Overtime Pay Rates for Workers on Commission

Overtime Pay Rates for Workers on Commission

How can you determine Overtime pay rates in relation to regular pay rates?

Workers on commission generally lack certainty around what their pay rates are. Outlined below are the steps you can take to calculate your overtime rate.

Minimum overtime pay rates can be found in Ontario’s Employment Standards Act. S. 22 of the ESA mandates that overtime pay is owed at a rate of at least 1.5 times a worker’s regular pay rate. Calculating a worker’s regular pay rate varies depending on how a worker is paid. For hourly workers, the regular rate is the amount earned by the worker for working an hour, not counting overtime pay. For everyone else, including workers on commission, the regular rate is the amount earned in a work week divided by the number of non-overtime hours worked in that week. This second method of determining a worker’s regular pay rate was at issue in Ontario (Director of Employment Standards) v Sleep Country Canada Inc., (Sleep Country).

In Sleep Country, the second method for determining the regular rate of earnings was challenged. The Director of Employment Standards argued that the second method should be calculated by dividing all earnings for the week by the non-overtime hours. Instead, following a previous case on the issue, RBC Insurance Agency Ltd Agence D’Assurances RBC Ltee. v Shahzad Ali, the Court held that the second method is calculated by determining how much a worker earned during the first 44 hours of the week, thus excluding any earnings from overtime hours. The Court did not want to treat hourly workers and workers on commission differently, and this interpretation ensures that all workers are treated in the same manner, as their regular rate is simply the number of hours worked prior to any overtime hours. Furthermore, the Court noted that this interpretation maintains and clarifies the difference between the regular rate of earnings and overtime earnings.

For workers on commission, Sleep Country provides a sense of certainty regarding their regular pay rate. The regular rate for workers on commission is the amount they earned from the first 44 hours of work within a week, excluding all overtime amounts. After those 44 hours of work, overtime rates apply.

Minimum Overtime Rates and Overtime Rates Exceeding the Minimum

If a worker on commission works more than 44 hours in a week, overtime rates apply. But what happens when you are paid below or above the mandated overtime minimums in the ESA? In Sleep Country, the Court provided an answer for this problem. The ESA mandates that overtime pay is owed at a rate of at least 1.5 times the regular rate earned. This means that workers on commission, like those in Sleep Country, are entitled to at least 1.5 times the pay for every hour worked above 44 hours. But the Court also notes that the ESA entitlements around overtime only cover minimum overtime payments. The problem is that, in Sleep Country, overtime “overpayments” were balanced out with overtime underpayments. The Court in Sleep Country rejected this approach, holding instead that payments made below the minimum overtime rates must be increased to the minimum standard. This follows established case law, like Machtinger v HOJ Industries Inc., which indicate that minimum standards legislation, like the ESA, cannot be breached or contracted out of under normal circumstances. Thus, the Court held that Sleep Country had to pay overtime at the minimum rate for the hours it previously paid below that rate.

Sleep Country also dealt with the issue of overtime “overpayment”, in other words, overtime paid at a rate above the ESA minimum of 1.5 times the regular rate. The Court held that the ESA merely outlines what is required as the minimum overtime payment, so any increase above and beyond the minimum overtime rate is completely permitted. However, the Court kept open the possibility that employers and employees can agree in the employment contract that overtime will be paid at the minimum overtime rate established in the ESA. When this happens, the Court suggests that such an agreement will be adhered to, meaning overtime payments greater than the agreed upon rate could be reduced to adhere to the terms of the agreement. Nevertheless, the Court held that paying an overtime rate greater than 1.5 times the regular rate after previously paying an overtime rate below the ESA minimum standards for overtime does not make up for the previous failure to adhere to the ESA minimum standards. Instead, the minimum overtime rate must be always complied with or exceeded. Consequently, Sleep Country establishes quite clearly that ESA overtime rates are merely minimums that must be adhered to, and any overtime paid over and above the minimum rate is entirely permissible. If you have any questions or need further assistance, please feel free to contact us.

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