Overtime Pay – 3 Costly Traps

Woman working overtime sitting alone at laptop

Overtime pay can be challenging to manage for employers in Canada. Mistakes can be costly if employers don’t manage overtime properly.

Compliance Works is frequently asked about overtime partly because the risk of getting it wrong can be so costly. Failing to properly manage and pay overtime can lead to expensive litigation and possible fines and penalties. That’s why it is so important to get overtime pay right.

To help HR compliance professionals navigate their overtime pay responsibilities, Compliance Works has published this new Guide to Overtime for Canadian employers. This Compliance Works Guide is the latest in a series of new tools for HR compliance professionals designed to ensure the workplace is in compliance with fundamental HR requirements.

Overtime Pay – Quick Guide for Canadian Employers

1. Who is entitled to receive overtime?

  • Hourly wage or salary. One of the most common overtime traps is based on a misunderstanding of who is entitled to receive overtime pay. A Canadian employee’s entitlement to overtime does not depend upon whether the employee is paid an hourly wage or paid a salary.  The way that an employee is paid has nothing to do with their entitlement to overtime. Why is there confusion about who is entitled to overtime pay? Certain employees are exempt from overtime and many of those exempt employees are paid by salary. However, the exemption from overtime is based on job role, profession or industry, not on whether the employee is paid by an hourly wage or by salary.
    • Look at the specific role or job. It is a mistake to think every employee who is paid a salary is not entitled to overtime. Employers must look at the employee’s specific role or job to understand if there is an applicable exemption. Otherwise, the employer organization can be exposed to significant risk.
  • Manager or Supervisor. Another important area of risk involves managers and supervisors. In many Canadian jurisdictions, managers and supervisors are exempt from overtime, but the employee must actually have the duties and responsibilities of a manager or supervisor. It is not enough for an employee simply to have a manager or supervisor title, or be paid a salary. The job description and duties of the employee must be those of a manager or supervisor in order for the employee to be exempt from paid overtime. The largest group of employment class actions in Canada deal with overtime, and many of those are about misclassifying employees as managers or supervisors.

HR compliance professionals and those responsible for determining overtime entitlement must look at the legislation and pay close attention to the exemptions. Look to see who is excluded from entitlement to overtime, and pay careful attention to how those employees are defined in the legislation. 

2. When is an employee eligible for overtime?

  • Single or multiple Canadian jurisdictions. The threshold for determining overtime varies slightly between jurisdictions in Canada. These differences can create a trap for employers determining overtime when there are employees in more than one Canadian jurisdiction.  An employer cannot assume overtime requirements in one jurisdiction are the same as another. In some jurisdictions there is both a daily and a weekly threshold, and in other jurisdictions, the threshold is only weekly. 
  • Threshold for paying overtime vs. maximum hours. It is important to remember there is a difference between the threshold for paying overtime and the maximum hours that an employee can work. Employment standards legislation provides for both a threshold at which an employee is entitled to overtime and the maximum hours that an employee can work. The threshold for overtime is lower than the maximum hours.
  • Special rules may apply. Special rules may impact overtime thresholds for certain employees, based on the employees job, profession or industry. Almost every jurisdiction has special rules related to overtime so it’s important to know whether there are any that apply to your employees. These special rules may be very specific, so you need to pay close attention to the legislation. For example, in Ontario there are special rules for employees working on road building. However, the exact rules differ depending on whether the employee is working on road building related to streets, highways or parking lots or whether they are working on road building related to structures such as bridges, tunnels or retaining walls in connection with streets or highways. In the first scenario employees are entitled to overtime for each hour worked in excess of 55 hours per week and in the second scenario they are entitled to overtime for each hour worked in excess of 50 hours. This example highlights the importance of carefully looking at the special rules.

3. Can employees take time off in lieu of overtime pay?

In most jurisdictions, employees can take time off in lieu of overtime pay, but each jurisdiction has different requirements. Canadian employers need to consider the following:

  • Written overtime agreement. Several jurisdictions require a written overtime agreement regarding time off in lieu of paid overtime. Where a written agreement is required, a copy of the agreement must usually be provided to each employee. 
  • Calculation of time in lieu. The amount of paid time off that an employee is entitled to take for each hour of overtime worked varies by jurisdiction. In some jurisdictions it is straight-time (one hour paid time off for each hour of overtime worked) and in others employees are entitled to 1.5 hours of paid time off for each hour of overtime worked.
  • Agreements. In some jurisdictions the employer and employee must both agree to paid time off, it cannot be requested by the employee or imposed by the employer.
  • Time limits. Most jurisdictions provide that time taken in lieu must be taken within a certain period of time, although the exact time period varies by jurisdiction. This means that employees can bank their overtime, up to the limit provided for by the legislation. Time in lieu that is not taken before the expiry of the period must be paid out by the employer. 

Overtime Pay – Key Takeaways

Managing overtime is the employer’s responsibility. It is important to have policies and procedures in place that comply with the employment standards legislation in each jurisdiction, but it is also important to monitor employee compliance with those policies. Employers need to understand:

  1. Who is entitled to overtime. Look at the exemptions in the legislation.
  2. The threshold(s) for overtime. Remember there may be special rules for certain employees depending on your industry, their profession or the nature of the work.
  3. The requirements for allowing time off in lieu of overtime pay, including whether you require a written agreement.

How Compliance Works helps HR manage overtime

Screenshot of Compliance Works Info Hub

Compliance with constantly changing employment laws can be challenging and time consuming.  Compliance Works helps Canadian employers and their HR teams find the answers they need to compliance questions. Contact us to Request a Demo , subscribe to Compliance Works publications, or email us at info@complianceworks.ca to learn how a paid subscription to Compliance Works can help your HR team succeed.

About the author

Gayle Wadden
Gayle Wadden CLO, Compliance Works
Gayle Wadden is a senior lawyer with deep experience in employment and corporate law. She is responsible for overseeing Compliance Works’ legal content.

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