One-size-fits-all overtime management becomes less effective as your company grows. The system you used with 10 staff members might not work with 50. Managers spend hours each week checking hours and untangling schedules. Payroll errors start appearing. Employees don’t know when they’re needed or if they’re allowed to do overtime.
When you’re not on top of overtime management, you risk higher labor costs, compliance issues, and employee burnout.
To avoid this chaos, you need an overtime model that meets your team’s structure, size, and complexity. Read on to discover four proven overtime management models and how to choose the best one for you.
What are the Benefits of Overtime Management?
Proper overtime management helps you
1. Avoid Paying for Hours Not Worked
A proper overtime management system helps you avoid unnecessary overtime payouts and optimize labor costs.
In many countries like the USA and Germany, you must pay for overtime, even if it was unnecessary or unauthorized. These costs rack up quickly for businesses. For example, employees working for the city of Philadelphia in the USA received at least $2.2M for unauthorized overtime in 2023.
A good overtime management model ensures that:
- Overtime is pre-approved and aligned with business needs
- Budget thresholds and overtime caps are enforced automatically
- Payroll is accurate, with no room for inflated or duplicate entries
- Managers are alerted to patterns of excessive or repeated overtime before they become costly
2. Improve Work-Life Balance
Data from the APA’s 2023 Work in America™ Survey shows that 77% of respondents felt work stress in the last month, and 57% showed signs of workplace burnout.
Overtime management helps prevent employee burnout and dissatisfaction by ensuring that employees’ schedules and workloads are sustainable. A good system supports wellbeing by:
- Flagging over-reliance on specific employees for overtime
- Enforcing rest periods and maximum hour limits
- Creating visibility into workload imbalances across teams
- Encouraging a healthier work-life balance, which improves morale and retention
3. Comply With Labor Laws
Many countries have strict overtime laws that regulate how long employees can work and how their time must be recorded. Germany, for example, enforces both rest period requirements and time tracking obligations through its Working Hours Act (Arbeitszeitgesetz):
- Employees must have at least 11 hours of uninterrupted rest after each workday.
- Employers must legally track working hours, including overtime, to ensure compliance.
- Daily working time is capped at 8 hours, extendable to 10 hours only if the 6-month average stays within the 8-hour limit.
Failing to follow these rules can expose businesses to legal action, fines, or even criminal penalties in severe cases. A good overtime management system helps you stay compliant by:
- Automatically tracking total hours worked, including breaks and rest compliance
- Flagging violations of local labor laws in real time
- Creating a digital audit trail in case of inspections or disputes
- Applying configurable rules based on country-specific labor laws or collective agreements
What are the Types of Overtime Management Models for Organizations?
There are four types of overtime management models for organizations
1. Overtime Limits
- Best for: Small teams with predictable workloads.
- Pros: Overtime limits prevent burnout and overspending.
- Cons: It’s inflexible and doesn’t allow you to react to busy seasons or important projects.
Overtime limits means setting a hard, company-wide cap on the amount of overtime your employees are allowed to work per week, month, or year.
Setting strict overtime limits ensures your employees have sustainable schedules, and you control your overtime spend. But you need to get the number right.
If it is set too low, employees might not be able to finish their work. Set a limit that’s too high, and it won’t help you reduce overtime spending. So, evaluate how many overtime hours per week or month your employees need to complete their tasks. And make sure this number is within your budget.
Real-Life Example
A small company in Germany sets a strict limit of 10 hours of overtime per week for its warehouse workers. When an employee hits 10 hours, the scheduling software blocks any additional overtime (unless a manager overrides it) and alerts leadership.
2. Overtime Approval Processes
- Best for: Larger teams who need flexibility.
- Pros: It gives control and flexibility, and helps you stick to budget.
- Cons: It can slow down urgent work if the process is clunky and managers don’t deal with requests on time.
When you want control and flexibility, overtime approval processes work well. Before doing any overtime, employees must get authorization from a manager. You can react to the demands of a busy season or important project while keeping on top of your overtime spend.
Many time tracking or HR software have approval features. Your employee makes a request in the software, and you respond depending on workload and/or budget. With Timebutler, managers can approve overtime requests with a single click. Managers get email alerts every time a request is made. And they can approve or reject them right there in the email.
Real-Life Example
The customer support team at a software company needs to cover weekend hours during a new product launch. Customers must have access to support during the first few weeks, so the employees submit overtime requests through their HR software. A manager denies or approves their requests based on budget, workload, and demand.
3. Overtime Payouts vs. Time off in Lieu (TOIL)
- Best for: Teams with diverse employee preferences and/or seasonal peaks.
- Pros: You get cover when you need it, and employees can choose how to receive overtime payment, giving them some extra autonomy and satisfaction at work.
- Cons: Your time tracking needs to be on point to avoid disputes or missed time off.
Overtime payouts vs. TOIL is a model that gives employees a choice in how they’re compensated for extra hours:
They can either receive extra pay or take time off later.
If your business regularly requires overtime to cover busy periods, this model offers a more flexible, employee-friendly approach.
During peak times, you can choose to:
- Pay employees for the extra hours they work
- Or let them bank those hours and take them as time off when things slow down
It’s a win-win: your staffing needs are covered, and employees feel more in control of how they’re compensated.
Real-Life Example
An ad agency has an important campaign deadline coming up. People on that team might need to work late to make sure the deadline is met. This agency lets employees choose payouts or TOIL. Most of the younger staff take the cash.
But many of the people with children and family responsibilities take TOIL and book a long weekend over the next month. The agency tracks all the worked hours in Timebutler so they know exactly who worked what. And how much money or TOIL they’re owed.
4. Compliance-First Policies
- Best for: Companies in heavily-regulated industries or with employees in different regions.
- Pros: It reduces legal and compliance risk.
- Cons: It requires knowledge of different labor laws, customization, and regular updates. It’s also very difficult to do manually.
Compliance first overtime policies prioritize legal and regulatory requirements over staff or business needs.
Companies in regulated industries — like government contracting, healthcare, defense, and more — use these policies to reduce legal risk, avoid fines, and make sure every hour worked aligns with labor laws.
Companies with offices in different countries or with distributed remote workers face a different problem: Compliance with local labor regulations. Countries have different overtime laws, and you need to satisfy them if you have employees working there. Compliance-first policies are mapped to regional or national labor laws.
Time tracking software often has customization features. So you can set your overtime policy based on the employee’s location. And if there are any violations, your managers will get an alert within the software.
Real-Life Example
A consulting firm has offices in Germany, the USA, and Singapore. Each office follows its local labor regulations, and the overtime rules differ slightly. They’ve configured their HR software to meet their local requirements, so no employees go over their country-specific limits. But if any employee works more than they should, the software alerts you so you can deal with it quickly.
How to Choose the Right Overtime Management Model for Your Team
The right model for you depends on your circumstances. Consider your company structure, industry demands, local regulations, and company culture before making a decision. Here’s how to evaluate what will work best for you.
1. Assess Your Structure
Before choosing an overtime model, start by understanding how your team is set up. Ask yourself:
- How many staff do you have?
- Are staff hourly or salaried?
- Do you have a mixture of roles that have different overtime needs?
- Does your team work on-site, hybrid, or distributed across regions or countries?
For example, if your team is on-site in a single location, and labor laws are relatively straightforward, you can prioritize cost control or manager discretion. In that case, the Approval Process or Limits model will likely meet your needs.
2. Understand Your Staffing Demands
Next, think about how your workload fluctuates and whether overtime is a regular part of your operations. Ask:
- Are your staff demands predictable or seasonal?
- Do you have busy crunch times?
- How often do staff do unplanned overtime?
Predictable workloads allow you to use overtime limits and stricter controls. But if you need to respond to frequent peaks, approval-based or payouts/TOIL flexibility allows you to manage busy periods.
3. Know the Legal Requirements
Overtime isn’t just an internal policy; it’s a legal issue. Before finalizing your model, make sure you understand the laws that apply to your team. Ask yourself:
- What overtime laws apply to your team?
- Do you need to follow any industry-specific regulations?
- Do you have employees in countries with strict maximum hour laws?
For example, if you have employees in Germany, they must not work more than 8 hours per day, unless the average over 6 months stays within that limit. In addition, 11 hours of uninterrupted rest are required after each shift. You’re also legally required to track every hour worked, including overtime.
A Compliance-First model is your safest choice if your team spans multiple regions or industries with complex requirements. It ensures your policies are aligned with local laws and that managers are alerted to any violations in real time.
4. Consider Company Culture and Circumstances
Culture plays a significant role in whether your model feels supportive or restrictive. Ask yourself:
- Does your team value autonomy? Or do they prefer easy-to-understand rules?
- Are you hoping to prevent burnout or to increase financial efficiency?
- Do you need oversight or have a culture of trust?
If your culture values autonomy, the Payouts vs. TOIL model gives employees choice. On the flip side, if your goal is to prevent burnout, Overtime Limits or Approval Processes help enforce healthy boundaries.
5. Bring It All Together
Now you’ve answered the above questions and have a good picture of your needs, run a trial with one team. Choose your model, use automatic time tracking software, and measure the outcomes. Analyze the data to spot trends or problems, and adjust as needed. If everything works well, you can widen the trial to multiple teams or go straight to adoption.
Timebutler Works for all Overtime Management Models
If you want your newly chosen overtime management model to work, you need to back it up with accurate timekeeping records. This is where Timebutler comes in.
Timebutler’s overtime management features allow you to implement overtime limits or approval processes. Set limits company-wide or on a team-by-team basis. And approve or reject overtime requests with one click.
With Timbutler, you can keep track of who has worked what for payout vs TOIL models. And it comes with customization features so you can create compliance-first policies.
Ready to give it a go? Start your Timebutler free trial today and implement an overtime process that will help you save costs, reduce compliance risks, and avoid employee burnout.
