Overtime but under control: Six strategies to manage overtime costs effectively

June 16, 2026

Drew Maginn

Note: Check out additional articles from HCM Dialogue to learn more about overtime pay rules and how to calculate overtime pay.
As workloads pile up, many organizations turn to overtime to meet important timelines while maintaining overall productivity. Unfortunately, this approach can often have the opposite effect, and the financial impact of excessive overtime can wreak havoc on your bottom line. However, with a well thought-out overtime payroll strategy, you can put yourself in a position where you are reducing overtime expenses without reducing productivity.

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Why is overtime cost management so important?

Apart from the obvious financial impact, excessive overtime can have other negative impacts that are less talked about. The Canadian Survey on Working Conditions from Statistics Canada highlights that 17 per cent of workers report doing unpaid work in their free time several times a month, and more than half (54 per cent) of workers stated they are frequently exposed to ergonomic risk factors such as repetitive hand or arm movements. In addition, studies have shown a sharp decline in productivity as hours increase, which impacts quality of work, absenteeism, morale and turnover.

” With a well thought-out overtime payroll strategy, you can put yourself in a position where you are reducing overtime expenses without reducing productivity ”

What can be done? Proactive strategies to keep your overtime in check

Given the potential for overtime to become a net negative, organizations may consider implementing proactive strategies to make sure that overtime is strategic and beneficial for the organization.

Strategy #1: Have a clear overtime policy (and actually follow it)

Managing overtime starts with having a policy in place that clearly states when overtime is allowed, how it is approved, how it is compensated and what happens if employees claim unauthorized overtime. You also need to make sure that your policy matches the reality of your workplace. For example, employees will quickly become resentful if they’re being pushed to meet unreasonable deadlines by their manager while simultaneously being discouraged from working any overtime.

Strategy #2: Track your overtime, analyze the data and address trends

Without a system in place to track overtime consistently, you run the risk of losing important data that will help you plan. With access to this data, you can begin your analysis by asking key questions such as the below.

When do our employees usually work overtime, including certain days, months or times of year?
Which employees and departments are working the most overtime?
How much are we spending on overtime, and can other strategies be put in place to find savings and efficiencies?

Strategy #3: Plan for temporary staffing
If you notice certain repeatable trends in your overtime records, you may be able to address them without immediately asking your employees to put in extra hours. For certain positions, you may be able to access temporary or part-time support to reduce the strain on full-time employees. While this support will still have a financial impact, it will likely be less than paying your current employees time and a half or double time for the same work.

Strategy #4: Offer lieu time instead of overtime

In certain provinces and with appropriate documentation, you can manage overtime costs by compensating employees with lieu time in place of payment. This allows you to avoid overtime costs while also ensuring that your employees use their lieu time to avoid burnout after working extra hours. However, be mindful to track days earned and remind your employees to actually take the time off, as it can sometimes be forgotten, defeating the purpose.

Strategy #5: Consider cross-training

Rising overtime costs can sometimes be a symptom of failing to cross-train employees to fill in or assist others. If you don’t take the time to formally cross-train employees on key components of each other’s roles, you may become over-reliant on a handful of employees who have the capacity to step in when certain people are away or during busier periods.

Strategy #6: Create a culture where overtime isn’t the norm

If you want to manage overtime costs effectively, you need to create a culture that makes staying late the exception rather than the rule. This requires a commitment from managers to regularly assess and balance workloads among their teams, address performance issues that are masked by constant overtime requests and lead by example themselves. Teams typically model the behaviour set by their manager and other leadership team members, and if they observe them working long hours, whether reimbursed or not, they might feel an obligation to follow suit.

At times, overtime can feel like an easy solution to a complicated problem. Asking employees to put in extra hours can increase their pay while ensuring that productivity stays at a high level. However, while relying on overtime may lead to some temporary gains, there are often greater problems for organizations that are unwilling to address the root causes. By looking at strategies to manage overtime differently, you may find cost savings, maintain productivity and create a culture that better supports the health and well-being of your workforce.

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