Overtime pay is often necessary in order to meet customer, production or other operational demands. However, it is crucial that you understand the intricacies of the overtime provisions in the Employment Standards Act, in order to manage the overtime you pay and ensure you don't incur liability for overtime you might fail to pay.
Employees not working under an averaging agreement are entitled to be paid at overtime rates for time worked beyond a certain number of hours each day and a certain number of hours each week. As an employer, your obligation to pay daily overtime is independent of your obligation to pay weekly overtime. The two are calculated separately, and being entitled to one does not necessarily mean that an employee is entitled to the other.
Daily overtime
If an employee works longer than eight hours in a day, then that employee is entitled to 1.5 times the regular wage for the time worked in excess of eight hours and double the regular wage for the time worked beyond 12 hours.
Weekly overtime
If an employee works more than 40 hours in a week, the employee is entitled to be paid 1.5 times the regular wage for the time worked in excess of 40 hours. However, in calculating whether an employee is entitled to weekly overtime, only the first eight hours worked by an employee in each day is counted. This means that weekly overtime will only be required where an employee works more than five days in a week.
Meaning of “work”
An employee is only entitled to overtime rates for time worked more than eight hours per day or 40 hours per week. This can raise the issue of the meaning of “work” in certain cases.
Section 1 of the act defines work as “the labour or services an employee performs for an employer whether in the employee’s residence or elsewhere. An employee is deemed to be at work while on-call at a location designated by the employer unless the designated location is the employee’s residence.”
Based on this definition, work has been found to include travel time where the travel is part of an employee’s job, but not where it is considered a commute. Time during which an employee undergoes training at the employer's direction is also considered time worked. However, where an employee is scheduled for a two-hour break during a 10-hour shift, and where the employee is not required to be available for work during the two-hour break, the employee will not be entitled to daily overtime.
Avoiding overtime
Apart from entering into the averaging agreements provided for in the act, employers and employees cannot agree to avoid the overtime rules, either by establishing a higher regular wage rate in lieu of overtime or by simply ignoring the overtime provision altogether.
Banking overtime
At the written request of an employee, the employer may establish a time bank for overtime worked. If a time bank is established, you must credit the employee’s overtime wages to the time bank instead of paying them to the employee within the regular time frame for paying wages under the act.
Once a time bank is established, the employee may, at any time, request the employer to do any one of the following:
- Pay the employee all or part of the wages credited to the time bank
- Allow the employee to take time off, with pay in lieu of being paid the wages in the time bank, at a time agreed to by the employer and the employee
- Close the time bank
An employer may close an employee’s time bank on one month’s notice. In this case, the employer has six months to either pay the employee all the wages credited to the time bank, allow the employee to use the wages credited in the time bank to take time off with pay, or a combination of the two.
Upon termination of employment or on receiving an employee’s written request to close a time bank, the employer must pay the employee any amount credited to the time bank. If at the time of termination, there is a negative balance in an employee’s time bank, the employer is not permitted to set off the amount owing on the employee’s final paycheque.
Exclusions from overtime provisions
The ESA provides for a number of exclusions of certain employees from the hours of work and overtime provisions in Part 4 of the act.
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