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The Key Components to Setting Up Payroll – Part 5.6: Payroll Policies, Overtime & Banked Time

7 mins read

This article is written to provide you with a brief understanding of overtime and the different ways it can be administered that still meet the minimum requirements of Employment Standards.

Overtime can be a costly payroll expense, especially during those busy seasons when employees may be required to work beyond their regular scheduled hours. Overtime is generally paid out at 1.5x the employee’s hourly wage rate for the hours worked in excess of their daily or weekly hours, 8 hours or 40 hours, respectively. Generally, those who are eligible for overtime pay are those who are hourly paid, do not work in a managerial or professional level, and may work in industries such as, but not limited to:

    • Healthcare
    • Trades
    • Oil & Gas
    • Mining & Minerals
    • Agriculture and Fisheries
    • Restaurants

When it comes to overtime eligibility, how it is administered will vary between industries, collective bargaining agreements, and company practices. It is always best to check Employment Standards to understand the minimum requirements, as not all rules always apply. Remember that professionals* are defined as individuals who generally work in an office environment.

Now, what if we told you that there is another way you can compensate your employees for working overtime besides paying them out, while remaining compliant with Employment Standards?

One cost savings approach you can take, which is becoming a leading trend, is implementing an Overtime & Banked Time Policy. This policy not only defines who is eligible for overtime, but also clearly defines how your company administers it, which could also protect your company from any potential legal matters. Remember, your policy must comply with the minimum requirements set forth by Employment Standards or “be better than.” “Be better than” means that your policy goes above and beyond the requirements set by the government.

Did you know that businesses can provide their employees the option to bank their overtime for future time off, rather than always paying employees out? This is something that you can have defined in your policy as well! By having this written in your policy, employees will understand that they have options, and many will choose to have more paid time off than being paid out overtime.

You might be thinking to yourself, “More time off?!” or “How does this benefit my company?”

Yes, it’s true, your employees would potentially be taking more time off. However, they will be taking their additional time off at 1.0x their regular hourly rate and will not be paid out at 1.5x. Just remember that any banked time left unused is still paid out to the employee at 1.5x at the end of the year.

In some instances, you can allow employees to carry forward their banked time with their approval, if you do not have the financial backing to pay them out at the end of the year. Just ensure to keep all documentation with this agreement for auditing purposes and to protect your company.

When your company has an Overtime & Banked Time Policy, you clearly define how your company administers overtime and who the policy applies to. It is important that everything is clear to employees when it comes to their pay and incentives, ensure that they have access to view all company policies, so they are not kept in the dark. This will not only make certain they are aware and educated, but it will also protect your company from any legal matters that could arise.

By implementing a policy like this, you should begin to see the cost savings that are associated with it as less employees are being paid out overtime and are instead exercising their option for more paid time off. Just remember that overtime is required to be paid for hourly non-exempt employees for the hours worked over their scheduled daily or weekly hours, 8 hours or 40 hours respectively. However, how it is administered will vary between industries and company practices.

Now that you have a general understanding of overtime and banked time, stay tuned for part 5.7 of this series where we discuss Annual Vacation and Vacation Pay. If you would like to know more about your industry’s overtime practices, please let a BIG representative know!

Download the Setting Up Payroll: Part 5.6 – Overtime & Banked Time – Guide and Template (zip).

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Visit our Resource Library for all available downloads.

If you require assistance with any of the guides, forms or templates, please contact a BIG representative.

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