Overtime pay. Is it just for hourly employees?

The situation

What do you do about clerical, administrative or other salaried staff that work overtime occasionally?

Do you, like many managers and business owners, believe that since employees are on salary, you don't have to pay them for their extra hours? After all, you don't dock their pay for coming in late or leaving early for personal appointments, do you? It all works out even and it seems that you are within your rights not to pay for overtime, correct?

This may come as a shock to you, but overtime pay for salaried employees doesn't work that way. If you are a manager or business owner with salaried employees, it is critical that you are familiar with overtime legislation. Take five minutes to read on and save yourself some potential problems in the future.

The revelation

The fact that an employee is salaried does not mean that you don't have to pay for overtime hours worked.

If you assume that being salaried means no overtime pay you are not alone - this is a common misconception. However, the mode or frequency of payment is not the determining factor.

The issue is whether the employee is covered by, or exempt from, the overtime provisions in the Employment Standards Act (ESA). Those who are exempt, and therefore not entitled to overtime pay, include managers, certain professionals, selected construction workers, resort employees and other specific employees that are mentioned in the ESA. All others, and probably your clerical and admin staff, are entitled to overtime pay at a rate of 1.5 times their regular rate after 44 hours of work per week regardless of whether they are paid on a salaried or an hourly basis.

You may pay for extra hours worked at the regular rate if they total less than 44 in a week. For example, if the normal work week is 37.5 hours, the regular rate of pay applies to the first 6.5 extra hours; subsequent hours worked in the same week would be paid at 1.5 times the regular rate.

As an alternative to overtime pay you may, with the employee's agreement, give time off in lieu of overtime pay. The time off would also be at a rate of 1.5 times the regular rate. (Please check the ESA, your Human Resource contact or with your employment lawyer for further important details.)

The problem

"But," you ask, "How do I know how much overtime they are working if they are salaried? We don't keep track of their hours!" This is another common misconception: that if your non-exempt employees are salaried, you don't have to record their hours worked. As an employer you do, in fact, have an ESA obligation to keep track of their working hours, so that you can pay them appropriately.

The solution

We suggest that you set up a system whereby you can record the staff's daily working hours. (This could be as simple as only recording exceptions to the normal workweek.) You might also consider implementing a policy that requires that employees obtain management approval before they work overtime hours. That way, you won't be surprised by submissions of extra hours that you didn't deem necessary.

The philosophy

Issues that affect the employee's paycheque are always very sensitive and deserve your immediate attention. You can and should rectify a situation in which you have not been complying with overtime legislation.

One approach might be to have a meeting and explain to the affected staff that in order to be fair, you will begin keeping track of hours and pre-approving overtime worked. Explain that this is being done in order to compensate them for approved overtime by either giving time off or paying them accordingly.

Employees like to participate in change rather than having it dictated to them, so be flexible and listen to their ideas or concerns for a smooth transition.