The most effective way to manage overtime is to combine clear time limits, consistent tracking, and predictive scheduling so extra hours become a planned decision instead of a recurring scramble. Overtime, or time worked beyond a standard 40-hour workweek by hourly, non-exempt employees, can wreak havoc on your operating budget if left unmanaged.
For manufacturing companies, overtime wages consistently account for roughly 10-15% of a company’s total payroll expenses, with some climbing to 25% or more during peak seasons, according to industry data.
Keep in mind, not all overtime is bad. It can be an effective lever to optimize cost and employee experience. Whatever the cause, unplanned overtime is where labor management technology earns its keep with better planning, better visibility into operations, and a workforce that isn’t running on empty.
The Overtime Myth
Does increasing overtime really lead to more productivity? Studies suggest otherwise and may even reduce productivity. This is in part because workers are the most productive early on in their workday. Tacking on extra hours to their day leads to decreased capacity.
As Indeavor CMO Carter Lloyds puts it, “Overtime is just the cost of running 24/7.” But that framing misses something important: “within a given amount of overtime, the true costs — beyond just the premium pay — are not always equal.”
Research from Michigan State University supports this, showing that working excessive hours is linked to a higher risk of health problems and a measurable drop in output. This means the extra hours often cost more than they produce.
Besides the monetary cost, unchecked overtime can lead to:
An uptick in health problems
Heighted absenteeism
Worker fatigue
Increased turnover rates
Safety risks
Decreased productivity (often due to reduced quality of work)
With this in mind, don’t fall prey to the myth that employees don’t want overtime. In reality, Employees don’t want forced overtime. Voluntary overtime can improve work-life balance. Many employees want overtime, on their own terms. Flexibility can be a valuable hiring strategy to boost morale, retention, and productivity.
Effectively managing overtime can also save money compared to overstaffing.
1. Time Restrictions
Recognize that there are limits to human endurance. If your business bases its schedules on 12-hour shifts, limit overtime only when necessary. If a replacement is running late, you might extend an employee’s shift an extra hour or two, but that’s it.
A 12-hour shift worker should only be eligible for routine overtime on off days. Don’t permit double-shifting and restrict overtime to a maximum of four hours if your company uses eight-hour shifts.
Imposing time restrictions not only helps reduce burnout, but also, according to studies, employees who clock 60 hours a week are 23% more likely to have an accident. No one wins when overtime decreases productivity, dwindles employee satisfaction, and increases accidents.
2. Emphasize Safety
The more fatigued an employee gets, the less safe they’re going to be, and the higher the likelihood of a workplace accident. Managing overtime to limit fatigue increases safety. However, these constraints can be challenging to manage if a supervisor focuses only on the current shift rather than the workweek as a whole.
Fatigue is also a productivity issue. The annual cost of fatigue in lost productive time across U.S. workers totals $136.4 billion, and about 84% of that loss comes from presenteeism, or employees who show up but are too impaired by fatigue to perform at full capacity.
When employees work more than 10 hours, safety becomes a greater concern. Keep in mind that employees may be at risk because they’re:
Unaccustomed to working long hours
Lacking the days off to recuperate
Driving home fatigued
Triple-check that all safety procedures are being observed and scrutinize procedures to see whether there’s room for improvement.
3. Track and Identify Overtime Patterns
Not all overtime is bad — sometimes it’s cheaper than hiring a new employee, as long as you’re accounting for vacation time, medical leave, and work-life balance. Overtime should also be something employees want, since forcing it hurts morale and productivity.
Go back and review your labor analytics. Does overtime spike during specific periods, like the holidays? Are the same employees always covering it? Compare your actual labor budget against your projected one to see if your scheduling needs adjusting.
The practical fix is automated tracking. A scheduling platform can flag overtime patterns as they emerge, so you can act before they become a budget problem. It’s also worth checking training gaps alongside the numbers. Sometimes, overtime is a qualifications problem instead of a headcount one.
If the roles that need covering require skills, certifications, or qualifications that only your overtime-heavy employees currently have, that’s a training gap. It’s worth checking into before you assume you need more people?
4. Use Predictive Labor Forecasting to Get Ahead of Overtime
Tracking overtime after the fact only gets you so far. The bigger opportunity is forecasting it before it happens. Labor forecasting uses historical scheduling data, seasonal demand patterns, and real-time inputs to predict where staffing gaps are likely to occur. Then you can adjust schedules or bring in coverage before overtime becomes the default fix.
This is especially valuable for operations with predictable demand swings, like holiday warehouse rushes, seasonal manufacturing runs, or flu-season healthcare staffing. Instead of reacting to a gap with overtime, predictive forecasting lets you see it coming weeks out and plan around it.
Indeavor’s overtime calculator can help you model what a given level of overtime is actually costing your operation, which makes it easier to build the case for shifting toward a forecasting-first approach.
5. Match Work to Demand
Demand can spike quickly during busy seasons and during periods of aggressive growth. Working too much overtime isn’t healthy for anyone and leads to high rates of employee burnout and turnover. But which is more cost-effective, hiring a new employee to pitch in a few hours a week as needed, or paying overtime and losing your best employees?
Matching staffing to demand doesn’t automatically mean hiring more. Manufacturers too often rely on antiquated scheduling processes that don’t optimize productivity. Another terrific way to reduce overtime is learning how to schedule smarter.
Flexible scheduling ensures you have the right number of staff available when things are busy and not overstaffed when things are slow. Analyze how and when to use overtime for maximum efficiency and lean on your ability to backfill open shifts quickly to avoid having employees stand by idly as overtime pay liability piles up.
6. Cross-Train Employees
If one employee is considered more skilled or has more experience, they’ll likely be the ones picking up all the slack. This can lead to overtime discrepancies if extra time is required on a particular job. And without them, your business could grind to a halt.
If you notice one employee earning the most overtime or if they’re the only one who can do the job, burnout is already on its way.
Want to make sure your employees stay as versatile as possible? Overtime reduction is easier when employees are qualified to work multiple positions within the facility, not necessarily in a single area.
Spreading responsibilities and specialties across your entire team is another way to reduce overtime. Instead of relying on a single skilled employee, train other team members to step in and take over.
7. Flexible Work Scheduling
Make sure your schedule design meets your operational needs. Don’t just succumb to a traditional scheduling method just because it’s “easier.” You want to make sure to find a work pattern that properly accommodates your company’s individual needs.
One food and beverage manufacturer put this into practice by letting employees pick their own working days aligned to production cycles. The result is a 50% reduction in monthly overtime utilization, schedule creation that dropped from hours to minutes, and more predictable days for both supervisors and employees.
Remember, the best work doesn’t only happen during traditional working hours. Research repeatedly shows that flexible work schedules benefit both employers and employees. Employees with flexible schedules are more productive during the hours they work and use their time more effectively, reducing the risk of overtime or of not getting their work done as scheduled.
8. Update Technology
Make sure to use your labor as efficiently as possible. When someone’s normal job isn’t available, or you have a utility labor pool, make sure that you’re effectively using their skills to fill gaps before overtime.
It’s possible to move other employees around to properly fill these openings. However, the complexities of this system are difficult to manage without an automated scheduling system that tracks employees’ positions and automates assignments.
This matters most at the moment overtime actually gets triggered, like an unplanned absence or a last-minute vacancy. The right technology should surface who’s qualified, available, and under their overtime threshold in seconds — not require a supervisor to work the phones.
Your business can operate more effectively by upgrading the tools your workforce uses daily. Technology can also be utilized to streamline processes and enhance project management. Employees who stay up to date are more productive during regular working hours, minimizing or even eliminating the need for overtime, so you can capture greater overtime efficiencies across the operation.
9. Streamline Overtime Call-Outs to Fill Gaps Faster
Even with the best forecasting, gaps still happen. Someone calls in sick, a line goes down, or a shift comes up short. What separates a minor scheduling hiccup from a full-blown overtime problem is how fast you can fill that gap with the right person.
A manual call-out process — working down a phone list, waiting for callbacks, hoping the first available person is also qualified for the role — burns time and often lands on whoever picks up the phone rather than the best fit.
An automated backfill process identifies qualified, available employees instantly and routes the opening based on your rules (seniority, fairness, certifications), filling scheduling gaps without the stress of a manual scramble and keeping overtime distribution fair.
10. Establish an Official Overtime Policy
To promote equity and fairness for your employees, adopt a policy that allows them to volunteer. Allowing employees to work overtime when they choose, on a shift-to-shift basis, helps enforce a strong company culture.
Some might want to stay late, some might want to come in on weekends, and some may not want to work overtime at all. Forcing employees to work overtime increases sick calls and absenteeism. Furthermore, research shows employees are more productive earlier in a continuous shift than later.
Finally, put everything in writing. How you’ll manage all the aforementioned and more should be outlined in your overtime management policy. Describe your strategy for compensating for overtime hours while considering local, state, and federal requirements.
Make sure to define any legal terminology you include in your policy. A key element to include is who approves overtime and the process for employees to address their managers regarding it. Establish criteria for both managers and individual workers.
In the end, your overtime management policy should be designed to meet your company’s requirements and establish clear boundaries for everyone. Designing scheduling policies and workflows that match both the company’s and employees’ needs benefits everyone.
Know the Rules Before You Manage the Hours
Before you can manage overtime day to day, it helps to be clear on the legal floor you’re building on.
Overtime rules come from a mix of federal law and state-specific requirements, and getting the classification or the math wrong is one of the most common and expensive compliance mistakes employers make. (Overtime rules also intersect with break compliance requirements, which vary by state in similar ways.)
Federal Overtime Law Basics
The Fair Labor Standards Act (FLSA) sets the federal baseline. Non-exempt employees who work more than 40 hours in a workweek are entitled to overtime pay at 1.5 times their regular rate for every hour beyond that threshold.
This 40-hour rule applies on a weekly basis. It doesn’t average out over a pay period, so a light week can’t offset a heavy one.
Whether an employee is exempt or non-exempt depends on more than their job title. The FLSA applies a salary threshold and a duties test, both of which have to be met for an employee to be properly classified as exempt from overtime.
It’s also worth remembering that hours worked is broader than clock-in-to-clock-out time. Travel between job sites during the workday, required pre-shift preparation, and mandatory training sessions can all count toward the 40-hour threshold, even if they don’t feel like working hours to a scheduler.
State-Level Overtime Rules
Several states layer on additional requirements that go further than the FLSA. California, Alaska, and Nevada, for example, require daily overtime pay — any hours worked beyond 8 in a single day trigger the overtime premium, regardless of the employee’s total hours for the week.
Some states go a step further by requiring double time. California requires double-time pay for hours worked beyond 12 in a single day, or for any hours worked on an employee’s seventh consecutive day in a workweek.
When state and federal rules differ, employers are required to follow whichever standard is more generous to the employee; you don’t get to pick the cheaper rule.
Employee Classification: Getting It Right
Misclassification is where a lot of the overtime compliance risk lies. The two most common errors are treating non-exempt employees as exempt to avoid paying overtime and classifying workers as independent contractors when they should be classified as employees.
Both mistakes carry real financial and legal exposure, including back pay, penalties, and, in some cases, class-action claims from affected employees.
Given how much this exposure can compound across a large frontline workforce, it’s worth building a periodic classification audit into your compliance routine. Schedule them after role changes, promotions, or salary adjustments that could shift someone across the exemption threshold.
Offer Flexible Scheduling to Reduce Overtime Pressure
Rigid, fixed-shift structures create their own overtime problem. When a schedule has only one way to cover a shift, any absence or demand spike piles straight onto whoever is already on the schedule. That work with more flexible options could be spread across more people or different hours.
A few flexible arrangements consistently reduce overtime exposure. Options include:
Compressed workweeks (four 10-hour days instead of five 8-hour days)
Staggered shift start times
Part-time or job-share roles that add coverage without adding a full-time headcount commitment
Voluntary shift swaps that let employees trade hours directly
Flexibility also does double duty as a retention tool. Employees who have some control over their schedules are less likely to burn out or leave, and fewer departures mean less understaffing, which drives overtime in the first place.
To be fair, flexible scheduling isn’t realistic for every role or every industry. Some positions are tied to fixed equipment, licensing, or safety requirements that don’t bend. Treat it as a targeted fix for departments or roles with chronic overtime, rather than a blanket policy.
When to Hire vs. When to Use Overtime
Part of learning how to manage overtime is knowing when overtime stops being the cheaper option. It’s a cost-benefit decision many managers avoid making explicitly, because overtime feels like the path of least resistance in the moment. But that math shifts faster than most people expect.
Compare the fully loaded cost of recurring overtime (1.5x or 2x pay, plus the fatigue and turnover risk that comes with it) against the cost of adding a part-time employee, a temporary or contract worker, or a new full-time hire.
Temporary and contract workers, in particular, can bridge seasonal or peak-demand gaps without the long-term payroll commitment of a permanent hire — a factor worth weighing alongside the cost savings of each option.
One reliable signal to watch for is if the same department has been running chronic overtime for three months or more. That’s usually a sign the real problem is headcount. HR and finance teams that review overtime trends quarterly tend to catch the inflection point before it becomes a bigger retention or burnout issue.
Train Managers to Manage Overtime, Not Just Approve It
Overtime often persists because front-line managers don’t have the tools, authority, or training to push back on it. Approving the overtime request in front of them is simply the path of least resistance, especially under deadline pressure.
Manager training on overtime should cover a few specific things:
How to read and interpret labor cost reports
How to have a direct conversation with an employee about workload before it becomes a burnout issue
How to actually use the scheduling and forecasting tools available to them
When a staffing pattern needs to be escalated to HR instead of being solved with another overtime shift
It’s also worth making sure managers understand their legal exposure here. If an employee works unapproved overtime and the employer knew, or reasonably should have known about it, the employer still owes the premium pay.
“I didn’t approve it” isn’t a defense. Overtime management deserves a permanent spot in manager onboarding and annual refresher training, not just a one-time mention when a problem surfaces.
The Indeavor Solution to Managing Overtime
Your scheduling and overtime management processes should no longer rely on outdated systems. Indeavor’s employee scheduling solution offers an end-to-end, cloud-based scheduling and absence management system that integrates with your HCM and ERP systems to provide your team with real-time employee data.
Knowing how to manage overtime comes down to clear limits, real visibility into your labor data, and scheduling technology that catches gaps before they turn into overtime. Schedule a demo, and we’ll walk through how Indeavor can help you cut unplanned overtime and keep your schedules compliant.
About the Author
Claire Pieper is the Marketing Communications Coordinator for Indeavor. She aims to share information to improve the customer journey. To learn more or get in touch, connect with Claire on LinkedIn.
How to Manage Overtime FAQ
What is the most effective way to reduce overtime costs?
Combine time restrictions with accurate tracking and predictive labor forecasting. Most overtime cost overruns come from gaps that were visible in the data well before they became a scheduling emergency.
Is overtime always bad for a business?
No. Voluntary, well-managed overtime can be more cost-effective than hiring and training a new employee, and some employees genuinely want the extra hours. The problems start when overtime is forced, chronic, or unevenly distributed.
How many hours of overtime is too much?
There’s no universal cutoff, but risk climbs sharply once weekly hours pass 60. Research shows employees working 60-hour workweeks are 23% more likely to be involved in a workplace accident. Many employers cap overtime at four hours per shift on top of an eight-hour day as a starting guideline.
What's the difference between authorized and unauthorized overtime?
Authorized overtime is scheduled or approved in advance by a manager. Unauthorized overtime happens without prior approval, but under the FLSA, employers still owe premium pay for it if they knew, or should have known, it was happening.
