Preheat the oven to 350°F. Grease a 9x13-inch baking dish with cooking spray.
Cook the Italian sausage in 1 tablespoon butter over medium heat, crumbling it into chunks. Transfer to a large mixing bowl.
Sauté the onion in the same pan with the remaining butter until translucent, about 3-5 minutes. Add to the sausage.
Add the cheddar cheese and bread cubes to the sausage mixture. Toss to combine.
Whisk together the eggs, milk, salt, pepper, and red pepper flakes. Pour over the sausage mixture and toss gently to coat the bread.
Transfer the mixture to the prepared baking dish. Cover and refrigerate for at least 2 hours or overnight.
Bake uncovered for 50-60 minutes until golden brown. Let rest for 5 minutes before serving. Garnish with parsley.