He greeted every employee by name. He offered birthday wishes and congratulations. Occasionally, someone would approach him with a question or just chat—and he gave them his full attention. 

The plant was immaculate. At one point, he noticed a small oil leak from a machine. Without saying a word, a maintenance worker appeared shortly after and addressed it. The manager didn’t mention the leak—instead, he asked the technician how his day was going. They chatted briefly, and we moved on. When we passed the same spot later, the leak was gone, and the area was spotless. 

After visiting plant floors across the country, I’ve learned that nothing shapes a workplace more than leadership. Experience teaches you to spot it quickly—whether a facility runs on trust and visibility, or silence and detachment. Of all the sites I’ve walked, these two stand out as lasting lessons in what leadership presence really means. 

In today’s labor market, where skilled workers are hard to find and harder to keep, it is worth remembering people don’t just quit jobs—they quit managers. Employees don’t want managers on the floor because they need to be watched. They want them there because it shows that leadership sees their contributions. It shows that they matter. 

In my experience, Management by Walking Around is one of the most effective tools a leader can use. It doesn’t require a budget or a strategy session—just the willingness to show up, listen, and engage. 

And the best part? It works. When leadership listens, employees engage. 

Disconnected workforce? Poor retention? Declining morale? Our proven Employee Engagement process helps leadership reconnect with frontline teams—restoring trust, improving communication, and uncovering the real issues affecting your operation. Call (415)763-5005 today to start the conversation—or fill out our contact form, and we’ll reach out to you. 

Surviving the Tariff Turbulence

How Smart Shift Scheduling Can Protect U.S. Manufacturers


Trade tensions are heating up again, and U.S. manufacturers are feeling the pressure. With tariffs on steel, aluminum, and other key imports driving up costs and supply chain disruptions causing delays, uncertainty is at an all-time high. How do you keep production steady while managing workforce stability and financial risks? The answer lies in smart shift scheduling.

Whether you’re ramping up or scaling down, having a flexible workforce strategy can make all the difference. Let’s explore practical shift scheduling tactics that can help you stay resilient during turbulent times.

Navigating Uncertainty: Focus on One Key Variable 

Manufacturers are juggling more moving parts than ever. Some are stockpiling materials, others are holding back on orders due to bottlenecks, and some have already cut jobs despite mixed economic signals. In such a volatile environment, trying to respond to every external factor can be overwhelming.

Instead of reacting to every swing in supply chains, prices, or tariffs, the best move is to focus on one key variable: your production goals. Do you need to ramp up to meet demand? Or are you scaling back to weather the storm? Your scheduling decisions should align with your answer. By making your production output the guiding factor, you can navigate uncertainty more effectively while avoiding reactionary decisions that may not serve your long-term strategy.

Shift Scheduling Strategies for Any Market Condition

When Ramping Up:

      • ✅ Planned Overtime: Need to boost production without committing to new hires? Strategically using overtime can help you scale up while keeping labor costs in check. This approach ensures you meet demand spikes without long-term payroll burdens.
      • ✅ Temporary Workforce Expansion: Hiring temp workers allows you to respond quickly to demand surges. It provides flexibility without locking you into permanent workforce commitments, ensuring responsiveness to short-term market fluctuations.

When Ramping Down:

      • ✅ Discretionary Work Management: Instead of sending workers home, schedule essential but non-urgent tasks (like maintenance and training) during slower periods. This keeps employees engaged while ensuring operations remain efficient.
      • ✅ Planned Time-Off Management: Encouraging employees to take vacation or personal leave during downturns balances workforce availability and prevents the need for sudden layoffs.
Keep Your Workforce Engaged—Or Risk Losing Them

Uncertainty doesn’t just impact your bottom line—it affects your employees, too. When workers fear job instability, they start looking elsewhere. Even if you’re cutting hours now, a market rebound could come fast, and you don’t want to be short-staffed when it does.

Communication is key. Address their concerns directly:

      • Why are production levels changing?
      • How long might this last?
      • What steps is leadership taking?

Employees don’t want to be left in the dark. In the absence of clear information, the rumor mill takes over—and bad news spreads fast. Keep your workforce informed through regular updates, open forums, and direct conversations. The more transparent you are, the more likely they’ll stick with you through uncertainty.

Final Thoughts: The Power of Smart Scheduling

Adapting to shifting economic conditions is challenging, but flexible scheduling strategies can make all the difference. By focusing on production goals as your key variable—rather than reacting to every external swing—you can make better workforce decisions and maintain stability. Whether it’s planned overtime, temporary staffing, or strategic time-off management, these tactics help manufacturers stay agile and ready for whatever comes next.

Want to ensure your workforce strategy is resilient? Let’s talk. Schedule a free consultation today. 

Reduce Overtime: Fact vs. Fiction

Many companies believe that solving overtime issues is as simple as implementing the “perfect schedule” to save significant costs. While scheduling plays a critical role, the truth about overtime is more nuanced. In this article, we’ll explore when schedule changes can genuinely reduce costs, and discuss how overtime impacts your workforce and operations. Let’s look at this idea more closely.

When a Better Schedule Saves Money

The idea that a better schedule can cut overtime costs dramatically holds true under the following condition: your current schedule is inefficiently allocating labor. For example, if some parts of the week are overstaffed while others are critically understaffed, redesigning the schedule to balance coverage can indeed save money.

In a different scenario, if your operations are expanding or your workforce is fixed, increasing demand will inevitably lead to higher overtime. This rise in overtime brings several challenges:

    1. Increased Fatigue: Long hours wear down employees, leading to higher stress and lower overall well-being.
    2. Productivity Decline: Employees working excessive hours are less efficient.
    3. Higher Accident Rates: Fatigued workers are more prone to errors and accidents.
    4. Quality Issues: Overworked employees are less likely to maintain high-quality standards.
    5. Turnover and Absenteeism: Burnout contributes to higher absenteeism and attrition rates.

The perfect schedule will allow you to keep these from happening.  It does this by allowing you to add straight-time hours to “replace” overtime hours—without the risk of overstaffing.

The Role of the “Perfect” Schedule

A well-designed schedule won’t eliminate overtime entirely but can strategically replace overtime hours with straight-time hours. This is particularly effective for maintaining a productive, engaged, and safe workforce while meeting operational demands. However, there’s a key consideration: the cost of straight-time hours isn’t significantly lower than

overtime. Straight-time costs include wages, benefits, and taxes, while overtime includes a premium rate and taxes. From a financial perspective, these often balance out. For example, if you save $1 million in overtime costs through a schedule adjustment, you’ll likely spend a comparable amount in straight-time costs to maintain the same coverage.

What’s the Right Overtime Rate?

For companies with stable production levels, an overtime rate between 5% and 15% is typically ideal. This strikes a balance between operational flexibility and workforce satisfaction. It’s also worth noting:

    • Around 20% of employees actively avoid overtime.
    • Another 20% seek out as much overtime as possible.
    • The remaining 60% are comfortable with moderate overtime levels.

If you’re unsure how your workforce feels about overtime, don’t guess—ask them. Employee feedback can provide valuable insights into what’s working and where adjustments are needed.

Summary
Overtime management is about more than just cost reduction—it’s also about maintaining workforce health, safety, and productivity while meeting operational goals. A balanced approach, supported by an optimized schedule, can help you replace excessive overtime with straight time and create a more sustainable workload for your team.

Let’s Talk
Want expert guidance on optimizing your operations and managing shift work challenges? Contact us today at (415) 763-5005 or complete our contact form . Let’s work together to create solutions tailored to your unique needs.

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