Personal Finance

Is it worth working overtime once you deduct taxes?

OVERTIMEIn every single job I’ve ever had, every time overtime is offered, I’ve heard variations of the exact same thing:

It’s not worth working overtime – you end up paying so much more in taxes!

I’ve even heard claims that you make even less than if you had not worked overtime. But is it true?

To address the widespread belief that it’s not worth working overtime, I decided to compare two of Mr. Unchained’s pay stubs – one regular (i.e. 37.5 hours) and one with 12.5 hours of overtime paid at time and a half.

Below is a breakdown of a Regular Paycheck.

  • The take home pay is 60.57%
  • Total taxes (in red) are 22.54%
  • Pension, fitness and shares (in blue) are optional at 13.63% (but pension and shares are great investments)
  • Benefit deductions (in orange) add up to 3.26%

Note that Basic AD&D and Dependent life insurance are so small, they don’t show up on the chart below.

regular paycheck

In comparison, this is the breakdown of Overtime Paycheck:

  • The take home pay is higher, at 61.02%
  • Total taxes (in red) are also higher, at 25.48%%
  • Pension, fitness and shares (optional, in blue) are fixed amounts thus are proportionately lower at 10.89%
  • Benefit deductions (in orange), also fixed amounts, are also lower at 2.61%

overtime paycheck

Here’s a chart that compares the amounts earned on a regular paycheck compared to an overtime paycheck. Note that all amounts are the same regardless of overtime except taxes (CIT, CPP and EI.)

regular vs OT paychecks

Here’s a comparison of the percentages instead. Note that all deductions are lower (or the same) other than:

  • CPP and EI, which are the same
  • CIT, which is more

reg vs ot %

This means that the belief that you getting taxed more because of overtime is not true for CPP and EI – those were taxed at the same percentage (4.85% and 4.87%). However, CIT did increase significantly from 15.82 to 18.73%.

However, despite the increase in CIT, the overall amount taken home is still proportionately higher when working overtime, which means…

The belief that working overtime not being worth it due to taxes is a MYTH and is absolutely FALSE!

Plus, even if you do pay more in taxes on this paycheck, if you contribute to your RRSP and take advantage of other available deductions, come tax season, you can look forward to a nice fat tax refund!

Disclaimer: This analysis was based on a Canadian paycheck with additional deductions that are not standard across all employers and was based on an annual base pay of $47,012.38. Before deciding if overtime is worth it for you, please conduct your own analyses!

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11 thoughts on “Is it worth working overtime once you deduct taxes?

  1. I look at like this…the percentage of taxes taken out is more-or-less irrelevant. While I don’t know how Canadian taxes are figured, the U.S. has a progressive tax system and, according to my understanding, each dollar is taxed based on where your current income level falls within the various tax brackets. Regardless of the math, the more you work, the more you bring home. Period.

    In my opinion, the more important thing when deciding whether OT is worth it, is to consider the time-value aspect of it. For me, I love overtime for the obvious benefit of the added income to devote toward debt freedom and investments. However, right now, my son is 17 months old and doesn’t have the capacity to understand my absence, not to mention the fact that I all around just hate being away from my family.

    The real kicker is this: I want to work overtime in order to get us closer to FIRE, which would then allow for total freedom to be with my family all the time; however, OT simultaneously takes away time from my family in the present. It’s a real Catch-22.

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  2. I look at it like this…the percentage of taxes taken out is more-or-less irrelevant. While I don’t know how Canadian taxes are figured, the U.S. has a progressive tax system and, according to my understanding, each dollar earned is taxed based on where your current income falls within the various tax brackets. Regardless of the math, the more you work, the more you bring home. Period.

    In my opinion, the more important thin when determining whether OT is worth it, is to consider the time-value aspect of it. For me, I love overtime for the obvious benefit of added income to devote toward debt freedom and investments. However, right now, my son is 17 months old and doesn’t have the capacity to understand my absence, not to mention the fact that I all around just hate being away from my family.

    The real kicker is this: I want to work overtime in order to get us closer to FIRE, which would then allow for total freedom to be with my family all the time; however, OT simultaneously takes away time from my family in the present. It’s a real Catch-22.

    P.S. – thanks for all that math…I really appreciate a good graph and pie chart! 🙂

    Liked by 1 person

    • 🙂 Np! I’m such a visual person, I always try to get things in charts and graphs!

      I believe the Canadian tax system would be the same as that of the US based on your description above, so you’re right – the more you work, the more you bring home. That’s what I always figured before doing the math for myself, but I couldn’t get over the fact that literally, EVERY single person says the EXACT same thing about overtime and taxes!

      But it’s the time-value aspect that’s the best part. Instead of getting paid $26.50 at straight time, Monday will be $79.50. I would be CRAZY to miss out on that opportunity imo, especially when we so desperately need the cash to pay off our debt! Thankfully, my husband is also working this holiday so it really works out this time.

      Thanks for the comments!

      Liked by 1 person

      • Wow, triple time is incredible! For me, working for the federal government, physically being present and working on a holiday is of no financial benefit. I get 12 hours of holiday pay whether I’m there or sitting at home with the day off. Being there only yields regular straight-time. I’ve argued this (and won) several arguments with coworkers who insist we get double-time for working. Unfortunately, that’s just not the case. Therefore, I enjoy NOT working holidays…lol. Plus, like I said, I value my time with family at an ever higher hourly rate! 🙂

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  3. Overtime is worth it financially. Here in Australia most people will pay about a third of the overtime as tax, up to a maximum of half for the very well paid.
    The non-financial costs include time away from the family and perhaps feeling “overworked”.
    Being prepared to put in overtime may, depending upon the employer, impact job security and promotional possibilities.

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    • I’ve always figured doing overtime was worth it because I’d have more cash in my pocket, plus if taxes were as bad as they said, I’d contribute to my RRSPs and get a tax refund at the end of the year. I’m so glad I finally did the number crunching so I could say for certain that it’s just a widespread myth!

      Liked by 1 person

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