Overtime a growing concern: Conference Board report

With employees launching unpaid overtime class-action lawsuits against major employers such as CIBC, Scotiabank, KPMG and CN Rail, overtime is becoming a pressing issue for top executives.

It’s the perfect time, therefore, for HR professionals who have witnessed lax policies or lack of compliance to speak up and get executives to take action, said Michael Bloom, vice-president of organizational effectiveness and learning at the Conference Board of Canada.

“This is an issue that HR professionals are probably aware of, but they should be aware that it’s gaining a much higher profile in the C-suite because of the attention it’s getting in the media,” said Bloom.

KPMG decided to settle its case to the tune of $10 million and even though the Ontario Supreme Court dismissed the case against CIBC, the lead plaintiff is planning an appeal.

“There’s enough of a liability issue here that it’s moving into the legal system and that’s a red flag,” said Bloom.

While just nine per cent of 130 organizations surveyed by the Conference Board indicate overtime compensation is currently a critical business issue, 90 per cent believe unpaid overtime will be an issue over the next few years.

At an average of 5.7 per cent of gross payroll, overtime is a significant expense for organizations surveyed, said Bloom. So, not surprisingly, 75 per cent of respondents are taking steps, such as overtime freezes or holding overtime to a target percentage of payroll, to contain these costs, according to the Conference Board report Working 9 to 9: Overtime Practices in Canadian Organizations.

Hiring temporary employees or bringing in co-op students can also help employers save on overtime costs, said Catherine Connelly, assistant professor of human resources and management at McMaster University’s DeGroote School of Business in Hamilton. But employers need to be careful when cutting back on overtime because many employees see paid overtime as a valued perk, she said.

“Managers need to be very clear about what’s happening and give advanced notice. If they’re doing this to avoid layoffs, employees will understand,” said Connelly.

In a time when layoffs are high and employees have to take on more responsibilities and put in longer hours, a lack of overtime compensation or time in lieu can also hurt employees’ health and wellness, said Bloom.

“They’re leaving themselves open to the risk of over-stressing and overworking employees,” he said.

The survey also found 77 per cent of respondents have instituted formal overtime compensation policies, while 20 per cent have informal policies, guidelines or common practices and just three per cent have no policies or guidelines.

Fragmented or informal policies or a lack of policies are often the result of a lack of attention to the issue, rather than a conscious decision, said Bloom. But these organizations are vulnerable to lawsuits, he said.

Respondents estimate about 12 per cent of employees eligible for overtime aren’t being compensated for that work.

“That should be a concern to any employer,” said Bloom.

But it can be hard to get a handle on how much unpaid overtime there really is because there are often informal arrangements that aren’t reported to HR, said Connelly.

Another challenge is employees see managers who are putting in a lot of unpaid overtime and they think, in order to advance in the organization, they have to come in early, work late and take work home just like their managers, she said.

And if employees don’t get their work done within normal hours, they’ll often work overtime without telling anyone.

“They’re reluctant to imply that they’re not giving it 110 per cent all the time, everyday,” said Connelly.

Determining who is eligible for overtime compensation and who is legally exempt is also a concern for organizations, with 70 per cent of respondents basing eligibility for overtime on an employee’s job title, said Bloom.

While someone performing managerial or supervisory functions is often legally exempt from overtime, someone called a manager might not actually be performing those duties, said Connelly.

“Anybody can have ‘manager’ in their job title,” she said.

Only 38 per cent of respondents say overtime policies and practices are tightly managed and under control. These organizations are more likely to be in the public and not-for-profit sectors.

Another 38 per cent of respondents say the management of overtime is an important issue and is squarely on management’s radar. Most of these organizations have recently made changes to overtime policies or have reviews underway.

For the remaining 24 per cent of respondents, overtime compensation is just beginning to move onto the organization’s agenda.

More than three-quarters of organizations have reporting systems to track the hours employees work and two-thirds have financial systems to track overtime premiums paid.

But employers need to be careful about the type of technology used and how closely employees are monitored, said Connelly.

“If you’re basically spying on your employees, they’re going to feel like they’re not trusted,” she said.

If overtime claims are higher than a manager deems appropriate, he should sit down with the employee and discuss the work process, said Connelly. The two of them can try to figure out if different equipment, extra training or a mentor would help the employee be more efficient, she said.