For a business to succeed, everyone pitches in and gets the job done. But when those extra hours aren’t tracked or paid properly, what starts as teamwork can quickly turn into an unexpected overtime liability. And this liability does not just accrue over months, it can accrue over years. Until one day an employee is owed their equivalent of their salary as unpaid overtime pay.
In Ontario and other provinces, with limited exemptions, employees (including salaried employees) are entitled to overtime pay after having worked 44 hours per week, at a rate of 1.5 times their normal earnings. Of course, an employee can have a greater overtime pay entitlement. For example, if an employer sets normal hours of work at 40 hours per week, then overtime pay could kick in after 40 hours. Similarly, an employer can promise an employee a higher rate of pay for overtime pay, such as 2 times their normal earnings. And it is on the employer to ensure that it is properly tracking hours of work and paying overtime pay as it is earned.
In the recent decision of Brito v Ecora Engineering & Environmental Ltd., the former employee alleged that she had earned and unpaid overtime pay. Under her contract, she was entitled to overtime pay at a rate of 1.5x when she worked between 8 – 12 hours a day and at a rate of 2x when she worked more than 12 hours a day. Due to the nature of her job, she often worked between 12 – 16 hours a day. The employer had calculated her unpaid overtime pay, paid it out, and had her sign a memo confirming that she had been paid. The reality though was that the employer’s calculation and payout was way off, as it had only paid for additional hours at a straight time rate. In review, the Court confirmed that an employee cannot sign away a right to their owed overtime pay and accordingly she was awarded approximately $40,000 in unpaid overtime pay. As a whole, this decision confirms the importance of properly recording the hours worked, the overtime rates promised, and the overtime paid.
As an employer, there are several best practices to properly manage overtime pay exposure. The top three best overtime strategies are:
- Track Hours of Work: Ensure a system for tracking hours of work. The system can be high-tech (e.g. swipe cards, tracking software, etc.) or low-tech (e.g. manually filled in timecards). Especially where an employee works remotely, it is important to have a system for recording hours of work.
- Implement Overtime Averaging Agreements: An overtime-averaging agreements allow employers to calculate overtime pay based on an average of the employee’s hours of work over a specific period of two or more weeks, up to a maximum of four weeks. For example, an employer with a bi-weekly payroll may find it easier to calculate overtime pay based on whether the employee worked more than 88 hours during the two-week payroll period. For employers with fluctuating demands, overtime averaging agreements can result in an employee earning no overtime pay. For example, if Sean’s overtime is averaged over two weeks, and Sean worked 50 hours in week 1 and 30 hours in week 2, then Sean would have no overtime pay entitlements. Without the averaging agreement, Sean would have been entitled to 6 hours of overtime pay. In order to average an employee’s overtime, there must be an enforceable and executed written averaging agreement in place.
- Clearly Define Overtime Entitlements: All employers should have an overtime policy in their HR Handbook. This policy should expressly confirm who is entitled to overtime pay, how it’s calculated, and when its paid. For example, the policy may be a confirmation that employees are only entitled to their minimum statutory overtime entitlements (which for some employees will mean no entitlements) and any overtime pay will be paid with the next paycheque. Or the policy may provide certain greater entitlements (e.g. 2x after 40 hours in a week). Or the policy may provide that instead of overtime pay, employees will receive lieu time, which has to be used within a certain number of weeks. Overtime policies can vary substantially, but the key is that they should clearly define and limit obligations to the extent allowed and desired.
We regularly assist employers with drafting and implementing overtime policies and averaging agreements. For more information or assistance, please contact our firm.
