February 5, 2003by Israel Foulon LLP
Overpaying for overtime?: Practical tips to reduce costs
Although every jurisdiction has minimum standards requiring the payment of overtime, employees and managers are often confused about who is eligible for overtime and how overtime is handled and paid. A policy statement regarding this subject is the easiest way to eliminate any confusion about this issue.
Although employees may appreciate the opportunity to earn extra pay through overtime, excessive overtime and its administration is expensive for employers.
Excessive overtime may lead to employee fatigue which, in turn, may affect absenteeism. Absenteeism usually leads to operational inefficiencies. Excessive use of overtime to achieve business objectives may indicate a weakness in planning, inadequate staffing levels or inefficient equipment for the job at hand. Therefore overtime hours worked and the costs associated with it should be tracked closely by all employers.
If one views it as a measure of inefficiency, most employers will devise ways of eliminating costly overtime.
A clear policy statement and advance authorization of overtime usually helps to ensure proper management control of this major expense.
Here are a few considerations that may affect the contents of your overtime policy:
- Many large employers pay overtime rates for hours worked in excess of normal daily hours. This may exceed the Ontario Employment Standards Act minimum requirement that overtime be paid only when the hours of work exceed 44 hours per week. Ontario Regulation 285/01 establishes a higher threshold for certain industries.
- The overtime rate of pay cannot be less than one and one-half times the employee’s regular rate of pay.
- Smaller employers should decide whether to pay overtime rates when normal daily hours are exceeded or only when normal weekly hours are exceeded. Paying overtime on the basis of weekly hours tends to eliminate the situation where an employee works overtime one working day and then is absent another day during the same week.
- Consider tracking overtime hours and costs on a departmental basis. This helps to identify areas where bottlenecks or inefficiencies may exist.
- Consider distributing overtime among all employees rather than having the same employees performing the overtime work. Overtime distribution is often an issue for unionized employees. The distribution of overtime may be governed by the terms of a collective agreement.
- The Ontario Employment Standards Act, 2000, now permits an employee, after agreement with their employer, to receive paid time off work in lieu of overtime pay. Such a system is often referred to as overtime banking. Under this system an employee may be compensated for overtime hours worked by receiving one and one-half hours of paid time off work for each hour of overtime worked instead of overtime pay. The time off must be taken within legislated time limits. If the employee’s employment ends before the overtime bank is totally used, the employer must pay the employee overtime pay for the time not yet taken.
- The Employment Standards Act, 2000, also permits the averaging of hours worked over a four-week period (or with the approval of the director of employment standards an even longer period) in order to determine whether overtime pay is required. These types of arrangements can be very helpful in reducing costs and increasing operational flexibility. Consult the act for the legislated requirements for such an arrangement.
- Supervisors or managers whose work is supervisory or managerial in character and who perform non-supervisory or non-managerial tasks on an irregular or exceptional basis are excluded from the overtime provisions of the act. It may nonetheless be politically advisable for an employer to pay overtime to managers.
- It is important to note where a person who is normally exempt from the act’s overtime provisions performs the work of an individual who is not exempt from the act’s overtime provisions, that person is then not exempt from the overtime provisions for the work week in which the work is performed unless it is less than half the time the person spends in fulfilling the duties of his or her regular position in that week.
- Note that Ontario Regulation 285/01 stipulates even where a contract of employment expressly forbids or limits the hours of work performed or requires advanced authorization for overtime hours, if work is performed, the employee is entitled to be paid for those hours. It is therefore critical to ensure managers and supervisors actively manage overtime work.
Peter Israel is the senior partner in the Toronto law firm of Israel Foulon LLP – Employment and Labour Lawyers. He can be reached at 416-640-1550 or firstname.lastname@example.org. A version of this article originally appeared in the Carswell publication, Canadian Employment Law Today.