Overtime is a significant challenge for HR professionals. This guide highlights key issues and identifies ways to manage your overtime risk.
Banked overtime, also known as “time off in lieu,” allows employees to accumulate extra hours worked and take them as paid time off instead of receiving immediate overtime pay. While this arrangement offers flexibility, it’s governed by specific regulations that vary across Canadian jurisdictions. Failure to abide by these regulations can be costly, and improper management of overtime is a prime risk for class action litigation.
According to Statistics Canada, many employees report working overtime without compensation – meaning they are not paid for overtime and are not provided with time off in lieu. This is a significant risk for Canadian employers. Understanding your overtime obligations is the first step in mitigating this risk.
What Is Banked Overtime?
Employees in Canada are entitled to be paid a higher rate for overtime hours. Each jurisdiction sets a threshold for the maximum hours an employee can work before being entitled to overtime pay. Once an employee hits that threshold, the employer is required to pay them at an overtime rate. Typically the overtime rate is 1.5 times their regular wage.
Banked overtime refers to an agreement where employees accrue overtime hours and later use them as paid time off, instead of receiving overtime pay. Typically, for each hour of overtime worked, an employee earns 1.5 hours of time off at their regular wage rate. This system provides flexibility for both employers and employees but requires adherence to employment standards.
Key Considerations for HR Professionals
- Overtime thresholds
- Compliant overtime agreements
- Time limits
- Payout of unused banked overtime
- Differences between Canadian jurisdictions.
1. Know the Overtime Thresholds
The first step to managing overtime is knowing when an employee has worked overtime, and tracking all overtime. Overtime thresholds vary by jurisdiction and they may also vary depending on the type of work being performed.
Overtime rules apply to all employees. Employers often distinguish between salaried and hourly employees, or between full-time and part-time employees, thinking that these distinctions change the way that overtime rules apply. That is not the case. Some employees are excluded from overtime rules, and some have different thresholds that apply, but those differences come from their industry or occupation, not from their status as salaried or hourly, or full-time or part-time.
Here’s an example. There is a common misconception that salaried employees are not subject to overtime rules. This is not true as a blanket rule – however, many salaried employees fall into a class of employee that is excluded. For example, overtime rules do not apply to managers and supervisors in most jurisdictions, and those employees are more likely to be salaried.
Their exemption from overtime isn’t because they are salaried though, it is because they are a manager or supervisor. Before you determine that overtime rules do not apply to an employee, make sure you clearly understand the scope of the exemption and to whom it applies.
In addition to knowing the overtime threshold, you also need to clearly track and record hours worked. The only way to know if an employee has worked overtime (and how much) is if the hours worked are clearly tracked and recorded.
2. Written Agreements Are Essential
Once you understand when and to whom overtime applies, you need to understand the specific rules that apply to banking overtime.
Most jurisdictions require a written agreement between the employer and employee to bank overtime hours, and in some jurisdictions, the employee must be given a copy of the written agreement. This agreement should outline the terms, including:
- How overtime is calculated
- The time frame for using banked hours
- Procedures for payout if hours are not used
The terms of this agreement must comply with the legislation – you cannot agree to terms that are less generous than the legislation. Carefully review the requirements and ensure that your written agreements align with the legislation.
To request an Overtime Report for specific jurisdictions, please email gayle@complianceworks.ca
3. Time Frames for Using Banked Overtime
Some jurisdictions provide specific periods within which banked overtime must be used. If time is not used within that period of time, it must be paid out. For this reason, it is important to track when hours were earned. Tracking is key. The following examples demonstrate the different time periods that may apply:
- Ontario: Banked time must be taken within 3 months of the week it was earned, extendable to 12 months with employee agreement.
- Alberta: Banked overtime must be used within 6 months of the end of the pay period in which it was earned.
- Saskatchewan: Banked time must be taken or paid out within 12 months of being earned.
4. Payout of Unused Banked Overtime
If banked overtime is not used within the specified time frame or if employment ends, employers are generally required to pay out the unused hours at the employee’s current regular wage rate. For example, in Saskatchewan, any remaining banked overtime must be paid out within 14 days of the employee’s last day of work. Be sure to understand the time period in which the payment must be made.
5. Jurisdictional Variations
In addition to these general rules, some jurisdictions have very specific overtime rules. Some of the differences to note include:
- British Columbia: Employees can request to bank overtime hours, which can later be used as time off or paid out. Employers can close the time bank with 1 month’s written notice but they must allow employees to use the banked time and/or pay them out for the banked time within 6 months of closing the time bank.
- New Brunswick: Banking overtime is not permitted. Overtime must be paid in the corresponding pay period.
Best Practices for HR Professionals
- Stay Informed: Regularly review and stay updated on the employment standards in your jurisdiction to ensure compliance with overtime banking regulations.
- Clear Communication: Ensure that all overtime banking agreements are clearly documented and communicated to employees, outlining their rights and responsibilities.
- Monitor Usage: Keep accurate records of banked overtime and monitor the usage to ensure that employees use their banked time within the allowed period.
- Policy Development: Develop and implement clear policies regarding overtime banking, including procedures for requesting time off, payout of unused hours, and handling of banked time upon termination.
Understanding and effectively managing banked overtime is a crucial requirement for HR professionals, but we know that understanding these requirements and keeping up to date on changes is a challenge. To help you navigate overtime requirements, we walk through the steps you need to take to find the specific requirements in each jurisdiction in our post Banked Overtime – 2 Ways to Find Answers.
Or, you can confidently access all of your overtime requirements using Compliance Works. Compliance Works makes it easy to find overtime requirements – and to stay on top of changes.
- Review plain language summaries of overtime requirements, written by senior lawyers.
- Compare requirements across jurisdictions, with the click of a button.
- Create reports to easily share information within your team.
- Receive email notifications of proposed changes to the law.
Start your free 14-day trial and see how easy compliance can be. Because HR deserves to lead, not just comply.
