In 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.
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%
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.)
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
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!