Best Practices For Managing Overtime Costs

Best Practices to manage overtime - NextGen

When it comes to business expenses, labor is the most expensive. Every business owner knows that overtimes are among the highest costs on the spreadsheet. Still, when you consider things like insurance, health benefits, hazard pay, retirement, etc., each employee is worth more than a monthly salary. Unnecessary overtime drives up labor costs, which can be terrible for small companies with constrained operating budgets.

There are undoubtedly busy times of the year when you’ll require your staff to put in more hours to meet customer demands or finish orders ahead of schedule. But if unchecked all year, overtime can quickly spiral out of control.

So companies have to manage overtime effectively to reduce labor costs and maintain acceptable levels of employee health and productivity. This can be especially hard when company employee time tracking is done manually.

In this blog, we’ve put together the following best practices to manage overtime costs without sacrificing workforce satisfaction.

1. Re-examining Your Workflows

The first step in tackling overtime is to evaluate your processes because poor workflow management is one of the primary causes of overtime. Make a list of your existing procedures and regulations. Examine the efficiency of each one. Where necessary, modify or make new ones. Check the workplace’s timing and motion to verify if everything moves as it should.

Additionally, consider monitoring how your employees spend their time while at work. Since time is money, keeping track of your staff’s work time is essential if you want to stay under your operational budget.

2. Keeping An Eye On Schedules

By watching schedules, you can predict when employees reach their 40-hour mark. By anticipating those overruns, you can modify timetables and establish more practical production goals, avoiding expensive overtime pay. Monitoring schedules can also help determine whether specific employees are clocking in more overtime than others. This knowledge can be utilized for adjusting policies, modifying programs, and assigning responsibilities to ensure that your staff is operating at optimal productivity and efficiency.

Monitoring employee schedules are complex when you’re working with spreadsheets. But when you use an automated time tracking system, you can easily keep track of when your employees work overtime.

3. Rostering Staff More Efficiently

So many companies overspend on overtime because of inefficiencies in personnel planning. This mainly results from poor rostering or scheduling. Employees that are rostered effectively can do their work more quickly and efficiently. Thus, ensure that your team members are scheduled correctly based on their responsibilities and expectations.

Once a company has accurate time and attendance data, it can combine this data with information about employee availability and skill sets, enabling managers to place the right people in the right roles for them as frequently as possible.

4. Training Your Employees

The lack of fully trained employees is a significant factor in organizations having to use excessive extra hours. A well-trained worker is productive and doesn’t work unnecessarily long hours. Schedule frequent training sessions to keep employees’ skills and knowledge up to date.

Thus, you can help your teams achieve goals more easily without resorting to overtime hours by cross-training and expanding the skills & knowledge of your staff. This also lessens the reliance on specific employees who must put in extra time due to their expertise.

5. Setting Limits On Overtime Hours

In some situations, the best way to prevent workers from clocking in excessive hours is to limit the number of hours each employee is allowed to work in a certain period. Limiting the number of hours spent working over a certain period while still leaving enough time to complete all necessary tasks can help to prevent time theft in the form of employees who might take longer to complete assignments to earn more money by working extra.

The right time tracking system will allow you to establish guidelines for when employees can take extra shifts, as well as a limit on the number of overtime hours permitted.

6. Planning In Advance

During a company’s busiest times, it may face some problems like understaffing, stressed employees, and a need for extra overtime. Businesses can predict demand peaks and troughs using past production and sales data, allowing shifts to be modified and staffed while reducing the need for premium overtime. Employees can be scheduled to work a little bit longer during busy times and receive time off during slower times.

Thus overtime costs can be easily reduced by planning for busy periods and allowing workers to take flexible hours. If necessary, you can supplement your current staff by hiring temporary workers for a lower rate.

7. Automating Time Recording

One of the most crucial steps toward reducing the amount spent on overtime is checking the accuracy of your organization’s attendance and overtime data. Employees in several businesses are expected to enter timesheets at the end of each week manually. However, this practice can lead to several errors, which can add up to a significant overrun for the organization.

Implementing automated time recording puts a stop to this kind of overspending. You can track hours worked to the minute with automated clock-in/clock-out, making it far easier to compare actual hours worked to rostered hours and identify overtime at the source.

8. Using A Scheduling Tool

Accidents and sick days are inevitable. When this occurs, employees must swap shifts, but their supervisors often lack the time or resources to find a replacement, which causes some employees to work too many hours. But using an automated staff scheduling technology makes it simple to immediately identify which personnel are available, whether their skill set matches, and whether they are about to clock in for overtime. All of this can be done swiftly while avoiding overtime pay.

The most effective way to do this is by using the right scheduling software, such as Next Gen Solution.

9. Investing In Tech And Equipment

Investing in technology and equipment that reduces employees’ time on repetitive processes means they will have more time to devote to more essential tasks. With more time available, projects will be completed faster, and productivity will remain strong, ultimately reducing the need for overtime hours. Something as simple as using an employee time tracking solution can significantly benefit your business by decreasing costly errors and the hours spent manually recording time worked.

Tracking employee overtime and hours is made more accessible by Time and Attendance Systems. When utilizing them effectively, most companies will see an immediate cost reduction in overtime pay.


Excessive overtime doesn’t just harm the company’s budget. It also breaks the employees, causing burnout, poor health, and diminishing productivity. Working overtime should only be done when necessary. Using the above practices and adopting NextGen Employee Time Tracking Solution – the best alternative for managing overtime can help businesses reduce overtime costs while fostering a healthier, more efficient, and more productive work environment.

NextGen utilizes the power of data to help you develop concrete enhancements that reduce your business expenses. To find out more about how our solution can help your company significantly cut overtime costs, contact our team today!