Learning how to reduce overtime starts with identifying where the extra hours come from, optimizing your schedule, and catching issues before they reach payroll. The goal isn't to eliminate overtime altogether; it's to stop paying for overtime that better planning could have prevented.

Consider a cleaning company with 12 employees. Three regularly work six overtime hours each week. At $20 an hour, those 18 overtime hours cost the business $540 a week, or $28,080 annually if the pattern continues for 52 weeks. Of course, not all of that amount represents avoidable costs. If those hours are reassigned to employees working at their regular rates, the primary savings come from eliminating the additional overtime premium.

Under the Fair Labor Standards Act (FLSA), covered, nonexempt employees generally earn at least 1.5 times their regular rate for hours worked beyond 40 in a workweek. That means overtime can quickly increase labor costs, particularly for small businesses operating on tight margins.

The good news? You don't necessarily need more employees or a bigger budget to get those costs under control. You need a plan.

How to Reduce Overtime: The Short Answer

If you're wondering how to reduce overtime without leaving your business understaffed, start with these seven steps:

1. Find out where your overtime is coming from. Review employee hours and identify recurring problems.
2. Fix the schedule before overtime happens. Match staffing levels to demand and monitor scheduled hours.
3. Spread hours more evenly across your team. Cross-train employees and distribute workloads fairly.
4. Write an overtime policy with a clear approval process. Establish expectations before extra hours are worked.
5. Use time clock controls to stop unplanned overtime. Manage early punches, missed clock-outs, and approaching overtime.
6. Cut the busywork that creates overtime. Eliminate inefficient processes and unnecessary administrative work.
7. Track your overtime numbers every pay period. Measure results and adjust your approach.

For most small businesses, Steps 2 and 5 offer some of the quickest opportunities to reduce unnecessary overtime.

Step 1: Find Out Where Your Overtime Is Coming From

You can't reduce overtime if you don't know what's causing it.

Before changing schedules or hiring additional employees, examine where the hours are going. Are the same employees consistently working late? Does overtime spike on Fridays? Are certain departments understaffed?

According to workforce research published by Circadian, approximately 20% of employees account for more than 60% of overtime hours in many industries. That's an important reminder that overtime isn't always distributed evenly.

Start by examining three things: when overtime happens, who's working it, and what it's costing your business.

Pull 8 to 12 Weeks of Time Sheet Data

Start with eight to 12 weeks of employee time sheet data. That's generally enough to identify recurring patterns without letting one unusually busy week distort the results.

Export the following information from your time tracking system:

• Total hours worked: Regular and overtime hours for each employee.
• Overtime hours: How many hours exceeded applicable overtime thresholds.
• Department or location: Where overtime occurs most frequently.
• Job or task: Which responsibilities consistently require extra time.

Organize the data by employee and workweek, then sort by overtime hours to identify who's working the most.

For example, a weekly overtime report for five employees might look like this:

In this example, three employees account for all 18 overtime hours. That's where the manager should focus first. Reviewing their schedules, responsibilities, and workloads could reveal opportunities to redistribute hours before the next workweek.

Pay close attention to how your business defines its workweek. Under federal law, a workweek is a fixed, recurring period of 168 hours, consisting of seven consecutive 24-hour periods. It doesn't necessarily begin on Sunday or Monday.

You also cannot average hours across multiple workweeks to avoid overtime. If an employee works 45 hours one week and 35 the next, the five overtime hours from the first week still count.

For more information, see how the Department of Labor defines a workweek.

Check for the Five Most Common Causes of Overtime

Once you've gathered the data, look for the underlying problem.

1. Understaffing or open positions

When your business doesn't have enough employees to cover regular demand, the people you do have work longer hours.

Quick check: Are employees consistently working overtime because you're unable to fill open positions?

2. Schedules built without weekly hour totals

A manager schedules someone for five eight-hour shifts, then approves an additional Saturday shift without checking their total hours.

Quick check: Does your scheduling process show how many hours each employee is already scheduled to work?

3. Overtime concentrated on a few employees

Every workplace has dependable employees who are willing to stay late. Unfortunately, relying on the same people creates unnecessary overtime and increases the risk of burnout.

Quick check: Do the same two or three employees appear at the top of your overtime report every week?

4. Early clock-ins and late clock-outs

Employees arrive 15 minutes before their shifts, stay after closing, or forget to clock out. Those minutes add up, especially when employees are performing work during that time.

Quick check: Are actual hours consistently higher than scheduled hours?

5. Inefficient processes and unnecessary work

Employees spend time waiting for approvals, correcting mistakes, searching for equipment, or completing paperwork that could be automated.

Quick check: Are employees staying late to finish essential work, or to make up for delays earlier in the day?

Over time, these problems can create a cycle. Excessive overtime contributes to fatigue; fatigue increases the risk of absences and mistakes, and those problems create more overtime for the remaining employees.

Identifying the cause allows you to address the problem instead of simply telling employees to work fewer hours.

Calculate What Overtime Is Costing You

Understanding your overtime costs makes it easier to decide where changes will have the greatest impact.

For a covered, nonexempt employee earning $20 an hour, overtime generally costs $30 an hour under the federal time-and-a-half rule.

The basic formula is:

If that employee works six overtime hours every week:

• Regular hourly rate: $20
• Overtime hourly rate: $30
• Weekly overtime hours: 6
• Weekly overtime pay: $180
• Annual overtime pay: $9,360

Of that $180 weekly overtime payment, $60 represents the additional half-time premium above the employee's regular hourly rate.

Here's how those costs increase across a team.

This doesn't mean eliminating overtime automatically saves the entire amount. If the work still needs to be completed, you'll have to account for the cost of covering those hours elsewhere.

However, replacing unnecessary overtime with regular-hour coverage could reduce the premium portion of your labor costs.

Use our labor cost calculator to better understand how employee wages affect your budget.

Step 2: Fix the Schedule Before Overtime Happens

Some overtime is unavoidable. But much of it can be traced back to scheduling decisions made before the workweek begins.

An employee gets scheduled for 42 hours. Another picks up a shift without anyone checking their existing schedule. A busy Friday requires three people, but only two were assigned.

By the time payroll arrives, the overtime has already happened.

Better scheduling gives managers an opportunity to address those problems before employees work the extra hours.

Match Staffing to Demand With Historical Data

Start by looking at when your business is busiest.

A restaurant might experience its highest demand on Friday and Saturday evenings. A cleaning company may have more commercial jobs on Mondays. A landscaping business might need additional help during spring.

Use historical time and scheduling data to identify those patterns.

Here's a simple approach:

1. Identify your busiest periods. Review the 10 weeks with the highest labor demand from the previous year.
2. Compare staffing levels with demand. Look for days when employees consistently worked beyond their scheduled hours.
3. Adjust schedules before the next busy period. Move employee start times, stagger shifts, or schedule additional coverage when necessary.

For example, a restaurant server might normally work from 11 a.m. until 9 p.m. on Fridays. But if the restaurant is slow until 4 p.m., moving that shift to 4-9 p.m. could eliminate unnecessary hours without sacrificing coverage during the dinner rush.

The objective isn't to schedule more people all the time. It's to have the right number of employees working when they're needed.

Build Schedules With Weekly Hour Totals in View

A shift might look reasonable on its own but can create overtime when combined with the rest of an employee's schedule.

Suppose an employee is already scheduled for 38 hours. A manager adds a six-hour Saturday shift without checking the weekly total.

That employee is now scheduled for 44 hours, including up to four hours of overtime under federal rules.

An effective scheduling process should show each employee's total hours for the workweek before the schedule is published.

Managers should also review those totals when approving shift swaps, additional shifts, or last-minute schedule changes.

OnTheClock's employee scheduling tools include a Scheduled Hours Estimator that helps managers review scheduled hours as they build the workweek.

For more information, see our employee scheduling tools.

Try Alternative Schedules (and Know the Daily Overtime States)

Alternative schedules can help businesses maintain coverage while reducing unnecessary overtime. These arrangements can improve coverage, but they don't automatically eliminate overtime obligations, particularly in states with daily overtime requirements.

Common options include:

• 4/10 schedule: Four 10-hour shifts per week.
• 9/80 schedule: Eight nine-hour days and one eight-hour day across two workweeks, with careful workweek alignment.
• Compressed schedules: Employees work their regular weekly hours across fewer days.

However, these arrangements aren't appropriate for every business or every state.

Federal law generally requires overtime pay for hours worked over 40 in a workweek, but some states also have daily overtime requirements.

For example, four 10-hour shifts in Texas generally wouldn't create overtime under federal weekly rules.

In California, the same schedule could result in eight overtime hours per week unless the employer has properly adopted a qualifying alternative workweek arrangement.

Before changing schedules, review the applicable overtime requirements and consult an employment attorney when necessary.

Step 3: Spread Hours More Evenly Across Your Team

Sometimes your business has enough employees to complete the work. The problem is that only a few people are handling too much of it.

Consider a retail store where only one employee is trained to close the registers. Whenever the evening shift runs late, that employee stays.

Meanwhile, other employees leave with fewer than 40 hours. That's a coverage problem, not necessarily a staffing problem.

Managing overtime more effectively means distributing responsibilities so your business doesn't depend on the same employees for every extra shift.

Cross-Train Employees to Cover Key Roles

Cross-training enables employees to handle responsibilities outside their primary positions.

Start by identifying essential tasks that only one or two employees can perform.

Then build a simple training matrix.

In this example, only Alex and Morgan can close registers. If Morgan is unavailable, Alex becomes the default closer.

Training Jordan or Taylor to close registers would give the manager another scheduling option.

Aim to have at least two employees trained for every critical responsibility, especially tasks that regularly require overtime.

Cross-training takes time upfront, but it can reduce your dependence on a handful of employees while improving scheduling flexibility.

Add Part-Time, Seasonal, or On-Call Help for Peaks

When demand consistently exceeds your available staffing, hiring additional help may cost less than relying on overtime.

Consider a business with employees earning $20 an hour. Twenty overtime hours cost $600 at time-and-a-half. Hiring a part-time employee at $18 an hour to work those same 20 hours would cost $360 in direct wages. That's a potential difference of $240 per week before accounting for hiring, training, payroll taxes, benefits, supervision, and other employment costs.

The better choice depends on how long you need the help.

For a landscaping company that experiences higher demand between April and September, seasonal employees may make sense. For a business facing a one-week rush, paying experienced employees overtime might be more practical.

Build a list of qualified part-time or on-call workers before your busiest season begins.

Also keep benefit eligibility and employment regulations in mind. For applicable large employers, the Affordable Care Act generally uses 30 hours of service per week or 130 hours per month as its full-time threshold for employer shared-responsibility purposes.

Rotate Overtime Instead of Giving it to the Same People

Not every employee wants to avoid overtime. Some appreciate the opportunity to earn additional money.

A fair overtime rotation can distribute those opportunities without repeatedly overloading the same people.

You might offer extra shifts based on a rotating list, employee availability, or seniority, depending on your policies and any applicable agreements.

Keep a simple record:

Track who receives overtime opportunities and who declines them.

This creates a more transparent process and helps managers avoid relying on whoever is most willing to stay late.

Step 4: Write an Overtime Policy With a Clear Approval Process

A written overtime policy turns extra hours into a deliberate management decision rather than an informal expectation.

Employees should know when overtime is permitted, how to request it, and who can approve it.

Managers should know how to respond when additional coverage is needed.

The policy doesn't have to be complicated. It just needs to be clear, consistently enforced, and compliant with applicable wage-and-hour laws.

What to Include in Your Overtime Policy

An effective overtime management policy should address the following:

• Eligibility: Identify which employees are classified as nonexempt and eligible for overtime pay.
• Approval process: Explain how employees request overtime and which managers can authorize it.
• Pay rules: State how overtime is calculated, define the workweek, and explain when employees receive payment.
• Mandatory overtime: Explain whether employees may be required to work additional hours, subject to applicable laws.
• Distribution: Establish how overtime opportunities are assigned.
• Limits: Set internal scheduling caps and describe when exceptions are permitted.
• Unapproved overtime: Explain potential disciplinary consequences while making clear that all hours worked must still be accurately recorded and paid.

Employees should receive the policy during onboarding and whenever significant changes occur.

Managers should receive additional training because they're typically responsible for approving shifts and reviewing employee hours.

As a starting point, see our guide to creating a time tracking policy.

Require Pre-Approval for Overtime

One of the simplest ways to control overtime is to require managers to approve additional hours before employees work them.

For example:

Give employees a straightforward way to request approval, whether through their scheduling system or directly with a supervisor.

However, there's an important legal distinction:

Under federal law, employers generally must compensate employees for work they allow or permit, including work they know or have reason to know is being performed.

Unapproved overtime can be addressed through appropriate disciplinary procedures, but withholding earned wages is not an option.

Reviewing and approving time sheets each pay period helps managers identify unauthorized hours and address repeated problems.

Set an Overtime Cap

An overtime cap sets the number of additional hours employees may be scheduled to work without special permission.

For example, a company might limit employees to five hours of overtime per week, with manager approval required for exceptions.

You can also establish department-wide overtime budgets.

The cap should reflect your staffing needs, customer expectations, and available labor budget.

Under the FLSA, there is generally no federal limit on the number of hours employees aged 16 and older may work in a workweek. However, state laws, industry-specific regulations, contracts, and safety requirements may impose additional restrictions.

An overtime cap controls scheduling decisions. It doesn't limit an employee's right to receive payment for hours already worked.

Step 5: Use Time Clock Controls to Stop Unplanned Overtime

Scheduling and company policies help establish expectations. Time clock controls make those expectations easier to manage.

Without reliable time tracking, managers may not discover overtime until they're approving payroll.

A modern time clock can help identify extra hours earlier, manage punch activity, and reduce errors caused by missed punches.

Here are three controls worth considering.

Block Early Clock-Ins and Set Automatic Clock-Outs

A few extra minutes each day might not seem important, but they can add up.

Consider an employee who starts working 10 minutes early every day. Across five days, that's 50 additional minutes. If the employee was otherwise scheduled to work 39.5 hours, those early minutes could push their total beyond 40.

One way to reduce unplanned hours is to restrict when employees can clock in. For example, you might allow employees to clock in no earlier than five minutes before their scheduled shifts.

OnTheClock includes controls to help prevent early clock-ins.

Automatic clock-outs can also help address forgotten punches that leave timecards showing unusually long shifts. However, these settings require careful oversight.

If an employee starts working before the permitted clock-in window or continues working after an automatic clock-out, those hours still need to be recorded and compensated.

Get Overtime Alerts Before Employees Hit 40 Hours

One of the most useful overtime management strategies is identifying when employees are approaching their weekly limits.

Suppose it's Thursday afternoon, and an employee has already worked 37 hours. They're scheduled for another eight-hour shift on Friday. Without an adjustment, the employee could finish the week with 45 hours.

If a manager identifies the problem on Thursday, there may be time to shorten the shift, reassign some responsibilities to another employee, or approve overtime as necessary.

A useful approach is to review employee hours midweek and flag anyone approaching a threshold such as 36 hours.

OnTheClock provides overtime tracking, calculations, reporting, and visibility into employee attendance through tools such as Who's In.

Use those insights alongside your overtime approval process to make informed staffing decisions before the pay period ends.

Track Breaks and Use Rounding Rules the Right Way

Inaccurate break records can make employees appear to have worked more or fewer hours than they actually did.

Consider an employee who is on-site for nine hours a day, five days a week, including a 30-minute unpaid meal period each day. If those meal periods aren't recorded, the time sheet could show 45 hours instead of the actual 42.5 hours worked.

Automatic break tracking and reminders can help employers maintain accurate records.

But meal periods must be genuinely unpaid breaks. If an employee continues to answer calls, serve customers, or perform other work during lunch, that time generally must be counted as hours worked.

Rounding rules require similar care.

Under federal regulations, rounding to the nearest five minutes, tenth of an hour, or quarter hour may be permissible when the practice doesn't systematically undercompensate employees over time.

For example, the 7-minute rule is associated with rounding punches to the nearest quarter hour.

Rounding cannot consistently favor the employer or be used to remove compensable overtime. Accurate timekeeping is the goal, not artificially lowering the hours appearing on a time sheet.

Step 6: Cut the Busywork That Creates Overtime

Not every overtime problem begins with a staffing shortage.

Sometimes employees work extra hours because they're spending too much time on tasks that don't need to take that long.

A manager might spend three hours every Monday calculating totals from paper time sheets. An office employee might stay late because approval requests sat unanswered all afternoon.

Before adding more workers, ask your team one question:

Look for opportunities to:

• Reduce manual paperwork. Replace handwritten time sheets and duplicate data entry with digital records.
• Simplify approvals. Give managers a clear process for approving schedules, time sheets, and employee requests.
• Eliminate unnecessary meetings. Keep meetings focused and avoid scheduling them during your busiest operational hours.
• Improve access to tools and information. Make sure employees have the equipment, instructions, and resources needed to complete their work efficiently.

Payroll preparation is one example where automation can make a meaningful difference.

Instead of manually totaling employee hours, calculating overtime, and entering data into payroll software, businesses can use integrated time-tracking and payroll systems.

That doesn't eliminate the need to review employee hours. It reduces the repetitive administrative work surrounding that review.

Learn more about integrating time tracking and payroll.

Step 7: Track Your Overtime Numbers Every Pay Period

Reducing overtime isn't a one-time project.

Even after improving schedules and introducing new controls, your business should continue monitoring labor costs to see whether those changes are working.

Start with four numbers:

• Overtime percentage: Overtime hours divided by total hours worked, multiplied by 100.
• Overtime cost: Total overtime wages paid during the pay period.
• Overtime hours per employee: Identify employees who consistently work additional hours.
• Absenteeism rate: Track missed scheduled hours to see whether attendance problems are creating coverage gaps.

Compare those results with the baseline you established in Step 1.

Here's an example of what an overtime tracking report might look like:

In this example, overtime hours dropped from 72 to 30 per pay period, reducing total overtime wages by $1,260 compared with the initial period.

Of course, the savings depend on whether those hours were eliminated or redistributed to employees working at regular rates.

Review the numbers monthly and ask what changed.

Did staggered shifts reduce Friday overtime? Did cross-training help distribute work? Are early clock-ins still creating unnecessary hours?

Use those answers to improve your overtime reduction action plan over time.

For more ideas, review the payroll KPIs worth tracking.

What Not to Do When Cutting Overtime

There are legitimate ways to reduce overtime costs, but shortcuts can also violate wage-and-hour laws.

Avoid these six mistakes:

Violations can lead to back wages, additional damages, penalties, and employee complaints.

When you're unsure about an employee's classification or overtime eligibility, consult an employment attorney before changing your practices.

When Overtime Is the Right Call

Overtime isn't always bad for business.

Sometimes paying an experienced employee for a few extra hours makes more financial sense than hiring someone new.

Consider a business completing a two-week inventory project. Existing employees already understand the products, equipment, and procedures. Training temporary workers might cost more than paying the current team overtime.

Overtime can make sense when:

• Demand increases temporarily. A short-term project or seasonal rush doesn't always justify hiring.
• Specialized coverage is needed. An experienced employee may be the most practical choice for a critical assignment.
• Employees want additional hours. Voluntary overtime can provide extra earnings when workloads and safety conditions permit.

The important distinction is whether overtime is planned, productive, and financially justified.

If your business relies on extra hours every week just to complete ordinary work, it's probably time to reconsider your staffing or scheduling approach.

How OnTheClock Helps You Reduce Overtime

Effective overtime management requires visibility into employee hours before they become expensive surprises.

OnTheClock combines time tracking and employee scheduling in one platform, helping small businesses monitor hours, manage schedules, and prepare accurate time sheets for payroll.

Here are some of the features that support the seven steps above:

• Employee scheduling: Build schedules and use the Scheduled Hours Estimator to review weekly hours before publishing shifts.
• Overtime tracking and calculations: Track employee hours and calculate overtime based on configured rules.
• Early clock-in restrictions: Help prevent employees from clocking in before their scheduled shifts.
• Automatic clock-outs: Reduce problems caused by forgotten clock-outs while allowing actual hours worked to be corrected.
• Time sheet approvals and reporting: Review hours, identify discrepancies, and monitor overtime trends before payroll.

OnTheClock's time tracking and scheduling plans cost $5 per month plus $4 per employee.

New customers can try the platform free for 30 days without providing a credit card.

Explore OnTheClock pricing or start tracking time for free.

Frequently Asked Questions About Reducing Overtime

Stop Overtime Before It Shows Up on Payroll

Reduce unnecessary overtime with better scheduling, accurate time tracking, and greater visibility into employee hours.

OnTheClock gives you the tools to manage employee time and prepare accurate time sheets for payroll, starting at just $5 per month plus $4 per employee.