Just because employees are paid by annual salary doesn't mean they're not entitled to overtime pay
By Stuart Rudner
Just because someone is paid by annual salary does not automatically mean she is not entitled to overtime pay. I will say that right upfront since it is one of those common misconceptions that will not go away.
In Canada, the manner in which someone is paid (hourly versus salaried) has absolutely nothing to do with whether or not she may be entitled to compensation for overtime. That has long been the case, but rarely does a week go by in which I do not hear someone, usually a small business owner, explain to me that most of their employees do not get overtime since they are “on salary.”
By default, every employee is entitled to statutorily prescribed overtime pay when they meet certain requirements. Every jurisdiction is slightly different; by way of example, overtime in Ontario is triggered when an employee works more than 44 hours in a week. In British Columbia, overtime is required when employees work more than eight hours in a day or 40 hours in a week.
In addition, most jurisdictions allow for averaging agreements, pursuant to which the parties agree that an individual's hours will be averaged over a period of several weeks for purposes of calculating their overtime entitlement. In Ontario, for example, by default an individual who worked 30 hours one week and 50 hours the next would be entitled to six hours of overtime pay (at time and a half) in the second week.
However, if the parties had agreed to average their hours over two-week periods, then they would not be entitled to overtime pay since the average would be 40 hours per week, below the threshold of 44 hours at which overtime must be paid. Parties can also agree employees will receive time off in lieu of overtime pay.
Employment standards legislation in Canada provides for various exemptions to the requirement that employees be paid for overtime. Those exemptions are based upon the individual’s duties and responsibilities, and not the manner in which they are paid.
The most common exemption is the one for managers and supervisors. An employee who is truly in a managerial or supervisory position will not be entitled to overtime pay. I use the word "truly" because an individual's title will not be conclusive; rather, a tribunal looking into a claim for overtime will assess the nature of the individual’s duties.
Even if she holds a managerial title, if the reality is that she is doing non-managerial work, then she will be entitled to overtime pay. Some other exemptions include certain types of salespeople, as well as intellectual technology professionals.
The specific exemptions differ from jurisdiction to jurisdiction but two things that are consistent are that whether or not the individual is paid by salary, as opposed to hourly, is irrelevant, and tribunals will not automatically accept an employee's title without investigating the nature of her job.
Employers should be cautious before concluding that an individual is not entitled to overtime pay, and should obviously not base any such decision upon the fact he is paid an annual salary.
It should also be kept in mind that even when the statutory thresholds for overtime pay have not been met, the employee may still be entitled to compensation for extra hours worked. By way of example, if an individual is paid on an hourly basis, he must be paid for every hour worked. Of course, until he reaches the statutory thresholds, payment would be at the regular rate and not at time and a half.
This is fairly straightforward for employees who are paid by the hour, but more complicated for salaried employees. Many employers will include terms in the employment contract that clearly state the annual salary is intended to compensate the employee for up to a specific number of hours. If such a clause does not exist, and the contract suggests the employee will work a set number of hours per week, any hours beyond that must be compensated.
Many employers are very casual about overtime and do not understand the potential liabilities they may face. It is important to recognize that in addition to the liability to any particular employee who chooses to raise a complaint, if a complaint is made to the Ministry of Labour, the ministry has the power to investigate everything. In other words, they are not restricted to looking into the circumstances of the employee who complained. Rather, a ministry inspector is entitled to review the broader employment practices and issue penalties relating to any number of offences, and to all employees.
Given the above, when I work with employers, I ensure they understand their contractual and statutory obligations, and do not proceed on the mistaken assumption that by paying workers an annual salary, they do not have to worry about overtime pay.
Conversely, I have advised many employees who were completely unaware of the fact they were entitled to compensation for the extra hours they worked every week.
As usual, both employers and employees should ensure they are aware of their rights and obligations in the employment relationship.