Understanding overtime pay

It's important that employers know the rules to avoid potential claims by employees

Understanding overtime pay
Alex Minkin

Subject to certain exceptions, employees in Ontario are required to receive overtime pay for each hour of work in excess of 44 hours in each work week. That is true even if the employee is paid an annual salary, and even if the overtime was not authorized.

Each hour of overtime is to be paid at a rate of at least one-and-one-half times the employee’s regular rate. If the employer and employee agree in writing, overtime can be compensated by providing paid time off in lieu of overtime. In such cases, the employee is to receive one-and-one-half hours of paid time off work for each hour of overtime worked instead of overtime pay.

It is important to note that the requirement to pay overtime applies to salaried employees as well as employees who work on an hourly basis. In most cases, a salaried employee’s “regular rate” is calculated by dividing their weekly salary by 44. If, for example, a salaried employee is hired to work 40 hours per week, their “regular rate” is calculated by dividing their weekly salary by 40.

An employer and employee are permitted to enter into an “averaging agreement”, in which the employee’s hours may be averaged over a specified number of weeks, provided that the averaging period does not exceed four weeks. These agreements can be advantageous to employers in situations where the employee’s hours are irregular or fluctuate between periods. In such cases, overtime will only be payable based on the average weekly hours worked throughout the averaging period, rather than on a weekly basis.

Averaging agreements require a start date, as well as an expiry date that is less than two years after the start date, after which it has to be renewed in order to be effective.

The entitlement to overtime pay does not require that the employer pre-approves or authorizes the employee to work the overtime hours. An employee may be entitled to overtime pay even where their employment contract limits their hours or requires the employer to approve their hours in advance.

Ontario’s employment standards

Exceptions to the overtime rules can be found in the O. Reg. 285/01, a regulation under the Employment Standards Act, 2000 (ESA). First, section 2 of the regulation stipulates that overtime rules (and certain other requirements of the ESA) don’t apply to certain professions, including the following: “duly qualified practitioners” of architecture, law, professional engineering, public accounting, surveying, veterinary science, and “duly registered practitioners” of chiropody, chiropractic, dentistry, massage therapy, medicine, optometry, pharmacy, physiotherapy or psychology.

Other positions that are exempted from overtime include salespersons, brokers, and teachers.

It should be noted that the above exceptions apply only to people employed in these professions. Therefore, for the exception to apply, the employee must be a practitioner of the profession, and the position must be directly related to that qualification.

Second, section 8 of the regulation provides further exceptions to overtime rules, including that overtime rules do not apply to “a person whose work is supervisory or managerial in character and who may perform non-supervisory or non-managerial tasks on an irregular or exceptional basis”

The government of Ontario has provided guidance on interpreting this “managerial/supervisory” exception, which can be found in the Employment Standards Act Policy and Interpretation Manual. The exception applies to employees who either exclusively perform managerial or supervisory work, or to those who perform non-supervisory or non-managerial tasks either on an irregular basis or an exceptional basis.

Managerial work can sometimes be distinct from supervisory work, and can include making hiring and firing decisions, having responsibility for substantial purchases, financial control and budgeting, regularly exercising discretion and independent judgment in management affairs.

Determining whether the “managerial/supervisory” exception applies to a particular employee is not always a straightforward exercise. The employee’s title and the terms of their employment contract are not always determinative. To determine whether this exception applies, the character of the employment and the actual functions of the employee need to be assessed. This assessment has been made in many decisions of the court as well as the Ontario Labour Relations Board, and it is always done on a case-by-case basis, with regards to the specific facts about the person’s employment.

Labour relations board decision

For instance, in the recent decision of Branimir Avramovic v Multi-Mold Plastics Inc., the board examined whether the “managerial/supervisory” exception applied to a former employee who made a claim for unpaid overtime pay. While the employee did not hold the official title of a manager/supervisor, he conducted mostly supervisory work, although some of the work he performed included non-managerial and non-supervisory tasks.

The board cited past court decisions which stated “the characterization of work as supervisory or managerial in character must be made having regard to the whole of the work performed and the overall character of the work.”

Furthermore, “one single non-managerial act does not necessarily destroy the essential nature of the job as being only managerial in character. If the managing editor of the New York Times writes a single editorial or reports a single story, that does not necessarily destroy the essential character of his job as being only managerial. It is a question of degree.”

While the board found that the employee performed some non-supervisory/non-managerial duties, it found that he performed such duties roughly once a month, and each time it was unscheduled or sporadic. Accordingly, the board found that the “managerial/supervisory” exception applied, and that the employee was not entitled to overtime pay.

It is important for employers to understand the rules surrounding overtime pay. If a non-exempt employee performs overtime without proper compensation, they can make a claim against the employer, either during their employment or after it ends, subject to the limits prescribed by the Limitations Act.

Alex Minkin is an associate lawyer at Rudner Law in Toronto.



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