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I noticed that workflow I scheduled runs only about 500 records at a time and it runs consecutively every hour. Is this because of org limit? I am worried as I have 20K records to execute and it is going to take 40 hours to complete this!

Is there alternative option to implement in place of workflows? This workflow is a time dependent workflow which runs 6 hours after a field is set to TRUE through trigger.

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    Why are the all updates at the same/similar time - did you dataload them in?
    – Girbot
    Jan 24, 2017 at 19:22

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Yes there is an hourly limit of 500 for enterprise edition and 1000 from unlimited. You are correct in saying that it will eventually catch up:

Salesforce limits the number of time triggers an organization can execute per hour. If an organization exceeds the limits for its Edition, Salesforce defers the execution of the additional time triggers to the next hour. For example, if an Unlimited Edition organization has 1,200 time triggers scheduled to execute between 4:00 PM and 5:00 PM, Salesforce processes 1,000 time triggers between 4:00 PM and 5:00 PM and the remaining 200 time triggers between 5:00 PM and 6:00 PM.

Now as for alternatives it depends on your use case - it looks like you dataloaded them in for all the updates to be at/around the same time. An alternative would be a schedulable batch class which you could set up to run multiple times a day.

Time based workflow FAQ:

https://help.salesforce.com/articleView?id=000005245&type=1

Timed based workflow considerations:

https://help.salesforce.com/articleView?id=workflow_time_action_considerations.htm&language=en_US&type=0

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