Omega, Int. J. Mgmt Sci. Vol. 25, No. 3, pp.

285-299, 1997
© 1997ElsevierScienceLtd. All rights reserved
~ Pergamon Printed in Great Britain
PII: S0305-0483(96)00063-1 0305-0483/97$17.00+ 0.00

Overtime Schedules for Full-time

Service Workers

FF EASTON
Syracuse University, Syracuse, NY, USA

DF ROSSIN
University of Michigan-Dearborn, Dearborn, MI, USA

(Received September 1995; accepted after revision November 1996)

Part-time employees help service organizations extend their operating hours and provide extra
capacity for peak demand periods. While this strategy tends to increase the number of employees
needed to staff the system, part-timers usually earn less per week than full-timersbecause they don't
work as many hours. However, escalatingper capita labor expenseshave increasedthe effectivehourly
wages for part-timers, threatening one of their key advantages. According to governmentstatistics,
service sector employersnow obtain more labor from overtime work than they do from part-timers.
Although the benefitsof part-time schedulingpoliciesare wellunderstood,comparativelylittle research
has focused on overtime schedulingpolicies. Typically, we think of overtime as a means of buffering
service systems against supply and demand uncertainty. In this study, however, we demonstrate that
scheduled overtimeprovidesmany of the same operational advantagesof part-time schedulingpolicies.
We evaluate the effects of alternative overtime staffing and scheduling policies on important
performance measures such as total labor expense, labor utilization, and workforce size. Compared
with standard (40 hours per week) employee schedules, we find that even small amounts of
premium-pay overtime work provide significant savings. We also find that the ideal workforce size
and proportion of overtime work for a given scheduling policy seem to be relatively insensitiveto
changes in per capita labor expenses. This means that employers may need much more aggressive
overtime schedulingpoliciesto mitigate the effects of risingper capita labor expenses. © 1997 Elsevier
Science Ltd

Key words--labor scheduling, human resources, mathematical programming

1. INTRODUCTION c u s t o m e r retention rates, a n d generate favorable

T o VARYING DEGREES, most o r g a n i z a t i o n s
embrace high quality service as a c o m p o n e n t o f
their overall competitive strategy. C u s t o m e r
perceptions of service quality are influenced
by several factors [1, pp. 15-32], i n c l u d i n g
reliability (the ability to p e r f o r m the expected
service d e p e n d a b l y a n d accurately), responsive-
ness (the willingness to help customers a n d
provide p r o m p t service), a n d access ( m a k i n g the
service available at c o n v e n i e n t times). By im-
p r o v i n g c u s t o m e r perceptions o f these a n d other
service quality attributes, service o r g a n i z a t i o n s
can c o m m a n d p r e m i u m prices [2], i m p r o v e
w o r d - o f - m o u t h advertising. These factors in-
crease v o l u m e a n d help provide scale economies,
widening profit m a r g i n s even further [3, p. 1 ~].
T o e n h a n c e c u s t o m e r perceptions a b o u t
access, m a n y o r g a n i z a t i o n s extend their service
hours b e y o n d the c u s t o m a r y eight-five work
day, to weekends, a n d increasingly, a r o u n d the
clock. D u r i n g these times, the d e m a n d for ser-
vice m a y vary significantly [4-7]. Usually, the
p o r t i o n of the service that involves contact
with the c u s t o m e r c a n n o t be p o s t p o n e d for
long w i t h o u t degrading c u s t o m e r perceptions
a b o u t reliability a n d responsiveness [8,9].
T o score high o n these dimensions, service

285
286 Easton, Rossin--Overtime Schedules

Table 1. Service sector employee benefits as percent of total compensation [17]

Mo/ Total Legally[*] Paid Healthandli~ Reti~mentand Other
year benefits required leave insurance savings benefits
3/88 25.7% 8.5% 7.1% 5.0% 3.0% 2.1%
3/89 25.5% 8.7% 7.0% 5.2% 2.7% 1.9%
3/90 26.0% 8.7% 6.9% 5.6% 2.8% 2.0%
3/91 26.0% 8.8% 6.8% 6.0% 2.5% 1.9%
3/92 26.5% 8.9% 6.7% 6.3% 2.5% 2.1%
3/93 26.9% 9.0% 6.5% 6.5% 2.5% 2.4%
* Legallyrequired:SoeialSecurity, Stateand FederalUnemployment, and WorkersCompensation

organizations must have the capacity to satisfy
customer demand soon after it is presented.
In the short run, the capacity of a service
organization is largely determined by the
number of workers it employs and the times at
which these employees are scheduled for duty.
Roughly two-thirds of all full-time employees
are scheduled to work 5 days per week, 8 hours
per day [10]. Most (80%) full-time employees
start work between 07:00 and 09:00 and finish
between 16:00 and 18:00, according to Mellor
[11]. To help extend their operating hours
beyond these times and to respond to demand
peaks that occur during the normal work day,
many service organizations rely on part-time
(less than 35 hours per week) employees [12, 13].
Total labor expenses tend to be lower when
some employees have part-time schedules [14].
Frequently, however, part-time staffing and
scheduling policies require more employees to get
the job done than might be necessary with full-
time employees alone [14]. Some labor-related
expenses, including pension and retirement bene-
fits, life insurance and health care benefits, unem-
ployment insurance premiums, paid vacations,
sick leave, paid holidays, as well as recruiting and
training costs, vary with the number of
employees rather than the number of hours each
employee works [15]. Recent US legislation, such
as the Tax Equity and Fiscal Responsibility Act,
the Employee Retirement Income Security Act,
and the 1986 Tax Reform Act, has greatly
expanded the scope of employment arrange-
ments subject to such payments [16]. Since that
time, legally required payments and employer
subsidized benefits have increased steadily [17].
As shown in Table 1, these expenses now exceed
26% of the total US service sector payroll
expense.
Where applicable, these per capita expenses
increase the effective hourly wage rates for
part-time employees, threatening one of their
key advantages. As indicated in Table 2, service
organizations have started reducing the pro-
portion of total labor obtained from part-
timers. Part-time labor appears to have been
replaced by full-time employees working over-
time (more than 40 hours per week) schedules.
Employers exploit overtime work schedules
for a variety of reasons. For example, although
overtime work usually requires premium pay it
can sometimes be used to help reduce the total
number of permanent employees needed to staff
the system, and thus total per capita expenses.
Overtime may also be used to respond to
unforeseen events such as absenteeism or higher
than expected demand. In effect, overtime can
function as a 'safety stock' that buffers the
system against uncertainties in either supply or
demand. Finally, overtime may be used on a

Table 2. Average weekly work hours for service sector* employees [18]
Percent of service sector employees working
Number of employees Average weekly Part-time Full-Time
Date ( x t000) h/employee ( < 35h/week) (35 < h/week < 40) Overtime ( > 40h/week)
3/84 58,349 36.9 24.98% 51.84% 23.18%
3/85 60,670 37.4 24.51% 50.19°/0 25.300/0
3/86 62,645 37.4 24.41% 50.22% 25.370/0
3/87 64,917 37.6 23.85% 49.71% 26.44%
3/88 66,482 37.9 23.49% 49.55% 26.96%
3/89 68,181 37.8 23.98 % 48.92% 27.10%0
3/90 69,227 38.0 23.32% 48.83% 27.84%
3/91 69,649 37.8 23.91% 49.65% 26.44%
3/92 70,855 38.1 23.15% 48.98% 27.88%
3/93 72,174 38.1 23.24% 49.15% 27.61%
* Includes transportation, communications, public utilities, wholesale trade, retail trade, finance, insurance, and real estate, and services.
 Omega, Vol. 25, No. 3
more prolonged basis to help meet seasonal or
cyclical demand peaks, especially when work-
force change costs are high.
From a macro-economic perspective, the
decision to use overtime seems straightforward.
The amount of overtime labor that a service
firm can use is typically constrained by the
number of employees available to work
overtime schedules [19, 20]. To illustrate, sup-
pose each full-time employee works at least H
hours per week at an average wage of C/h, with
fringe benefits and legally required payments
totaling F/employee. Assume that employees
can work up to G x H additional hours each
week (0 < G < 1), earning premium wage P/h.
If the firm needs W hours of labor, its total
labor expense for the period (Z') is determined
by the number of employees (K) and the
number of overtime hours worked. Total labor
expense for the firm can be approximated with
the relationship:
Z' = K(F + HC) + P ( W - - KH) , (1)
where
W hoped to find a few relatively benign overtime
K> H(1 + G ) (2)
Each additional employee increases total labor
expense by F + HC, but eliminates H hours of
overtime expense. Assuming (1) is differentiable
in K, the ideal workforce size (K*) is:
W F W use.
K * = ~ if ~ < (P -- C), H(1 + G )
otherwise. (3)
That is, when the incremental hourly
premium paid for overtime work ( P - C)
exceeds the pro-rated hourly per capita expense
per employee (F/H), overtime work should be
avoided. When the premium is less than the
prorated hourly per capita expense, the firm
should maximize the amount of overtime labor
it uses.
As shown in Table 1, the average per capita
expense for a full-time employee in the US is
now more than 26% of total wages. Assuming
an average work week of H = 40 h and total
weekly wages of Z ' per employee, the current
average prorated per capita expense (0.26
287
Z'/40 = 0.0065 Z') is only about 5-7 of the
customary 50% hourly wage premium for
overtime work (0.5 × [0.74 Z'/40] = 0.00925
Z'). Therefore, the observed growth in overtime
use (Table 2) is not adequately explained by our
simple macro-economic model (equation (3)).
This leads us to conclude that the growth of
overtime work is being driven by factors other
than the simple avoidance of per capita
expenses.
Unfortunately, comparatively little is known
about the operational benefits of overtime
scheduling flexibility. To better understand the
effects of overtime scheduling policies on
important performance measures like total
payroll expense and workforce size, we adapted
a tour scheduling model [21] to incorporate
overtime scheduling options for hypothetical
service firms. Our initial goal was to determine
whether service firms can achieve performance
advantages (compared to standard 8 hours per
day, 5 days per week schedules) with the use of
planned overtime work (at premium pay). Since
overtime work may disrupt employees' personal
lives, we investigated both conservative and
aggressive overtime scheduling policies. We
scheduling policies that could produce signifi-
cant performance improvements (again, relative
to standard 8 hours per day, 5 days per week
schedules). Finally, since per capita payroll
expenses are likely to continue their upward
trend, we wanted to project how increases are
likely to affect employment levels and overtime
The results of our experiments confirmed that
practitioners can realize considerable savings by
utilizing overtime scheduling policies. The
results also yielded some useful managerial
insights. For example, we found that in some
operating environments, about 95% of the
maximum attainable benefit from overtime
work can be achieved with employee schedules
that limit overtime work to just 6 hours per
employee per week. Contrary to our expec-
tations, however, we found that the ideal
workforce size and the ideal amount of
scheduled overtime tend to be relatively
insensitive to per capita expense rates. We
discuss these and other findings, along with
other experimental details, in Sections 3 and 4.
In Section 2, we present a critical review of the
relevant literature.
288 Easton, Rossin--Overtime Schedules
2. FLEXIBLE LABOR STAFFING A N D
SCHEDULING POLICIES
The contractual relationships between service
organizations and employees are by no means
standard. The labor once provided by tra-
ditional permanent, full-time, 40 hours per week
employees is increasingly supplied under flexible
or contingent staffing arrangements such as
leased employees, consultants, freelancers, self-
employed workers, temporary employees, and
part-timers [22]. Many of these non-traditional
employment arrangements have been shown to
yield important organizational benefits for the
firm, including reduced absenteeism and
turnover [23]. Despite the popularity of these
arrangements, however, a significant and in-
creasing fraction of all US service workers
(more than 27%) are full-time employees
assigned to overtime (more than 40 hours per
week) schedules.
In the US, at least, there are few regulatory
impediments to the use of overtime scheduling
policies. The US Fair Labor Standards Act,
which covers about 80 million employees, places
no ceiling on the number of hours that adult
employees can be required to work [24]. US
labor laws generally regard the establishment of
employee work schedules as a basic managerial
prerogative. As long as they are not excessive or
unsafe, and advance notice is given, employees
must generally accept overtime schedules or risk
discharge for insubordination [25]. While many
collective bargaining agreements between em-
ployers and employees provide very specific
guidelines about overtime pay and overtime
allocation, the public and private sector
contracts that we reviewed did not impose
specific limits on the maximum amount of
overtime employees could be required to work
each week. A plausible explanation is that
employers are reluctant to surrender the staffing
flexibility provided by federal law, and em-
ployees are reluctant to surrender opportunities
to substantially increase their income.
No matter what kind of contractual relation-
ship exists between a service firm and its
workers, however, the firm's labor resources
must still be deployed (scheduled) overtime to
satisfy temporal service demand. Although
there are many ways to characterize the staffing
and scheduling goals of an organization, and
many different ways to measure the effectiveness
of staffing and scheduling decisions, labor
staffing and scheduling decisions are frequently
modeled as tour scheduling mathematical
programs [5, 6, 13, 14, 26-35]. Their purpose is
to simultaneously determine the number of
employees, and the way they should be
scheduled, to satisfy the predicted demand for
each period in the planning horizon at minimum
cost. In this problem, each feasible employee
schedule (tour) is represented by a separate
integer variable, whose value is the number of
employees that should be assigned to that
schedule. Each tour must conform to the
scheduling constraints that are explicitly or
implicitly embodied in the contractual relation-
ships between the service firm and its workers.
We use the following notation to characterize
this complex, economically important schedul-
ing problem.
2.1. Model parameters
N The number of different feasible employee
schedules, indexed j = 1..... N.
Cj The weekly wages (including overtime pay)
for one employee assigned to schedule j.
The fixed or per capita labor expense for an
employee assigned to schedule j.
T The number of periods in the planning
horizon, indexed t = 1..... T.
R, The minimum labor needed for period t to
provide satisfactory service, for t = 1.... T
atj [1 if period t is a work period in tour j, 0
otherwise], indexed t = 1..... T; j = 1..... N.
2.2. Decision variables
Xj The number of employees assigned to
schedule j, defined for j = 1..... N.
2.3. Problem statement
N
Minimize Z = ~ (Cj + ~ ) ~ (4)
j=l
N
Subject to: ~ a~j~ > R,,Vt (5)
j=l
~ {0,1,2,...),Vj (6)
The objective (equation (4)) is to minimize total
labor expense, or the wages and per capita
expenses for each tour multiplied by the number

Table 3. Labor scheduling constraints [33]
Constraint category Example
Shift constraints Shift start time flexibility
Break placement flexibility
Shift length flexibility
Days-off constraints Number of off-days
Timing of off-days
Tour constraints Shift start time float
Break float
Shift length float
Tour length flexibility
of employee assigned to that tour. Constraints
(5) insure that enough employees are scheduled
for work during period t to satisfy the minimum
staffing requirements for that period. Con-
straints (6) are the integrality requirements.
Other performance measures, such as labor
utilization or schedule efficiency (required labor
E,R, + scheduled labor E,E~a,iXj), workforce
size, and the amount of scheduled overtime, can
be easily extracted from a solution to this
problem.
In general, better solutions can be achieved
when there are few temporal constraints on the
deployment of labor resources [14]. These
constraints tend to fall into three broad
categories [28]: shift constraints (the set of
allowable shift start times, the range of
allowable shift lengths, and break timing);
day-off constraints (the number and timing of
rest days); and tour constraints (shift start time
float, shift length float, and break float). More
complete definitions for these scheduling con-
straints can be found in Jacobs and Bechtold
[33]. A brief summary of each type of constraint
appears in Table 3.
Several recent studies have explored the
relationship between shift scheduling con-
straints and scheduling performance measures
(labor expense, workforce size, labor utilization,
or other indices of the quality of the match
between scheduled and required capacity).
Many researchers [28, 29, 33, 36] have found
that flexibility in the timing of meal breaks, or
'break flexibility,' yields significant savings.
Schedule performance also tends to improve
with increasing cardinality in the set of
allowable shift start times [21,33]. Better
performance is also likely when the minimum
allowable shift length is reduced to less than 8
hours per day [13, 14, 26, 27, 33].
The relationship between schedule perform-
ance and days-off constraints has also been
Omega, Vol. 25, No. 3 289
Definition
The set of allowable times at which shifts normally begin.
The allowable range of times, from shift start, during which a break must be initiated.
The range of allowable shift lengths.
The minimum and maximum number of rest days per week.
Whether rest days must be consecutive, on weekends, etc.
The allowable range between the earliest and latest shift start times in a particular tour.
The maximum allowable difference between the earliest and latest scheduled break times
(from shift start), for a particular tour.
The maximum allowable difference between the length of the shifts in a particular tour.
The allowable range of scheduled work periods in a tour.
widely studied. In some cases the effects are
straightforward and can be assessed analytically
[37]. Jacobs and Bechtold [33] studied more
complex operating environments and found
very little difference in schedule performance
when days-off were required to be consecutive,
rather than an arbitrary pair. However,
schedule performance often improves when
employees are allowed to work fewer than 5
days per week and/or 8 hours per day
[13, 14, 33].
While these studies have greatly increased our
understanding of the operational advantages of
part-time scheduling flexibility, they tell us very
little about the effectiveness of overtime
scheduling policies (e.g., employee schedules
with more than 8 hours per shift or more than
40 hours per tour). In their aggregate planning
study, Hancock et al. [38] demonstrated that
planned overtime work in health care services
could reduce labor costs and improve pro-
ductivity. However, aggregate plans must
usually be disaggregated to determine the
precise timing and quantity of overtime usage
[39]. Since overtime labor must be drawn from
the pool of off-duty employees, and may be
subject to other scheduling constraints, aggre-
gate plans may overstate the attainable benefits
of planned overtime use.
Tour scheduling models are based on explicit
'legal' employee schedules, and thereby avoid
such limitations. While these models can
provide more precise estimates of the benefits of
alternative staffing and scheduling policies, the
number of feasible employee schedules that the
model must consider tends to increase rapidly
when scheduling constraints are relaxed. In
Henderson and Berry's [32] research with
telephone operator schedules, for example, meal
break windows increased the number of integer
variables in their mathematical program for a
labor scheduling problem by a factor of fifty
290 Easton, R o s s i n - - O v e r t i m e Schedules

[33]. Scheduling flexibility options like overtime
have similar effects. To illustrate, consider a
convenient source of overtime labor: those
employees who have just completed their
'regular shift'. They're already on-site and
therefore incur minimal additional costs (make-
ready time, transportation to the job site) to
extend their shifts. Suppose overtime work is
restricted to those employees just finishing their
regular shifts. Further suppose we wish to
restrict the total amount of planned overtime an
employee is allowed to work in a given time
period, say the next N shifts, to at most Y hours.
The number of different ways to allocate exactly
Y hours of overtime work to the end of up to
N different shifts is the number of different
compositions of the integer Y into N parts [40],
or:
[ ( Y + N - - 1)!]/[Y!(N-- 1)!]
For example, there could be as many as
1 + 5 + 15 ÷ 35 + 70 = 126 different ways to
append 1 < Y < 4 hours of overtime work to
the end of the N = 5 'regular' shifts in a single
standard 5-day schedule.
The combinatorial growth in the number of
feasible schedules makes the precise comparison
of alternative scheduling flexibility options like
overtime difficult. However, several techniques
to improve the tractability of large-scale labor
scheduling problems have been proposed. An
excellent review of these procedures can be
found in Jarrah et al. [34].
3. EVALUATING OVERTIME SCHEDULING
FLEXIBILITY
Previous studies have confirmed that part-
time scheduling flexibility helps improve import-
ant operational performance measures such as
labor utilization and payroll expense. However,
employment statistics indicate that service
sector firms are steadily replacing part-time
labor with overtime work. While this change
may be motivated in part by rising per capita
costs, the prospect of productivity gains [38]
offers another compelling reason for the growth
of overtime work.
Of course, the benefits of overtime scheduling
flexibility may depend on the operating environ-
ment where it is employed. To illustrate,
consider the simple shift scheduling examples
depicted in Table 4. Assuming each full-time
employee works an 8 hour shift (with a
scheduled 1 hour rest break after the fourth
hour), at least two employees are needed to staff
the system when it operates for 12 hours per
day. Note that even with up to 3 hours of
(7)
overtime appended to the end of Shift 1
(covering all periods except hour 5), at least two
full-time employees are still needed to staff the
system. With a slightly longer operating day,
however, overtime scheduling policies can
provide significant savings. The second half of
Table 4 illustrates a system that operates for 16
hours per day. In this case, at least three
different employees to cover all 16 periods if
standard 8 hour shifts are used. However, by
appending 3 hours of overtime to the end of
Shift 5, the 16 hour per day system can be
staffed with a minimum of two employees.
Based on these examples and current US
employment statistics, we speculate that over-
time scheduling flexibility has the potential to
favorably affect total labor costs, workforce
size, and schedule efficiency (total labor
r e q u i r e m e n t s - total scheduled hours), com-
pared with traditional, 5 day, 40 hours per week

T a b l e 4. Effects o f o v e r t i m e shifts o n p r o d u c t i v i t y
12 o p e r a t i n g h o u r s / d a y
Standard 8-hour shifts 1 2 3 4 5 6 7 8 9 10 11 12
Shift 1 1 1 1 1 0 1 1 1 1
Shift 4 1 1 1 1 0 1 1 1 1
Overtime shifts
Shift 1 + OT 1 1 1 1 0 1 1 1 1 O1 02 03
Shift 4 1 1 1 1 0 1 1 1 1
16 o p e r a t i n g h r s / d a y
Standard 8-hour shifts 1 2 3 4 5 6 7 8 9 10 ll 12 13 14 15 16
Shift 1 1 1 1 1 0 1 1 1 1
Shift 5 1 I 1 1 0 1 1 I 1
Shift 8 1 1 1 1 0 1 1 l 1
Overtime shifts
Shift 1 1 1 1 1 0 1 1 1 1
Shift 5 + O T I 1 1 1 0 1 1 1 1 O1 02 03
 Omega, Vol. 25, No. 3
Table 5. Experimental design
Factors
Schedule policy .factors
Maximum overtime hours/shift
Maximum overtime hours/tour
Operating environment .factors
Length of operating day
Within-week demand pattern
Within-day demand pattern
Per capita expense
staffing and scheduling policies. Depending on
the operating environment, we expect to find
better scheduling performance when shift
lengths are allowed to exceed 8 hours (at
premium pay, of course), and as tours are
allowed to increase beyond the traditional 40
working hours per week. We also expect to find
that overtime scheduling policies are more
effective in environments with longer operating
days, since there are more opportunities to use
overtime. Finally, we expect to find that higher
per capita labor expense rates increase the
attractiveness of overtime schedules.
To test these hypotheses, we devised a set of
tour scheduling experiments for hypothetical
service firms. Our goal was to compare various
performance measures for alternative overtime
scheduling policies with those attained with a
standard 40 hours per week scheduling policy
(our base case). The experimental factors and
levels that we used in our study are summarized
in Table 5. F o r the base case, we assumed that
employees work 9 hour shifts on each of 5
consecutive days, with an unpaid 1 hour meal
break in the middle of each shift. Shifts can start
at any hour of the day provided enough time
remains to complete the shift by the end of the
operating day. However, the shifts within a
particular tour must start at the same time each
day. Similar full-time work rules have been
assumed in m a n y previous labor scheduling
studies [13, 29, 31, 33].
We used the Fair Labor Standards Act and
the W a l s h - H e a l y Act, which require overtime
pay for work in excess or 40 hours per week or
8 hours per day, respectively, to define overtime
work. We assumed that overtime work is
remunerated at 1.5 times the standard hourly
pay rate. Although tour scheduling models
can easily accommodate productivity differ-
ences [6, 31] we assumed that employee pro-
ductivity does not decay over the course of a
shift.
OME 25/3--C
291
Levels
0, 2, or 4 h/shift
0, 2, 4, 6 ..... or 20 h/tour
12, i6, or 20 h/day
Level, trend + , concave, convex, sinusoidal, or bimodal,
Level, trend + , concave, convex, sinusoidal, or bimodal,
0% or 100% of base wage
To avoid deploying overtime in a manner that
might be confused with other kinds of labor
scheduling flexibility, we focused our investi-
gation on a fairly narrow range of overtime
scheduling options. Specifically, we assumed
that scheduled overtime only occurs at the end
of a standard 9 hour (including meal break)
shift. Employees who have just completed their
'regular shift' are a convenient source of
overtime labor, since they're already on-site and
therefore incur minimal additional costs (make-
ready time, transportation to the job site) to
extend their shifts. We did not evaluate other
reasonable options for scheduling overtime,
such as starting work earlier than normal or
working during off days. Scheduling overtime
work during an employee's regular day off is
very similar to part-time scheduling flexibility,
especially when per capita labor expenses are
low. Similarly, scheduling overtime before an
employee's normal shift starting time may
produce effects that are more easily attained
with break placement flexibility.
We defined overtime in terms of hours per
shift and hours per tour, and therefore devised
two types of interacting scheduling policy
constraints to limit the amount of scheduled
overtime in a particular tour. First, we
constrained the m a x i m u m allowable amount of
overtime per employee per shift to 0, _< 2, or
< 4 hours. Second, we limited the total number
of overtime hours per employee per week to 0,
_< 2, _< 4 ..... or _< 20 hours. These constraints
yielded a total of 16 different overtime policies:
one for zero overtime, five for the case when
overtime is limited to a maximum of 2 hours per
shift, and 10 for the case when overtime is
limited to a m a x i m u m of 4 hours per shift.
Theoretically, the most aggressive overtime
policy (up to 4 hours per day, up to 20 hours per
tour) could provide up to 33% of the total
scheduled labor.
We also examined three different operating
292 Easton, Rossin--Overtime Schedules
environments, assuming the service firm would
operate for 12, 16, or 20 hours per day, 7 days
per week. To simulate the demand character-
istics for a variety of service industries, we chose
a set of well-known synthetic demand patterns
[29, 41]. We combined one of six different
day-of-the week demand patterns (level, increas-
ing trend (trend + ), concave, convex, sine, and
bimodal) with one of six time-of-day demand
patterns (level, trend + , concave, convex, sine,
and bimodal), forming a total of 36 different
demand patterns for each operating environ-
ment. As in Bechtold and Showalter [29], we
assumed that the average hourly demand for
each of the 36 different service demand
distributions was 50 employees, with a maxi-
mum amplitude of 16 employees.
Finally, we evaluated overtime scheduling
effectiveness with per capita labor expense fixed
at either 0 or 100% of the standard weekly
wage. Result (3) predicts that overtime work
should be avoided when the prorated hourly per
capita expense is less than the hourly overtime
premium. However, as shown in the second
example in Table 4, overtime also improves
schedule efficiency (i.e. total labor require-
ments - total scheduled hours). Therefore,
overtime schedules could prove beneficial even
when the per capita labor expense is low. On the
other hand, result (3) suggests that overtime
work would become very attractive to employ-
ers when the overtime premium is less than the
prorated hourly per capita expense. With a per
capita labor expense of 100% of the standard
weekly wage, the prorated hourly per capita
expense is exactly double the hourly premium
for overtime work. At this level, the ideal
amount of scheduled overtime work should be
far greater than the amount used when per
capita expenses are comparatively low.
In all, we generated and solved a total of 3
operating environments x 16 overtime policies
x 2 per capita expense levels x 36 demand
distributions = 3456 test problems. Our as-
sumed work rules and operating environments
resulted in test problems with between 28 and
184,100 unique employee schedules (or tours,
each represented by a separate integer variable).
With no practical method to obtain exact
solutions for the larger problems, we adopted a
heuristic solution strategy based on column
generation [31] and simulated annealing [30].
We first identified the set of feasible tours that
would be active in the optimal continuous
solution for each problem (a sufficient working
subset for the linear program) by using IBM's
Optimization Subroutine Library [42] and a
custom dynamic program as solvers. In this
stage of our heuristic procedure, the tour
scheduling problem is initially formulated with
a small working subset of tours and solved as a
linear program. The optimal dual prices (E) for
the current formulation are passed to the
dynamic program, which implicitly evaluates
the reduced costs (i.e. Q-Z,r=~a,jY,) for all
other feasible tours. The tour with the smallest
negative reduced cost is appended to the
working subset to create a new linear program.
The process then repeats until the standard
simplex optimality criterion is satisfied (i.e. all
remaining tours have reduced costs > 0).
We used a dynamic program adapted from a
procedure described in Easton and Rossin [31]
to determine the reduced costs for feasible tours
not yet included in the working subset. The
procedure efficiently constructs and evaluates
complete tours one shift at a time. It begins by
generating the set of all feasible shifts (indexed
by day of week, shift start time, and shift
length). For each shift, the program computes a
partial reduced cost, or the hourly labor expense
for the shift (wages plus 1/5 of the per capita
cost of a tour) less the dual price for each work
period in the shift. Next, it constructs the set of
partial tours with a single shift. However, only
those partial tours with negative partial reduced
costs need to be retained (see Theorem 1 in the
Appendix), reducing state space and compu-
tational effort. At subsequent stages, single
shifts are appended to the partial tours
generated during the previous stage to produce
feasible partial tours with one more shift. Again,
only the feasible partial tours with negative
partial reduced costs are retained. The dynamic
program continues in this manner until either
(1) at some stage the set of feasible partial tours
all have reduced costs of zero or more, or (2) the
final stage is reached and one or more complete
tours with negative reduced costs have been
formed. If the former occurs, the simplex
optimality criterion is satisfied and the pro-
cedure terminates. If the latter occurs, the tour
with the smallest reduced cost is added to the
current L.P. formulation and the new linear
program is solved again.
Finally, after forming the sufficient working
 Omega, Vol. 25, No. 3 293

subset for the linear program, we solved the
problem as an integer program using Brusco
and Jacobs' [30] simulated annealing heuristic.
In earlier studies, this procedure was shown to
produce optimal or near optimal results with
similar kinds of problems. All of the computer
programs were coded in F O R T R A N and
implemented on an IBM RS/6000 Model 570
computer. For the largest test problems (20
operating hours per day, with tours that allow
up to 4 hours overtime per shift and up to 60
hours of work per tour), our solution procedure
required an average of 3 minutes of CPU time
to produce a sufficient working subset. The
simulated annealing heuristic was allowed to
run for 30 seconds to produce an approximate
integer solution. The annealing heuristic pro-
duced feasible integer solutions that were, on
average, about 1.17 % greater than the
corresponding optimal L.P. solutions; quite
similar to the performance reported by Brusco
and Jacobs [30]
Our test results are summarized below. In
Table 6, we present various performance
statistics for alternate overtime policies when
the per capita labor expense is zero. Although in
theory low per capita expense rates should result
in minimal overtime work, every overtime
scheduling policy we studied outperformed, on
average, the standard, 40 hours per week
schedules. This demonstrates that overtime
scheduling policies provide a cost-effective
means for reducing some of the overstaffing that
occurs when all employees must work standard
40 hours per week schedules. Overtime sched-
ules generally resulted in lower total labor
expense, a smaller workforce, and greater
schedule efficiency than standard full-time
schedules.
As expected, the advantages of overtime
staffing and scheduling policies were more
pronounced in environments with longer
business days. Under the most aggressive
overtime policy (up to 4 hours of overtime
allowed per shift, with tours of up to 60 hours
per week), labor costs were 95.3, 86.6, and

Table 6. Relative schedule performance for overtime policies: per capita expense = 0.0
Maximum allowable overtime per shift
Up to 2 hours per shift Up to 4 hours per shift
Operating Maximum Average Average Average Average Average Average
hours per day hours per tour total cost workforce schedule total cost workforce schedule
size efficiency size efficiency
12 40 100.0% 100.0% 69.9% 100.0% 100.0% 69.9%
12 42 98.4 97.8 71.2 98.3 97.7 71.3
12 44 97.3 96.2 72.2 97.1 95.6 72.4
12 46 97.0 95.8 72.4 95.4 92.1 74.1
12 48 97.1 95.8 72.4 95.3 91.9 74.1
12 50 97.0 95.8 72.5 95.2 91.8 74.2
12 52 95.4 92.0 74.1
12 54 95.4 92.0 74.1
12 56 95.3 92.0 74.1
12 58 95.3 92.0 74.1
12 60 95.3 92.0 74.1
16 40 100.0% 100.0% 64.9% 100.0% 100.0% 64.9%
16 42 99.2 98.9 65.5 99.2 98.9 65.5
16 44 98.8 98.2 65.8 97.8 95.5 67.0
16 46 98.6 97.9 66.0 93.8 86.6 71.0
16 48 98.6 97.9 66.0 93.4 85.5 71.5
16 50 98.5 97.8 66.0 91.0 79.8 74.4
16 52 88.4 73.8 77.7
16 54 88.3 73.4 77.9
16 56 86.6 69.6 80.2
16 58 86.5 69.3 80.3
16 60 86.6 69.5 80.2
20 40 t00.0% 100.0% 62.2% 100.0% 100.0% 62.2%
20 42 94.3 92.8 66.3 94.3 92.8 66.3
20 44 90.4 86.9 69.7 88.8 83.1 71.5
20 46 88.7 81.2 72.1 86.2 78.2 74.4
20 48 88.2 79.2 73.0 86.0 77.1 74.9
20 50 87.7 77.5 73.7 85.4 76.3 75.5
20 52 85.5 76.4 75.5
20 54 85.5 76.4 75.4
20 56 85.5 76.4 75.5
20 58 85.4 76.3 75.5
20 60 85.4 76.3 75.5
Note: Each cell represents the average value for 36 demand distributions.
294 Easton, Rossin--Overtime Schedules
18%
16%
14%
12%
~ ~o%
6%
4%
2%
0%
Demand Pattern (within week/within day)
Fig. 1. Labor expense reduction with aggressive overtime policy.
85.4% of the base case for the 12, 16, and 20
hours per day operating environments, respect-
ively. Longer business days increase the number
of possible shifts and provide more opportuni-
ties for scheduled overtime. In addition, a
greater amount of overtime can be appended to
the end of many of these shifts (work rules
permitting, of course) when the firm extends its
operating hours.
Scheduling performance generally improved
with the amount of overtime allowed per shift
and per tour. As expected, the most aggressive
overtime policies produced the greatest savings.
In all three environments, policies that allowed
up to 4 hours of overtime per shift outper-
formed those that allowed a maximum of 2
hours per shift. Savings also tended to increase
with greater limits on maximum tour length,
although at a decreasing rate. For the 12 hours
per day and 20 hours per day operating
environments, 95% of the average savings
provided under the most aggressive overtime
policy can be achieved with employee schedules
that are limited to a maximum of 6 hours of
overtime per tour and up to 4 hours of overtime
per shift.
For the 16 hour per day environment, one of
the standard 8 hour shifts can be eliminated
with 3 hours of strategically placed overtime
(see Table 4). Since full-time employees work
five shifts per tour, this effect is not fully realized
until the allowable overtime per tour is
increased to 15 hours. The results in Table 6
confirm the existence of this phenomena. Like
the 12 hour per day and 20 hour per day
environments, schedule performance in the 16
hour per day environment improves steadily as
maximum tour length is increased from 40 to 46
hours. After plateauing briefly, however, sched-
ule performance continues to improve until
maximum tour length is increased to 56 hours
per week. However, since extensive overtime
may lead to employee fatigue, absenteeism, and
accidents, as well as a decline in output quality
[43], it may still be prudent to limit overtime to
a maximum of 4 hours per shift and 6 hours per
tour. For the 16 hours per day operating
environment, this limit provides about one-half
of the benefit of the most aggressive overtime
policy.
On average, the overtime scheduling policies
we studied significantly outperformed the

standard full-time scheduling policy. However,
overtime scheduling policies seemed to work
better with some service demand patterns than
they did with others. In Fig. 1, we show the
savings achieved for each demand pattern with
our most aggressive overtime policy (employee
schedules with up to 4 hours of overtime per
shift and up to 20 hours of overtime per week).
This policy was most effective when service
demand increased steadily during the day
(trend + within day pattern), especially for the
12 hours per day operating environment. With
this pattern, some employees who start work
early in the day can work an extra hour or two
beyond the end of their normal shift and
eliminate the need for other full-time workers
who would otherwise have to be present just to
meet the end of day demand peak.
As Fig. 1 also shows, overtime scheduling
policies failed to improve schedule performance
with some of the 12 hours per day demand
patterns, particularly those where peak demand
occurs near the meal break for Shift 1 (level and
sinusoidal). In these cases the need to cover the
meal break for Shift 1 makes it difficult to
substitute overtime work for full-time em-
ployees (see Table 4).
In Figs 2 and 3, we show how overtime was
deployed to accomplish these savings. Once
90% --~
80% --
70% -
L!
60% --~
o
~" 50% - /
~'o 40% - -
30%--/
m
20% --/
10% - - /
0% _L~
40 41
43 44 45
F i g . 2. A v e r a g e
Omega, Vol. 25, No. 3 295
again, we display the results for the most
aggressive overtime policy. Figure 2 reveals that
on average, most employees were assigned to
standard, 40 hours per week schedules. With the
exception of the 16 hours per day operating
environment, very few employees were sched-
uled to work more than 45 hours per week, even
under the most aggressive overtime policy. The
large fraction of employees assigned to 55 hour
per week tours in the 16 hour per day operating
environment is probably due to the effect
illustrated in Table 4.
Figure 3 shows the distribution of Shift
lengths for the most aggressive overtime policy.
Once again, most shifts were 8 hours long.
Where it was needed, employees were rarely
scheduled for more than 3 hours of overtime
work per shift. These results suggest that
effective overtime policies may not require
broad employee participation, and that signifi-
cant savings are possible when even a few
employees work overtime schedules. However,
tour scheduling problems frequently have
alternate optima [44]. Therefore, it is possible
that similar savings could be achieved with
other allocations of overtime. This existence of
alternative optima may help employers dis-
tribute overtime work among their employees in
a fair and equitable manner.
t
55 56 57 58
Hours per Tour
59 6oL °-'~~
tour length distribution for aggressive overtime policy.
296 Easton, Rossin--Overtime Schedules

100%-

90% -

80%
/
70%

-~ 60%
/
50%
8 4o~
/
~- 30%
/
20%-

10% - /

0%'~

:g H o u r s
O v e r t i m e per Shift (hrs) Day

Fig. 3. Shift length distribution for aggressive overtime policy.

In Table 7, we compare the average solutions
for low and high per capita rates. Of course,
total labor expense increases dramatically with
per capita labor expense. However, the most
startling result of this study is that effective
overtime policies seem to be relatively insensi-
tive to large changes in per capita labor expense.
Generally, the workforce size and the ratio of
overtime hours to total scheduled hours for a
given policy was about the same for both low
and high per capita labor expense rates. In most
cases, the differences were less than 1%. The
exceptions, marked in bold in Table 7, occur
with the more aggressive overtime policies in the
16 hours per day operating environment.
The various overtime policies that we
investigated allowed between 2 and 33% of total
labor to be overtime work. However, Table 7
shows that the average amount of scheduled
overtime was far less than the m a x i m u m
permitted, even with high per capita expenses.
This suggests that while overtime scheduling
policies can help improve scheduling perform-
ance, employers who already use overtime
effectively should not expect increased per capita
expenses to result in large workforce reductions
and huge increases in overtime work, unless
they are willing to adopt far more aggressive
overtime scheduling policies.
4. FURTHER RESEARCH
The prospect of higher per capita labor
expenses now looms over all US employers.
Strategies to limit the impact of these increases,
such as overtime work for full-time employees,
have been widely adopted but are not yet well
understood. This research examined the impact
of scheduled overtime following the completion
of an employee's standard 8 hour shift. We
found that even when per capita expenses are
low, comparatively small amounts of overtime
can help employers achieve significant savings.
We suspect, but have not confirmed, that similar
benefits are likely in other operating environ-
ments, including systems that operate around
the clock and those with service demand
patterns other than those examined in our
study.
Of course, there are other ways to form
overtime schedules, such as starting work before
an employee's normal shift start time or
 Omega, Vol. 25, No. 3 297

scheduling workers for duty during their normal
off days. Provided employees are willing to
accept less pay for fewer scheduled hours per
week, undertime scheduling options (weekly
tours with between 35 and 40 hours) may also
prove beneficial. To enhance our understanding
of the effects of scheduling flexibility, these
scheduling options should be explored.
An implicit assumption of our experiments
was that the pattern of service demand would
remain the same week after week. With
pronounced demand seasonality, the ideal
workforce size may change over time, resulting
in additional costs for recruiting, training, and
severance pay. Our model does not account for
these costs. Further research is needed to
understand the implications of seasonal and
cyclical demand variations on staffing and
scheduling policies.
Service managers often deploy overtime on an
ad hoc basis in response to unforeseen events
such as absenteeism or higher than expected
demand. In this role, overtime functions as a
'safety stock' that buffers the system against
uncertainties in either supply or demand. In this
research, we examined overtime's role as a
substitute for additional full-time staff. Clearly,
if an employee is already working overtime, the
organization must look to other workers to
fulfill the safety stock role. In effect, the use of
a planned overtime strategy reduces the
maximum size of the firm's emergency reserves.
We are unaware of any study that addresses
the question of an appropriate size for the
unplanned overtime buffer, so this would be an
interesting avenue for future research. Since
planned and unplanned overtime strategies
might compete for the same resources (in our
case, overtime potential, or the labor from
employees who have just completed their
regular shift), it may be necessary to evaluate
the opportunity costs for alternative uses of
potential overtime labor.
Finally, most previous labor scheduling

Table 7. Performance comparison for low and high per capita labor expense
Up to 2 hours overtime per shift Up to 4 hours overtime per shift
100% Per capita
0% Per capita expense expense 0% Per capita expense 100 Per capita expense
Maximum Mean Mean Mean Mean Mean Mean
Operating hours percent OT workforce percent workforce percent OT workforce Workforce
hours per day per tour Labor size OT labor size labor size Percent OT size
12 40 NA 152.8 NA 152.5 NA 152.8 NA 152.8
12 42 0.37% 149.5 0.39% 149.4 0.39% 149.4 0.39% 149.3
12 44 0.77% 147.0 0.73% 147.2 1.01% 146.1 1.07% 145.8
12 46 0.81% 146.4 0.80% 146.4 2.35% 140.7 2.36% 140.6
12 48 0.85% 146.5 0.82% 146.5 2.38% 140.5 2.38% 140.4
12 50 0.82% 146.4 0.83% 146.3 2.46% 140.3 2.40% 140.3
12 52 2.36% 140.6 2.42% 140.3
12 54 2.36% 140.6 2.42% 140.4
12 56 2.33% 140.7 2.37% 140.4
12 58 2.33% 140.7 2.37% 140.4
12 60 2.33% 140.7 2.37% 140.4
16 40 NA 216.7 NA 216.7 NA 216.7 NA 216.7
16 42 0.23% 214.2 0.24% 214.1 0.22% 214.3 0.21% 214.4
16 44 0.40% 212.8 0.41% 212.9 1.57% 207.0 1.64% 206.8
16 46 0.47% 212.1 0.42% 212.3 5.27% 187.6 5.41% 186.9
16 48 0.47% 212.1 0.45% 212.2 5.77% 185.3 6.11% 184.9
16 50 0.47% 212.0 0.46% 212.1 8.51% 172.9 8.60% 172.8
16 52 11.63% 160.0 11.96% 159.3
16 54 11.93% 159.0 12.04% 158.9
16 56 14.00% 150.8 15.34% 147.6
16 58 14.15% 150.2 15.38% 147.4
16 60 14.13% 150.2 15.39% 147.6
20 40 NA 282.7 NA 282.7 NA 282.7 NA 282.7
20 42 1,06% 262.4 1.17% 261.2 1.06% 262.4 1.17% 261.3
20 44 2,65% 245.6 4.40% 239.2 4.40% 234.9 4.61% 234.5
20 46 5,83% 229.5 7.66% 223.6 6,41% 221.0 6.60% 220.1
20 48 7,03% 223.9 8.33% 220.7 7.11% 218.0 7.64% 216.6
20 50 8.04% 219,2 8.14% 218.8 7.36% 215.8 7.35% 215.6
20 52 7.34% 215.9 7:35% 215.4
20 54 7.34% 216.1 7.30% 216.0
20 56 7.33% 216.0 7.35% 215.6
20 58 7.38% 215.6 7.30% 216.0
20 60 7.36% 215.7 7.33% 215.7
Note: Each cell represents the average value for 36 demand distributions.
298 Easton, Rossin--Overtime Schedules
research has ignored the effects o f d e m a n d
m a n a g e m e n t on labor staffing and scheduling
decisions. However, practitioners frequently
utilize d e m a n d m a n a g e m e n t techniques to
attenuate or stimulate demand, thereby improv-
ing the utilization o f their capacity. If service
d e m a n d is elastic, marketing efforts could
mitigate the need for extraordinary degrees o f
scheduling flexibility. We encourage future
researchers to attempt to link these two problem
domains.
ACKNOWLEDGEMENTS
Partial support for this research was furnished by the
Robert H. Brethen Operations Management Institute at
Syracuse University. The authors gratefully acknowledge
the contribution of two anonymous referees, who provided
suggestions to improve an earlier version of this paper.
APPENDIX
COLUMN GENERATION DYNAMIC PROGRAM
Overtime scheduling options greatly increase
the n u m b e r o f feasible tours and therefore, the
n u m b e r o f integer variables in tour scheduling
models. In an optimal solution to such a
problem, only a few o f these tours are likely to
be active (i.e. ~ > 0). Using column generation,
we construct a working subset o f feasible tours
that includes all active tours f r o m the optimal
solution for the closely related tour scheduling
linear program. Starting f r o m an initial working
subset that includes e n o u g h tours to allow a
feasible solution, new tours that violate the
simplex optimality criterion (i.e. tours with
negative reduced costs) are added to the
working subset [23]. F o r some overtime policies,
the reduced costs for hundreds o f thousands o f
tours might have to be c o m p u t e d at each
iteration. We use a dynamic p r o g r a m to
efficiently evaluate prospective new tours for the
working subset. At each iteration, dual prices
obtained f r o m the current linear p r o g r a m m i n g
solution are passed to the dynamic program. It
then constructs and prices all feasible shifts, and
uses them to assemble feasible partial tours with
first one shift, then two shifts, and so on. A
feasible partial tour is an incompletely specified
employee schedule that could, with the addition
o f m o r e shifts, form a tour that satisfies all work
rules. To reduce state space and improve
c o m p u t a t i o n a l efficiency, the dynamic p r o g r a m
ignores partial tours (states) with partial
reduced costs of zero or more. As we show
below, if a partial tour with k shifts and negative
partial reduced costs exists, there is a proper
subset o f this partial tour, with k - 1 shifts, that
also has negative partial reduced costs.
T h e o r e m 1: Let Tk = {$1, S2,...Sk} be a feasible
partial tour with k different shifts. Let
C(Tk) = Zsj~r~C(S/) be the partial reduced cost
for this partial tour, where 6'(St) represents the
labor expense for shift S~ (wages and the per
shift per capita expense), less the dual prices for
the w o r k periods in shift Sj If C(Tk) < 0, there
must be at least one proper subset o f partial tour
Tk, the feasible partial tour Tk_l = T k - Si,
Sje{T~}, such that C ( T k _ I ) < 0 . Therefore,
partial tours with partial reduced costs o f zero
or more m a y be ignored.
Proof." We shall assume the converse. That is,
C(Tk) < 0 but C'(Tk._ 1) _-_ 0 for any Sje{Tk}. F o r
both assumptions to hold, there must be at
least one Sj~{Tk} such that C(Tk_ 1) + C(Sj) < 0,
where Sj~{Tk 1}. Therefore, C(Sfl < 0_<
C(Tk-I). Since we assumed that C(Tk 1)--> 0,
there must also be at least one shift S,e Tk_ ~such
that C(Tk _ ~) _> 0. By replacing shift S, in partial
tour Tk_ 1 with shift St, we form a new partial
tour with k - 1 shifts. The reduced cost for this
tour will be C'(Tk_ 1) + C(Sj) -- C'(Sj), which
must be less than zero. This contradicts the
premise and completes the proof.
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ADDRESS FOR CORRESPONDENCE: Fred F Easton, Robert H
Brethen, Operations Management Institute, School of
Management, Syracuse University, Syracuse, N Y 13244-
2130, USA.