Managing overtime: What Ontario employers need to know

The Ontario Employment Standards Act governs how employers in Ontario manage overtime. While at times every company may have a need for staff to work overtime, this should be carefully monitored.

Overtime can be administered by paying employees for time worked, or by offering time off in lieu. For the employer, both options present additional costs and scheduling risks.

Employers, overtime and the Ontario Employment Standards Act: Highlights

The Ontario Employment Standards Act details employers’ responsibilities with respect to managing overtime. As an employer, startups should consult this law and seek legal advice as required.

Employers need to treat different classes of employees differently under the Act so make sure you understand who qualifies and the relevant rules.

For employees who qualify for overtime:

• Overtime is generally payable after the employee has worked 44 hours in a work week
• Overtime must be paid at a minimum of 1.5 times the employee’s regular rate. Overtime pay may be taken as 1.5 hours of paid time off (time in lieu) for each hour of overtime worked
• If overtime is taken as paid time off (time in lieu), the employee must take the time off no later than three months after overtime occurred. There are exceptions to this rule
• Overtime may be calculated either on a weekly basis or over a longer period under an averaging agreement

Why Ontario startups should carefully monitor overtime

As the Ontario Employment Standards Act requires employers to pay qualifying employees 1.5 times their hourly rate for time worked above 44 hours in a week, Ontario startups will recognize that overtime pay costs 50% more money.

As the employer, monitoring overtime enables your startup to:

• Oversee and control costs
• Address any risks of too much overtime
• Avoid overtaxing employees, which can lead to problems with health and job satisfaction
• Recognize and eliminate any abuse of overtime
• Recognize when more staff may be required

How overtime affects the employer—and less expensive alternatives

Sustained use of overtime increases salary costs by 50% for the overtime worked. If you, as the employer, offer time off in lieu of pay for overtime worked, the accrued amount of time off can become unmanageable for smaller organizations such as a startup.

Employers, in Ontario and elsewhere, with a regular need for overtime should consider less expensive alternatives, such as hiring more staff (either part-time or temporary), outsourcing or introducing automation or process improvements.

Common overtime mistakes employers can make

• Leaving overtime requirements to the discretion of the employee. This is an employer’s decision. If you leave overtime decisions to employees, you risk overtime becoming an opportunity for an employee to “stay late and catch up on a few things” just to make extra money
• Using full-time employees to regularly work 10 hour days to provide customer coverage. This costs the organization more than necessary and burns out staff
• Allowing overtime to build and accrue indefinitely as time off in lieu. This results in excessive time off that impacts business operations
• Too much reliance on a single resource so that work cannot be shared effectively in times of a heavy workload. For example, this commonly occurs with internet technology (IT) needs

How overtime affects employees

Overtime can be an effective way for an employer to handle short-term pressures. However, if overtime is excessive or sustained, it might be time to look at other alternatives.

Most employees don’t mind working extra hours in a crunch, and some even welcome the opportunity to make extra money. But the willingness will wear off and employees will become tired, frustrated and unhappy in their job. This can have a significant impact on morale and productivity in the longer term.

References 

Ontario Ministry of Labour. (n.d.). Your Guide to the Employment Standards Act, 2000. Retrieved June 12, 2014, from http://www.labour.gov.on.ca/english/es/pubs/guide/publicholidays.php.