Overtime rates on commissions or other incentive earnings

For most employees paid by the hour, or even on a fixed salary, overtime rates are based on an employee’s regular hourly rate. But what happens when employees aren’t just paid on the basis of time? How are overtime rates calculated when employees are paid partly or wholly on an incentive basis?

Here, by incentive, we mean employees not paid strictly on the basis of time, either an hourly wage or a fixed salary. This includes employees in receipt of bonuses, commissions or piece rate earnings. Also keep in mind the distinction between employees paid wholly on some basis other than time, and employees paid partly by time and partly on an incentive basis. In some cases, there are different rules in these two situations.

For employees paid at least partly on an incentive basis, there are at least three different scenarios.

First, in some jurisdictions there are no special rules that apply to such employees.

In ON, QC, PE, YT and NU, this is because the same rules apply to all employees without distinction. In these jurisdictions, the regular rate used for overtime purposes is based on the applicable vacationable earnings, with no special rules for converting nominal or salaried amounts to an hourly basis. A further complication, is that in YT and NU, vacationable earnings are not specifically defined. In practical terms, employers in these two jurisdictions should probably determine the hourly rate to use, based on an average of each employee’s earnings. How this average is calculated should be clearly spelt out in the terms and conditions of employment.

Second, in some jurisdictions, overtime rates are based on the applicable minimum wage. In some cases, this applies to all employees, in others to those paid partly on an incentive basis and in others to those paid wholly on a basis other than time.

In NB, NS and NL, overtime based on the minimum wage applies to all employees, so there aren’t any special rules for employees covered by this article.

In AB, SK and NT, employees paid wholly on an incentive basis are owed overtime based on the applicable minimum wage.

In AB and NT there are special rules for employees paid partly by time and partly on an incentive basis. In AB, this applies to employees paid partly by salary. For these employees, while there are no rules on how to convert salaries to an hourly basis, the hourly equivalent of any salaried earnings applies, where this hourly equivalent exceeds the minimum wage. In NT, the rules are the same, except that this applies to any employees paid partly on any basis of time and partly otherwise.

Third, for all other employees, the regular hourly rate that applies for overtime purposes is based on an average of each employee’s earnings. The following chart shows the factors involved in this averaging.

Note, there is an exception for employees in MB, for employees paid partly on an incentive basis. First, where employees are paid partly on the basis of time, add the resulting hourly rate for incentive earnings to the time based portion of their earnings. Second, the incentive portion can be ignored if either the time based portion is at least twice the minimum wage or incentive wages are paid at an overtime premium during any overtime hours worked.

Requirements for Averaging an Hourly Rate, For Overtime Purposes
Jurisdiction Employee Type Earnings Hours Used in Averaging Time Period/ Conversions
BC Paid partly or wholly
on an incentive basis
Actual gross earnings except, tips, discretionary bonuses, allowances and expense reimbursements. All hours worked, including
reporting or call-in pay hours
The pay period
AB Paid partly by incentive and partly on some basis other than a salary Gross earnings other than overtime, vacation and statutory holiday pay, wages in lieu of notice, tips, discretionary bonuses, allowances and expense reimbursements   No rules for converting nominal earnings to an hourly basis.
SK Paid by distance travelled Hourly rate is 64 times the per kilometre rate
  Paid wholly by incentive Overtime rates are time and a half the applicable minimum wage.
  Paid partly by time and partly otherwise Actual gross earnings, except overtime, vacation and statutory holiday pay The actual hours of work in the calendar week, to a maximum of 40 Sunday to Saturday
calendar week. No rules for converting semi-monthly or annual earnings to the hour.
MB Paid wholly on an
incentive basis.
These incentive earnings The hours worked in the current pay period The pay period
NT Paid wholly on an
incentive basis.
Overtime rates are time and a half the applicable minimum wage.
  Paid partly by time and partly otherwise Overtime rates are based on the greater of minimum wage and the hourly rate for any wages or salary.  No rules for converting nominal earnings to an hourly basis.
Federal Paid partly or wholly
on an incentive basis
Gross earnings, except tips and gratuities, vacation pay, statutory holiday pay, paid bereavement leave and overtime The actual hours of work, excluding overtime No rules for converting nominal earnings to an hourly basis.

 

Alan McEwen is a payroll consultant and freelance writer with over 20 years’ experience in all aspects of the industry. He can be reached at armcewen@cogeco.ca, (905) 401-4052 or visit www.alanrmcewen.com for more information. This first appeared on the Canadian HR Reporter and Canadian Payroll Reporter web sites on November 27, 2012.

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About Alan R. McEwen

HRIS/Payroll consultant and freelance writer
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