Overtime rates on commissions or other incentive earnings

By Alan McEwen

For most employees paid by the hour, or even a fixed salary, overtime rates are based on an employee's regular hourly rate. But what happens when employees aren't just paid on the basis of time? How are overtime rates calculated when employees are paid partly or wholly on an incentive basis?

Here, by incentive, we mean employees not paid strictly on the basis of time, either an hourly wage or a fixed salary. This includes employees in receipt of bonuses, commissions or piece rate earnings. Also keep in mind the distinction between employees paid wholly on some basis other than time, and employees paid partly by time and partly on an incentive basis. In some cases, there are different rules in these two situations.

For employees paid at least partly on an incentive basis, there are at least three different scenarios.

First, in some jurisdictions there are no special rules that apply to such employees.

In Ontario, Quebec, Prince Edward Island, the Yukon and Nunavut, this is because the same rules apply to all employees without distinction. In these jurisdictions, the regular rate used for overtime purposes is based on the applicable vacationable earnings, with no special rules for converting nominal or salaried amounts to an hourly basis.

A further complication is that in the Yukon and Nunavut, vacationable earnings are not specifically defined. In practical terms, employers in these two jurisdictions should probably determine the hourly rate to use based on an average of each employee's earnings. How this average is calculated should be clearly spelled out in the terms and conditions of employment.

Second, in some jurisdictions, overtime rates are based on the applicable minimum wage. In some cases, this applies to all employees, in others to those paid partly on an incentive basis and in others to those paid wholly on a basis other than time.

In New Brunswick, Nova Scotia and Newfoundland and Labrador, overtime based on the minimum wage applies to all employees, so there aren't any special rules for employees covered by this article.

In Alberta, Saskatchewan and the Northwest Territories, employees paid wholly on an incentive basis are owed overtime based on the applicable minimum wage.

In Alberta and N.W.T., there are special rules for employees paid partly by time and partly on an incentive basis. In Alberta, this applies to employees paid partly by salary. For these employees, while there are no rules on how to convert salaries to an hourly basis, the hourly equivalent of any salaried earnings applies, where this hourly equivalent exceeds the minimum wage. In N.W.T., the rules are the same, except that this applies to any employees paid partly on any basis of time and partly otherwise.

Third, for all other employees, the regular hourly rate that applies for overtime purposes is based on an average of each employee's earnings. The chart below shows the factors involved in this averaging.

Note, there is an exception for employees in Manitoba, for employees paid partly on an incentive basis. First, where employees are paid partly on the basis of time, add the resulting hourly rate for incentive earnings to the time based portion of their earnings. Second, the incentive portion can be ignored if either the time based portion is at least twice the minimum wage or incentive wages are paid at an overtime premium during any overtime hours worked.

Alan McEwen is a payroll consultant and freelance writer with over 20 years' experience in all aspects of the industry. He can be reached at armcewen@cogeco.ca, (905) 401-4052 or visit www.alanrmcewen.com for more information.