When Do I Need to Pay Overtime?

July 08, 2014, by HR à la carte | Work Environment and Policies

This month’s question in our Frequently Asked Questions Series of blogs is

When Do I Need to Pay Overtime?

Many business owners are under the incorrect assumption that if an employee is salaried or has “manager” in their job title, that employee is not entitled to overtime pay.  (Please note this blog is written for the Ontario work environment specifically.)

It doesn’t matter how an employee is paid

Really.  Whether they are hourly or salaried has no bearing on whether or not they are entitled to overtime pay.  Salaried individuals are also entitled to overtime in many instances.   It’s all about the industry they are in and the type of work they do; and whether they are considered a professional under the Employment Standards Act, such as a Certified Accountant, Lawyer, etc.  To figure out a salaried employee’s overtime wage rate, you simply divide the annual salary by the number of hours per year that employee’s pay cheque is based on.  For example, an annual salary based on a 40 hour work week would be divided by 2080.  An annual salary based on a 37.5 hour work week would be divided by 1950.  You than multiply that resulting number by 1.5 to get the overtime rate per hour for that salaried employee.

There are few exemptions to overtime eligibility in Ontario.  To check whether your industry or employee is exempt you can check out the Special Rule Tool. 

Managers actually have to manage to be exempt

If your managers have direct reports and have hire/fire authority as well as review their direct reports’ performance, provide coaching and advice and do substantially different work than their direct reports, they are not eligible for overtime.  In today’s business environment however, many employees have “manager” in their job title, but manage work and not people.  In many cases those types of managers would be entitled to overtime pay. 

You need a written agreement to have your overtime eligible employees work overtime

The agreement gives you permission to assign your employee overtime work up to a maximum of 48 hours in a week.  Anything over 48 hours, you need to apply for a permit from the Ministry of Labour.  Your employee does not have to sign the agreement.  However, if that’s the case, they cannot work overtime hours and be paid for those hours.

Time off in lieu

Employees can agree in writing to being provided time off in lieu of overtime pay, or a banked hours agreement.  The time off is calculated at the same rate as overtime pay and has to be taken within 3 months of being earned, unless the employee agrees in writing to extending this to up to 12 months.

Time and a half kicks in after 44 hours

There is another misconception that an employer has to start paying the overtime rate after 40 hours worked.  Not so.  In Ontario, the threshold is 44 hours.  This means that if your employees are paid based on a 40 hour work week, their overtime rates would be as follows:

40 hours to 44 hours = straight time

Over 44 hours = 1.5 times regular rate

So, if your employee in this example works an extra 5 hours in a week, she would earn 4 of those hours at straight time.  The 5^th hour she would earn at time and a half.  If she had a banked hours agreement, those extra 5 hours would earn her 5.5 hours of banked time.

Ontario Overtime Tools

There are some handy tools available to employers on the Ministry of Labour’s website:

Hours of Work and Overtime Tool

Hours of Work Guide

Another tool that may be helpful for employers in Ontario is an Averaging Hours Agreement.  This agreement allows an employer to average an employee’s hours over a period of between two and four weeks. 

Employers Need to Monitor the Work

The bottom line for employers in Ontario is to ensure they know how much their employees are working and to ensure that in no circumstances are employees working unauthorized overtime hours, as they could be liable to pay for those hours in the future.

Other items of interest:

Being Audited by an Ontario Employment Standards Officer?  Here’s What You Need to Know