Overtime Mishaps to Avoid

BMO and Scotiabank made headlines recently when they settled their overtime class-action lawsuits.  It came at a steep cost though.  Scotiabank paid nearly $40 million plus another $12.5 million in legal fees to defend 2 lawsuits while BMO settled theirs for $12.5 million.

 

Overtime pay is one of the top 5 complaints filed with the Ontario Ministry of Labour in 2015.  Employers are exposed to huge liabilities in this area since there’s no longer a limit to how much an employee can claim for unpaid overtime under Employment Standards (ESA).  Retroactive payments can be ordered going back years in some cases of non-compliance.

 

In continuation of the Small Business HR Mistakes blog series, this 3^rdpost will shed light on 7 costly errors employers make (and should avoid) when it comes to overtime.

 

 

This is probably one of the biggest misconceptions out there – especially among smaller companies.  In Ontario, most non-management employees (with some exceptions) are entitled to overtime pay at a rate of time and a half once hours of work exceeds 44 hours in a week.   Whether employees are paid on salary or hourly, overtime rules apply.

 

 

When it comes to qualifying for overtime, job titles don’t matter.  As mentioned in the first post of this series, the authorities look at the job itself to determine if it is in fact managerial in nature by meeting certain criteria for exemption (i.e. have direct reports, can hire/fire, manage a budget, authority to make important business decisions etc).  Misclassifying employees can be a very costly ordeal as an investigation can expand beyond the initial complaint to include other employees within the same group, thus increasing an employer’s financial risk even more.

 

 

Payment for overtime is calculated at 1.5 times the regular hourly rate once the 44 hours threshold is met.  However, many employers are under the impression that the calculation for banked time is at straight time instead.  This is a mistake.  If an employee opts to take time off in lieu of payment, the same calculation applies (i.e. 2 hours OT = 3 hours banked).  Also, a written agreement to elect this option is further required by the ESA so as to allow time off to be taken beyond the 3 months limit – something that many employers are unaware of.

 

 

The onus is on employers to keep accurate records of all pay, time-off and hours worked by an employee.  These records must also be retained for several (minimum 3 years in Ontario) in case the Ministry of Labour (MOL) comes knocking.   An employer’s failure to maintain such records renders it defenseless in the face of a complaint and MOL would be inclined to order payment in favour of the employee as a result.

 

 

Employers need not explicitly request or authorize an employee to work overtime in order for the time to be compensated.  Employers are obligated to pay for any legitimate overtime hours worked.  If you are aware that an employee is working overtime and did nothing about it, it can be construed that management condoned the behavior and in effect consented to the overtime work.  It is incumbent on the employer to control and monitor all hours of work and establish clear policies on overtime to spell out the expectations so that liabilities can be minimized.

 

 

Nowadays, technology has made it possible for work to be done anytime anywhere.  Employees are more accessible as well with company provided electronic devices.  As an employer, this can spell trouble and can invite overtime abuse without clear policies on what the expectations are considering work can easily extend beyond regular hours.  Whether you expect your non-management staff to check and respond to emails after hours or you notice emails are sent by employees once work is out but allowed it to continue on a regular basis, these are all examples where companies can potentially face significant overtime liabilities if not controlled and managed from the outset.

 

 

An example of this is increasing an employee’s salary to compensate for the expectation of working longer hours without having to keep track of specific overtime hours.  This is a big no-no.  It is illegal to contract out of the ESA.  Such an agreement will not stop a disgruntled employee from further pursuing an overtime claim as the employer would still be on the hook to pay out for legitimate claims.  In effect, you may risk paying twice as much than anticipated under this scenario.

Knowing that the financial ramifications can be steep if you fall into any of the overtime traps mentioned in this article, it is important to understand your obligations to avoid any surprises down the road.

 

Here are some tips for employers:

 

If you find the information shared in this blog helpful, check back or follow me for Part 4 (final) of this series which will focus on common HR mistakes companies make at the end of the employment relationship.  If you missed Part 1-2 of this blog series, you can read it here.