Updated: Jan 10, 2020
If you are a non-union Ontario employer and your operations involve sporadic overtime due to operational requirements, recent amendments to the Employment Standards Act, 2000 (the “ESA”) made by the Ontario Conservative government may help reduce your labour costs. If your business is seasonal or cyclical, such that it requires periods of intense overtime to meet required production or service levels, the overtime provisions of the ESA come into play and need to be considered.
The ESA requires an Ontario employer to pay its employees 1.5 times their regular wage rate for each hour worked in excess of 44 hours per week. The ESA also sets the maximum limit of hours that an employer may require an employee to work at 48 hours per week. However, the ESA provides a mechanism to override both statutory employment standards. The ESA allows for an employer and employee to enter into a written Overtime Averaging Agreement that permits the employer increase the maximum number of hours beyond 54 hours per week and to average the number of overtime hours worked by the employee over a time period that encompasses a number of weeks, rather than calculating the number of overtime hours worked on a weekly basis. Employers who find that their overtime requirements vary from week to week in a given month can take advantage of the overtime averaging provisions of the ESA to increase the number of hours worked and to reduce the overall amount of overtime that they must pay out.
Prior to the enactment of Bill 66, Restoring Ontario’s Competitiveness Act, 2019, which received royal assent on April 3, 2019, in order to put an Overtime Averaging Agreement into place, an Ontario employer had to follow a two-step process. First, the employer had to enter into a written Overtime Averaging Agreement with its employees. Second, the employer then had to make an application to the Director of Employment Standards to have the Overtime Averaging Agreement reviewed and approved. Approval was a matter of discretion for the Director of Employment Standards, rather than a matter of right. Furthermore, the maximum time period over which the employer could average the overtime hours was 2 weeks.
With the passage of Bill 66, the ESA has been amended in three important respects. First, an Ontario employer no longer must post posters advising Ontario employees of their statutory rights under the ESA. Second, an Ontario employer no longer must make an application to have an Overtime Averaging Agreement approved by the Director of Employment Standards. Third, the maximum time period over which the overtime hours can be averaged was increased from 2 weeks to 4 weeks.
A simple comparison sets out the advantage of implementing a written Overtime Averaging Agreement post-Bill 66.
Alpha Industries does not have an Overtime Averaging Agreement in place. In a given month, due to operational requirements, Alpha Industries needs its employees to work 40 hours in week 1, 40 hours in week 2, 48 hours in week 3 and 48 hours in week 4. Having no Overtime Averaging Agreement in place, Alpha Industries would have to pay each employee:
· 40 hours at their regular wage rate for week 1;
· 40 hours at their regular wage rate for week 2;
· 44 hours at their regular wage rate plus 4 overtime hours at 1.5 times their regular wage rate during week 3; and
· 44 hours at their regular wage rate plus 4 overtime hours at 1.5 times their regular wage rate during week 4.
Over this 4-week period, Alpha Industries would pay each employee a total of 168 hours at the employee’s regular wage rate and 8 hours of overtime at 1.5 times the employee’s regular wage rate.
Alpha Industries’ main competitor, Beta Industries, has an Overtime Averaging Agreement in place that allows it to average the of overtime hours worked by its employees over a 4-week period. Beta Industries needs each employee to work 40 hours in week 1, 40 hours in week 2, 48 hours in week 3 and 48 hours in week 4. Since the Overtime Averaging Agreement permits Beta Industries to average the number of overtime hours worked over a 4-week period, Beta Industries must only pay each employee a total of 176 hours at the employee’s regular wage rate. Beta Industries does not have to pay any overtime to any employees at 1.5 times the employee's regular wage rate. By simply implementing an Overtime Averaging Agreement, Beta Industries can save paying out 8 hours of overtime at 1.5 times the employee’s regular wage rate over a 4-week period.
For Ontario employers whose operations require employees to work varying amounts of overtime in order to meet desired production or service levels, a properly drafted and implemented Overtime Averaging Agreement can reduce the cost of the labour inputs required to achieve the desired results.
If you are a non-unionized Ontario employer facing this situation, Tyler Inkster can assist you with properly drafting and implementing an Overtime Averaging Agreement. Tyler can be reached at email@example.com.