As an employer, your biggest asset is often your employees. Not surprisingly, employee wages are also one of an employer’s biggest costs. In this article, we’ll look at legislative rules governing overtime wages and, more specifically, key overtime entitlements and exclusions in the case of employees paid by hourly wage.
When is Overtime Payable?
Rules governing overtime entitlements are addressed at Part 4 of the Employment Standards Act (the “Act”). Section 40 of the Act provides, in part, that overtime wages are payable under several scenarios, namely:
(a) an employee who works more than 8 hours in a day must be paid 1.5 times his/her regular rate of pay for any time worked over 8 hours, and up to 12 hours in a day;
(b) an employee who works more than 12 hours in a day must be paid double his/her regular rate of pay for any time worked over 12 hours in a day; and
(c) an employee who works more than 40 hours in a week must be paid 1.5 times his/her regular rate of pay for the time worked over 40 hours in the week. When calculating weekly overtime wages, only the first 8 hours worked each day are counted towards the 40 hours in the week. [note: under the Act, a “week” for purposes of weekly overtime is a period of 7 consecutive days beginning on Sunday at 12:00 am and ending at midnight on Saturday].
It is important to recognize that, for the purposes of calculating overtime wages, daily overtime [i.e., (a) and (b), above] is calculated separately from weekly overtime [i.e., (c), above]. This requirement can be better illustrated by the following example:
Ely’s Work Week
|1.5 x regular rate||2||4||2||4||12|
|2 x regular rate||2||2|
Applying section 40 of the Act to Ely’s work week, we see that on Monday and Wednesday, Ely is entitled to receive overtime wages as a result of the rules stated at (a) and (b), above. However, by Friday, Ely would have worked the maximum 40 hours, 6 hours into his actual 8 hours worked that day. As a result, his final 2 hours of work on Friday, and all the time worked on Saturday, are payable as overtime, calculated in accordance with the requirements of the rules stated at (c), above.
If an employer is found to have breached its overtime obligations under the Act, then it may be liable for the overtime wages that should have been paid to the employee in the 6 months preceding the complaint. In other words, the employer’s liability for overtime wages is generally limited to 6 months of unpaid overtime wages.
This liability is important for two reasons. Firstly, under the Act, unpaid overtime wages constitute a lien and secured debt over all the real and personal property of the employer, including money due to the employer from any source. Where money is owed to the employer by a third party (i.e., by a customer), then demand may be made on that third party to pay the money to the employee (for the amount of the unpaid wages). Moreover, to the extent that the lien exists, the employer’s assets may be seized and sold to pay the amount of the overtime wages owed. The Act also permits interest, collection costs and other fees to be added to the debt.
Directors of an employer may also find themselves personally liable for an employee’s unpaid overtime wages. While not exposed to the same liability as the employer, ‘a person who was a director or officer of a corporation at the time wages of an employee of the [employer] were earned or should have been paid is personally liable for up to 2 months’ unpaid wages for each employee’. As such, directors cannot insulate themselves from overtime obligations by relying on the fact that the employee was employed by the company, not by the director.
Exclusions from Section 40 of the Act
While section 40 of the Act requires employers to pay overtime wages, there are 3 instances where this requirement is waived, at least in part.
The first important exclusion to section 40 of the Act arises in the case of averaging agreements. While such agreements do not eliminate overtime wage requirements, they do allow an employer and an employee to agree to a work schedule of up to 40 hours in a one-week work schedule, or an average of up to 40 hours in a 2- to 4-week work schedule, without weekly overtime. A daily work schedule in an averaging agreement results in daily overtime when scheduled hours worked exceed 12 hours. Among other requirements, an averaging agreement must be in writing, signed by both the employer and employee and specify the number of weeks over which the agreement applies, as well as the agreed upon work schedule for each day covered. Care must be taken in drafting these agreements as any omission will likely void the whole of the agreement, thereby entitling the employee to the more expensive overtime wages provisions of section 40 of the Act.
As a general statement, an employee who is a manager (as defined by the Employment Standards Regulations (the “Regulations”) is excluded from the hours of work and overtime provisions of the Act, although in some cases a manager may still be entitled to additional compensation under separate provisions. In order to classify an employee as a manager, the employer will need to demonstrate that the employee’s principal duties consist of supervising and/or directing human or other resources. Persons employed in an executive capacity may also be classified as managers under the Regulations. Establishing that the employee actually supervises and directs in the manner required by the Regulations is more than mere window dressing, so employers need to be careful that the title is not just one of convenience intended to circumvent the Act.
In the case of unionized employees with a collective agreement, the overtime provisions of the Act and Regulations will not apply if the collective agreement contains any provision respecting hours of work required or overtime amounts payable. However, where the collective agreement does not contain any provision respecting hours of work required or overtime amounts payable, the overtime provisions of the Act and Regulations (excepting for averaging agreements) are deemed to be incorporated into the collective agreement as part of its terms. The reason for this distinction relates to the fact that, where overtime matters are covered in the collective agreement, enforcement is achieved though the collective agreement’s grievance mechanism and not through the Act.
This article has addressed overtime wages where an employee is paid an hourly wage. It is not meant to be an exhaustive discussion on the topic, and indeed, many other considerations come into play. Moreover, overtime obligations under the Act are not limited to hourly employees. Special considerations exist in respect of other classes of employees as well, such as those paid a flat rate (as is often the case with service technicians), commissioned sales personnel and even salaried employees in a business office who receive part of their wages by commission.
It is never a bad idea for an employer to ensure it complies with its overtime obligations across all business units. As the penalties and costs for dealing with a breach can easily exceed the amount of the unpaid overtime owed, we would be pleased to schedule a comprehensive review of your company’s wage and overtime policies.