Legal Line

An Overview of Overtime

MICHAEL D. WILLIAMS AND MATTHEW B. WANSINK

As an employer, your biggest asset is often your employees. Not surprisingly, employee wages are also one of an employer’s biggest costs. In this article, we’ll look at legislative rules governing overtime wages and, more specifically, key overtime entitlements and exclusions in the case of employees paid by hourly wage.

When is Overtime Payable? Rules governing overtime entitlements are addressed in Part 4 of the Employment Standards Act (the “Act”). According to Section 40:

An employee who works more than eight hours in a day must be paid 1.5 times his/her regular rate of pay for any time worked over eight hours, and up to 12 hours in a day. An employee who works more than 12 hours in a day must be paid double his/her regular rate of pay for any time worked over 12 hours in a day. An employee who works more than 40 hours in a week must be paid 1.5 times his/her regular rate of pay for the time worked over 40 hours in the week. When calculating weekly overtime wages, only the first eight hours worked each day are counted towards the 40 hours in the week. It is important to recognize that, for the purposes of calculating overtime wages, daily overtime is calculated separately from weekly overtime.

Penalties If an employer is found to have breached its overtime obligations under the Act, it may be liable for the overtime wages that should have been paid to the employee in the six months preceding the complaint. In other words, the employer’s liability for overtime wages is generally limited to six months of unpaid overtime wages.

This liability is important for two reasons. First, under the Act, unpaid overtime wages constitute a lien and secured debt over all the real and personal property of the employer, including money due to the employer from any source. Where money is owed to the employer by a third party (i.e., by a customer), demand may be made on that third party to pay the money to the employee (for the amount of the unpaid wages). Moreover, to the extent that the lien exists, the employer’s assets may be seized and sold to pay the amount of the overtime wages owed. The Act also permits interest, collection costs and other fees to be added to the debt.

Directors of an employer may also find themselves personally liable for an employee’s unpaid overtime wages. While not exposed to the same liability as the employer, “a person who was a director or officer of a corporation at the time wages of an employee of the [employer] were earned or should have been paid is personally liable for up to two months’ unpaid wages for each employee.”

Exclusions from Section 40 of the Act While Section 40 of the Act requires employers to pay overtime wages, there are three instances where this requirement is waived, at least in part:

Averaging Agreements The first important exclusion to section 40 of the Act arises in the case of averaging agreements. While such agreements do not eliminate overtime wage requirements, they do allow an employer and an employee to agree to a work schedule of up to 40 hours in a one-week work schedule, or an average of up to 40 hours in a two- to four-week work schedule, without weekly overtime. A daily work schedule in an averaging agreement results in daily overtime when scheduled hours worked exceed 12 hours. Among other requirements, an averaging agreement must be in writing, signed by both the employer and employee, and specify the number of weeks over which the agreement applies, as well as the agreed-upon work schedule for each day covered.

Managers As a general statement, an employee who is a manager, as defined by the Employment Standards Regulations (the “Regulations”), is excluded from the hours of work and overtime provisions of the Act, although in some cases a manager may still be entitled to additional compensation under separate provisions. In order to classify an employee as a manager, the employer will need to demonstrate that the employee’s principal duties consist of supervising and/or directing human or other resources. Persons employed in an executive capacity may also be classified as managers under the Regulations.

Collective Agreements In the case of unionized employees with a collective agreement, the overtime provisions of the Act and Regulations will not apply if the collective agreement contains any provision respecting hours of work required or overtime amounts payable. However, where the collective agreement does not contain any provision respecting hours of work required or overtime amounts payable, the overtime provisions of the Act and Regulations (excepting for averaging agreements) are deemed to be incorporated into the collective agreement as part of its terms.

Special Circumstances This article has addressed overtime wages where an employee is paid an hourly wage. It is not meant to be an exhaustive discussion on the topic, and indeed, many other considerations come into play.

It is never a bad idea for an employer to ensure it complies with its overtime obligations across all business units. As the penalties and costs for dealing with a breach can easily exceed the amount of the unpaid overtime owed, we would be pleased to schedule a comprehensive review of your company’s wage and overtime policies.

For more information on this subject, please contact SHK Law Corporation and one of our experienced lawyers will be pleased to speak with you. Contact us: Matthew Wansink / mbw@shk.ca / www.shk.ca