To whom, how much, and when to pay overtime
One are of compensation that can cause headaches for employers and payroll departments is overtime pay. Knowing who is entitled to overtime pay, how much to pay, when to pay and how to keep good records are critical components in ensuring that employer policy complies with labour standards rules.
Employers that do not adhere to overtime rules could have to answer to a labour standards board or even face a lawsuit. In Ontario, the Ministry of Labour lists overtime pay as one of the top five complaints it received in 2014-2015.
In recent years, some large employers, including CIBC and Scotiabank, have had to deal with class-action lawsuits for unpaid overtime. Most recently, transportation and logistics company Canada Cartage is facing a $100-million class-action lawsuit alleging it "had a policy or practice of avoiding or disregarding its obligations to pay overtime" to the members of the class action.
Payroll professionals can help their employer avoid problems with overtime pay by ensuring its policies and practices align with its legal obligations.
Whether you are a new or seasoned payroll professional, it is a good idea to periodically review your employer’s overtime policy to make sure it complies with labour standards rules and to ensure your employer follows the policy. (Employers with unionized workplaces will also have to make sure their policy adheres to the collective agreement.)
When reviewing the overtime policy, here are some questions to consider:
Does the employee meet the threshold for overtime pay?
Under labour standards rules across Canada, employers have to pay employees overtime pay after they work a specified number of hours. In some jurisdictions, such as Ontario and Quebec, hours per week are used. In other provinces, including Alberta and British Columbia, overtime pay is required after employees work more than a specified number of hours per day or per week — whichever is greater. An employer’s overtime policy must meet the minimum standards for overtime in the jurisdiction in which its employees work.
Many jurisdictions allow employers and employees to set up averaging agreements, which enable an employee’s hours of work to be averaged for a specified period of weeks for determining whether overtime pay is required. Each jurisdiction that allows for averaging has its own rules for how to do it, so employers that want to use it must make sure they comply with the requirements for the applicable labour standards legislation.
In some provinces, employers have to first apply to the labour standards board for permission to average hours and post the permit in the workplace. In other jurisdictions, the employer must have the employees’ written consent and provide a copy of the agreement to the employee, but there is no requirement to send a copy to the labour standards board.
Are all employees entitled to overtime pay?
Not all employees are entitled to be overtime for working excess hours. Managers, supervisors and commission-based salespersons are often excluded from overtime pay requirements. Check to see whether your company policy excludes any employees from overtime pay and, if so, whether the exclusions match those allowed under labour standards rules in the applicable jurisdiction.
It is important to point out that the way in which an employee is paid has no bearing on whether he is entitled to overtime pay. No labour standards legislation in Canada excludes an employee from overtime pay requirements because he is paid a salary rather than an hourly wage.
In some jurisdictions, overtime rules for certain industries or occupations differ from those that apply generally under labour standards. For instance, in Alberta, overtime pay is required after an employee works more than eight hours a day or 44 hours a workweek, whichever is greater. However, if the employee works in oilwell servicing, for example, overtime pay requirements apply after the employee works more than 12 hours in a day or 191 hours in work month, whichever is greater.
In Ontario, there are "invalid employer defences" for not paying overtime pay. The list includes:
•Employees working overtime that the employer did not authorize. Some employers have a policy that requires employees to obtain approval from their manager or supervisor before working overtime. The manual states, "An employee who is working excess hours contrary to a specific term of an employment contract or without authorization may well face disciplinary action for having done so, but that does not alter the fact that he or she is entitled to overtime pay for overtime hours worked."
•Employees agreeing to a built-in overtime rate. Employers cannot avoid paying overtime by have employees agree to a bonus or a higher regular rate of pay to make up for not paying for overtime.
•Employees contracting out their right to overtime pay. Even if employees agree to work overtime at their regular pay rate, employers must pay the overtime rate for overtime hours.
What is the overtime pay rate?
In most jurisdictions, the overtime rate is 1.5 times the employee’s regular rate. In New Brunswick and Newfoundland and Labrador, the rate is 1.5 times the current provincial minimum wage rate. In British Columbia, the overtime rate increases to two times the employee’s regular rate if the employee works more than 12 hours in a day.
If an employer uses an overtime bank to provide employees with time off work in lieu of overtime pay, make sure the time bank complies with labour standards rules. In most jurisdictions that allow for overtime banks, employers must compensate employees for overtime hours by providing them with 1.5 hours of paid time off work for each hour of overtime that they work. Exceptions apply in Alberta and B.C.
Is there a deadline for paying overtime pay?
Generally, the deadline for paying overtime pay is the same as it is for paying regular wages earned in a pay period. For instance, in Alberta and Manitoba, employers must pay wages within 10 days after the end of each pay period.
The rules in Quebec are slightly different. The Act respecting labour standards states that if an employee earns overtime in the week before the employer pays regular wages, the employer may pay the overtime pay with the employee’s next pay.
If an employer uses an overtime bank, it must ensure employees take off the time saved in the bank within a specified period. If not, the employer has to pay the employees for the overtime hours.
Do you pay for meals when employees work overtime?
Employers that provide meals or a meal allowance for employees who work overtime have to assess a taxable benefit for the employees unless the amount the employer pays is reasonable, the employees work at least two hours of overtime either right before or right after their scheduled work hours, and the overtime is infrequent or occasional.
If the meal or the meal allowance does not meet all three conditions, it is taxable and payroll must include it in the employee’s earnings for source deductions.
The Canada Revenue Agency (CRA) says it may exclude an allowance from being taxable even if an employee works overtime three or more times a week if the overtime is infrequent and occasional to meet workload demands.
When it comes to a "reasonable" amount for paying a meal allowance, the CRA says it generally considers amounts up to $17 reasonable, though it may allow for higher amounts if the price of meals at the location is higher than elsewhere or if there are what it calls "significant extenuating circumstances."
Do payroll records properly reflect employee overtime?
This is an important aspect of complying with overtime requirements. In addition to keeping records on an employee’s hours of work, check to ensure the employer is keeping a written record of each employee’s overtime hours and the amount of overtime pay it paid to the employee and the number of hours it has credited to the employee’s overtime bank if one exists.
Without accurate and thorough records, the employer has no proof it complied with labour standards rules, leaving it vulnerable if an employee launches a labour standards complaint.
In addition, payroll may want to check their overtime policies to ensure they comply with labour standards rules for working on a statutory holiday, working no more than the maximum number of hours per week specified, and for providing rest periods and meal breaks.