What is overtime pay?
Overtime (OT) pay is the wage paid to employees for each hour they work beyond the expected eight hours per day or 40 hours per week. Under the Canada Labour Code , the federal expectation is that employees receive 1.5 times, also known as time and a half, their normal wage for each overtime hour. While specific regulatory details are subject to change based on the province where your company’s located, the labour code sets federal regulations that each province needs to obey.
For example, companies in Alberta pay employees 1.5 times their normal wage for each hour worked, under the federal guidelines. In contrast, employers in British Colombia pay 1.5 times the normal wage for overtime hours, but they double the normal wage when an employee works over 12 hours in one day. The employer is responsible for ensuring that employees receive fair compensation for hours worked above the expectation.
Who can earn overtime pay?
Both salaried employees and those paid an hourly wage are eligible to receive OT. Certain roles are exempt from receiving extra payment. For example, people in management roles aren’t typically eligible. High-earning professionals, like doctors, are also exempt. This differs in each province. As an employer, it’s important to examine your provincial regulations before creating overtime policies.
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How to calculate overtime pay accurately
Follow these steps to calculate overtime pay for your employees in compliance with government regulations:
1. Verify the employee’s eligibility
When completing payroll for the current pay period, double-check the status of the employee requesting overtime. Familiarize yourself with local and federal laws before signing off on extra pay. Ensure that you compensate each employee fairly for the work they’ve done.
2. Calculate the number of overtime hours
Determine how many hours the employee worked above the expected eight per day and 40-44 per week. In New Brunswick, Ontario, and Alberta, the employee only receive the time and a half pay increase when they’ve worked over 44 hours. Nova Scotia and Prince Edward Island OT begin at 48 hours per week. Other provinces count OT after 40 hours of work.
Federal regulations allow OT to be counted daily or weekly. The employee’s entitled to whichever amount is higher. For example, if Diane works 10 hours on Monday and Tuesday, but only seven hours the rest of the week, that adds up to 41 hours for the week and only one hour overtime when calculated weekly. In contrast, counting it by day shows that Diane worked two hours of OT on Monday and Tuesday, adding up to four hours of OT.
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3. Calculate how much overtime pay the employee is eligible to receive
Next, calculate the amount of pay the employee is eligible to receive for working overtime. Multiply the standard wage by 1.5 for each extra work hour to calculate the overtime rate.
Example: Diane worked four hours of OT. She normally receives $20 an hour. Calculate overtime pay per hour: $20 x 1.5 = $30 an hour
4. Calculate the employee’s total salary
Last, calculate the amount of pay the employee is eligible to receive for the entire pay period. Add the amount of OT pay to the standard pay they earn each week.
Example:
- Calculate normal weekly pay: Hours worked x standard hourly wage: 40 x $20 = $800
- Calculate total OT pay: Overtime hours worked x overtime hourly wage: 4 x $30 = $120
- Calculate total pay for the week: Standard pay + overtime pay: $800 + $120 = $920
Diane’s paycheque for the week is $920.
Frequently asked questions about overtime pay
Is overtime pay taxed?
Yes. Employers need to alert employees that the government deducts Canada Pension Plan contributions, income tax, and other regular taxes from overtime payments. Calculate the deduction amount based on the total pay the employee received for the week, overtime included.
Is overtime pay required when working overnight or on the weekends?
No. The amount of pay that overnight employees receive relies on the agreement between the employee and employer. Abnormal, overnight, and weekend hours aren’t eligible for overtime pay unless they exceed the employee’s expected amount of hours.
Do independent contractors receive overtime pay?
It depends. Independent contractors and freelancers enter employment contracts and typically receive payment through invoices. The employer isn’t responsible for paying overtime or deducting taxes from these employees’ pay.
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Can employers require employees to work overtime?
In most instances, no. Employers may offer overtime hours to employees but cannot mandate it. If an employee does work overtime, the employer needs to compensate them for their time.
Does travel for work count as overtime?
It depends. Travelling to and from work doesn’t qualify for overtime pay. In contrast, travelling to a new location for a conference or business trip may qualify, depending on the province.
