In my last blog, I talked about which employees are entitled to overtime pay. In this blog, I’ll be talking about:
- how much overtime pay employees are entitled to;
- how you can avoid paying overtime by having an hours averaging agreement; and
- common mistakes (time off in lieu of overtime pay and excess hours)
When and How Much Overtime Should You Pay Your Employees?
The general rule in Ontario, according to the Employment Standards Act 2000, S.O. 2000, c. 41 (the “ESA”), is that overtime pay must be paid:
(a) at a rate of 1.5 times the regular rate of pay (often called time and a half)
(b) for each hour in excess of 44 hours in each work week
What does this mean?
Let me give you an example: Your office was very busy last week and your assistant Diane (who gets paid $20/hour) worked 48 hours. This means that Diane is entitled to get paid 44 hours at her regular rate of pay and the remaining 4 hours would be paid at 1.5 times her regular pay (being $30/hour). This week, Diane made $1,000 before tax / deductions.
I should add here that salaried employees are not exempt from overtime hours unless they fall into one of the categories of employees exempt from the overtime provisions of the ESA.
In order to avoid paying overtime, most dentists cap their employees’ hours at 44 hours / week. Another way to keep overtime hours in check is to prohibit employees from working over 44 hours per week unless they submit a request to work overtime in writing. But, there are other ways to lawfully avoid paying overtime…
How to Avoid Paying Overtime
Hours Averaging Agreement
According to the ESA, an employer can choose to average an employee’s hours over two or more consecutive weeks for the purposes of determining their entitlement to overtime pay provided the employer:
(a) signs an agreement with the employee stating that they agree to have their hours averaged over a specified number of weeks (note: the agreement must expire no more than 2 years after it is made); and
(b) applies for and obtains an approval from the Ministry of Labour to average the employee’s hours (note: it is possible to obtain an approval to average the hours of a specified class of employees so that a fresh approval is not needed for each new employee in that class)
To continue with our previous example of Diane the dental assistant: Last week she worked 48 hours and would have been entitled to 4 hours of overtime pay. This week is a slow one and Diane only worked 38 hours. You have an hours averaging agreement with Diane that says you can average her hours over a consecutive 2 week period. So, if you average Diane’s 48 hour week with her 38 hour week she will only be entitled to 43 hours pay for each week, which means that you will not owe Diane any overtime pay. Let’s do the math:
If you don’t average Diane’s 2 weeks:
Week 1: 44 hrs @ $20/hr = $880 plus 4 hrs @ $30/hr = $120 for a total of $1,000
Week 2: 38 hrs @ $20/hr = $760
Without averaging, Diane’s two weeks of work will cost you a total of $1,760 pre tax / deductions.
If you do average Diane’s 2 weeks:
Week 1: 43 hrs @ $20/hr = $860
Week 2: 43 hrs @ $20/hr = $860
By averaging, Diane’s two weeks of work will cost you $1,720 pre tax / deductions.
You saved $40 by averaging Diane’s slow week with her busy week. Though this does not seem like much, the dollars will add up over a number of years.
Common Mistakes About Overtime
Time Off Instead of Overtime
A lot of dentists ask whether giving employees time off instead of overtime pay is a way to avoid paying overtime. Technically, the answer is YES. Instead of paying overtime pay to employees who work more than 44 hours per week, you can give them 1.5 hours of paid time off work for each hour of overtime worked . This can only be done if the employer:
(a) signs an agreement with the employee stating that they agree to take vacation equal to overtime pay; and
(b) gives the the paid time off work within three months of the work week in which the overtime was earned or, with the employee’s agreement, within 12 months of that work week.
This means that Diane, our faithful dental assistant who accrued 4 hours of overtime last week (when she worked a 48 hour week), provided she has an agreement to take time off instead of overtime pay, would be entitled to 6 hours of paid vacation (being 4 hours times 1.5). Technically speaking, you are not paying overtime rates, but practically speaking, you are paying Diane the same amount of money whether she takes times off instead or not. Lets do the math:
Overtime Pay: 4 hrs @ $30 = $120 pre tax / deductions
Time Off in Lieu: 6 hrs @ $20 = $120 pre tax / deductions
So, as you can see, the time off instead of overtime pay does not reduce the amount you have to pay the employee. However, it is a very useful tool to entice employees who wouldn’t otherwise want to work overtime to do so. They get time off, you get an employee to work longer hours.
Excess Hours Agreements
Another common question by dentists who want to avoid paying overtime is whether having an excess hours agreement with their employee will exempt them from paying overtime. The answer unfortunately is NO and this is why:
The ESA states that, unless exempt, an employee may work a maximum of 8 hours per day or 48 hours per week. However, this limit may be exceeded if the employer:
(a) signs an agreement with the employee specifying the maximum hours they may be asked to work
(b) applies for and obtains an approval from the Ministry of Labour to have the employee work more than the allowed limit up to a maximum number of hours per day and week.
Although the employee may legally work more than 10 hours per day or 48 hours per week, he/she must still be paid for overtime or receive paid time off in lieu of overtime. So this is not a way to subvert the need to pay overtime.
Here is a recap of the lessons learned in these two blogs about overtime pay:
Which employees are entitled to overtime pay?
- Employers and employees cannot opt out of overtime pay provisions of the ESA;
- Some classes of employees are exempt from receiving overtime pay
Who gets overtime pay and how much?
- employees who work more than 44 hour / week get overtime pay equal to 1.5x their wage rate
Can you avoid paying overtime?
- Yes. You can average an employee’s hours so that overtime worked in some weeks may balance out with slower weeks. But this can only be done if you have an agreement with the employee and an approval from the Ministry of Labour
What are common mistakes about overtime pay?
- Excess hours agreements still require the payment of overtime and paid time off in lieu of overtime still requires you to pay the employee the same amount.
Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice, contact DMC.