Overtime pay can be a crucial component of an employee’s total compensation. Whether the employee is paid on an hourly basis or earns an annual salary, understanding an individual’s rights and obligations regarding overtime pay is essential.
What is Overtime Pay?
Overtime pay refers to payment an employee receives for hours worked beyond their standard work week. According to the Employment Standards Act (the “ESA”), employees in Ontario are generally entitled to overtime pay if they work more than 44 hours in a calendar week, although there are some exceptions to this threshold. The overtime pay rate in Ontario is 1.5 times the employee’s regular hourly wage, commonly referred to as “time and a half.” For instance, a regular hourly rate of $25.00 per hour turns into an overtime rate of $37.50 per hour for all hours worked above 44 in a week.
Contractual Agreements and Alternatives: Paid Time Off in lieu of Overtime Pay
An employee and employer may contractually agree that the employee will be compensated with 1.5 hours of paid time off for each hour of overtime worked instead of receiving overtime pay. This paid time off must be taken within three months of the week in which it was earned or within 12 months if there is a written agreement to this effect. This timeline is accelerated if the employee is terminated prior to taking the paid time off.
Contractual Agreements and Alternatives: Averaging Agreements
Employers and employees in Ontario can also enter into an “averaging agreement,” which allows the employee’s hours to be averaged over a specified period, up to a maximum of four weeks. This can be beneficial when an employee’s hours fluctuate significantly from week to week.
Under an averaging agreement, overtime is calculated based on the average number of hours worked over the entire averaging period, rather than on a weekly basis. For example, if an employee works 90 hours over a two-week period, the average is 45 hours per week, entitling them to one hour of overtime pay per week, or two hours in total. Employees should have a written agreement outlining the terms, such as a start date and an expiry date.
Exemptions for Overtime Pay
In Ontario, most employees are covered under the ESA and therefore entitled to overtime pay. However, there are exceptions and special rules for certain employees.
One of the common exemptions under the ESA relates to managers and supervisors. Simply having a managerial title does not automatically exempt the employee from overtime pay. Rather, what matters is whether the substance of their role is truly managerial.
Regulated professionals such as lawyers, physicians, public accountants, and architects are also exempt from overtime pay.
Are Salaried Employees Exempt?
A common misconception is that overtime pay is only available to hourly wage employees. To the contrary, there is no exemption for salaried employees under the ESA and salaried employees are also eligible for overtime pay.
Employer Obligations
Employers in Ontario have a legal obligation to pay overtime wages to eligible employees as a failure to comply with overtime pay regulations can result in legal consequences and financial penalties. Both employers and employees should maintain accurate records of hours worked, especially in the event there is a dispute regarding an employee’s overtime pay.
Understanding overtime pay in Ontario is essential. It ensures fair compensation for extra work and helps maintain compliance with employment laws. If you have any questions or need assistance with overtime pay issues, or if you would like us to review your unique over time pay situation, our team at Simes Law is here to support you.
In addition, here are 3 reasons to have an Employment Lawyer review your contract.
