Overtime banks can offer benefits if administered properly
When employees work overtime, some want money for their efforts; others want to be compensated in paid time off. Banking employees’ overtime and allowing them to take the time off later can offer benefits for both employers and employees — if done properly.
For employees, it can mean having a few extra days of vacation or some long weekends. For employers, providing time off in lieu of overtime pay means not having to pay out money right away. It can also be a good employee relations policy. However, without proper policies, record-keeping and communication, overtime banks may cause headaches for employers, payroll departments and employees.
Payroll professionals who work in jurisdictions that have legislated minimum standards for time banks must make sure they understand and comply with the rules. Most Canadian jurisdictions, except for New Brunswick, Nova Scotia, Nunavut and the Canada Labour Code (for federally regulated employers and employees), have established minimum requirements for setting up, running and closing a time bank.
Questions come up frequently for Carswell’s Payroll Consulting Group in Toronto, says Payroll Consultant Patricia Joncas.
In many jurisdictions, it is up to employers and employees to decide together if they want an overtime bank, but this does not apply everywhere, so employers need to know the specifics for their jurisdictions. In British Columbia, for example, the province’s Employment Standards Act states an employer can only set up an overtime bank if an employee requests it in writing.
In Alberta, one employee or a group of employees can sign an overtime agreement with the employer, allowing for the banking of overtime hours. If a majority of employees in a work group agree to it, the agreement will apply to all employees in that group.
Most jurisdictions that legislate time banks require an agreement to have one be in writing. Some jurisdictions, such as Alberta, specify what should be in the written agreement, while others are not as specific.
Whether or not a written policy is required, Joncas says it is a good idea for employers to have one and make sure employees and managers are familiar with it.
"I would strongly suggest that there be something in writing. Some of the points that should be covered are: Are some or all overtime hours going to be banked? Some company policies might say that you can put a certain number of overtime hours into the bank, but the rest we will pay out," she says.
"How long can the hours remain banked before they should be taken? That should be spelled out so that the employee and the employer are on the same page. And, how are the hours banked? Is one hour of overtime equal to one hour or 1.5 hours or two hours?"
If an employer in a jurisdiction that does not include time banks in its employment standards legislation wants to set one up, Joncas suggests the employer call the employment standards board to see if it would be allowed and to ensure they are following all employment standards rules.
One important element to address is how employees will bank the time. In most jurisdictions, employees must bank 1.5 hours of time for each hour of overtime they work, but this does not apply everywhere.
In Alberta, Employment Standards states, "For every hour of overtime worked, one hour must be banked." This contrasts with British Columbia, which requires overtime be banked at the applicable overtime rate or as required under an averaging agreement.
Employers with multi-jurisdictional payrolls may opt to have different time bank policies for each jurisdiction or have only one policy that meets the requirements of the most stringent jurisdiction, says Joncas.
Most jurisdictions require that employers and employees agree on when the employee will take the time in the bank, although if they cannot agree, some allow employers to schedule the time off within a specified timeframe.
Payroll needs to make sure employees take the time off in compliance with employment standards rules. Jurisdictions generally require employees take the time off during their regularly scheduled work hours.
Alberta, for example, specifies employees must take banked time off only during non-overtime hours. It requires the total hours worked in a day, including any banked hours taken, not be more than eight hours. In a week, total hours worked plus banked time taken off cannot exceed 44 hours.
In many jurisdictions that legislate the use of time banks, employees are required to take the banked time off work within three months of earning it, however, for Quebec, Saskatchewan and Yukon, the timeframe is 12 months. B.C. does not specify a deadline. If the time bank is part of a collective agreement, different rules may apply. Check with the applicable employment standards board for the specific requirements.
Employers and employees can often extend the deadline if the director of employment standards agrees to it. In some jurisdictions, employers must apply for a permit to extend the deadline. In others, a written agreement between the employer and the employee(s) will suffice. If employees have not taken the time off by the deadline and there is no extension, employers must pay out the time remaining. Employers are not allowed to implement use-it-or-lose it policies, says Joncas.
She says it may be helpful if payroll notifies employees that a deadline is approaching for taking off time in a time bank. "It is a good idea for payroll to send out a memo, or even HR, reminding anyone who has hours sitting in a time bank, please know that these hours must be taken by (for example) the 30th of November. If not, they will be paid out on the first pay of December."
Employers will also have to pay out time in overtime banks if an employee’s employment ends before he or she has used up all of the time. The timing of the payment will depend on each jurisdiction’s requirements for paying employees their final wages owing.
Overtime pay, banked or not, is subject to Canada/Quebec Pension Plan contributions, Employment Insurance premiums, Quebec Parental Insurance Plan premiums and income tax deductions. In some situations, Joncas suggests payroll use the bonus method to calculate income tax deductions on amounts paid from time banks.
"When paying out a bank and it’s a significant amount of money, we would suggest the bonus tax method for deducting income tax because if the amount sitting in the bank is a large amount, it could really take someone into another tax bracket."
Most jurisdictions have implemented legislation to cover changes to time bank agreements or time bank closures. Payroll professionals should be aware of the rules for each jurisdiction for which they are responsible.
For instance, in Alberta any changes or closures cannot occur unless the employer or the employee gives the other side a minimum of one month notice in writing. A similar rule applies in Saskatchewan, but the amount of notice is one pay period.
In B.C., different rules apply for employers and employees. Employees may request in writing at any time that their employer close their time bank. The employer must comply and pay the employee for the saved time by the next payday.
Employers in B.C. who want to close time banks must give at least one month’s notice in writing. Within six months of ending the time bank, employers must: pay the employee for all amounts in the time bank, let the employee take paid time off for the hours remaining or provide the employee with a combination of paid time off and pay.
If an organization has not kept adequate records, it could have problems with Employment Standards if an unhappy employee files a complaint.
Payroll professionals must ensure their system meets their jurisdiction’s record-keeping requirements. Most jurisdictions require employers keep track of the number of hours banked and taken.
Alberta, B.C. and Quebec are among the jurisdictions that also specify pay statements must show the number of banked hours an employee has taken in the pay period.
Communicating the rules and requirements is essential to make sure the employer’s policy is understood. Just as important is keeping the payroll department informed.
"The biggest challenge is to ensure that the payroll department is notified when time is taken from the overtime banks," Joncas says.
Organizations should put procedures in place to ensure managers notify payroll when employees are banking overtime, when they are using time and when there are changes or cancellations.
No matter how good an employer’s time bank policy is, it is unlikely to work well if payroll is not kept in the communication loop.
