Averaging agreements aren’t a silver bullet

Averaging agreements can be useful tools for employers to help manage overtime costs, but they aren’t a silver bullet.

Under the BC employment standards, there are three main benefits from calculating overtime based on an averaging agreement:

  • Overtime on a daily basis, after 8 hours of work, no longer applies. However, daily overtime at double time is still required for work past 12 hours per day;
  • Overtime is not calculated on the hours worked by week, but is based on all the hours worked in the 1 to 4 weeks that may be averaged; and
  • The 32 hours free from work do not have to be provided each single week, but can be grouped together.

These points mean employers may structure shifts where employees work more than 8 hours per day and/or more days than the normal 5 in a row, without triggering overtime. For example, with an averaging agreement an employer can structure schedules under which employees work 10-hour days, for 16 straight days, over a 4-week averaging period. Under such an averaging agreement, no weekly overtime is payable until the straight time hours worked exceed 160. Sixteen days, at 10 paid hours per day, equals 160 straight time hours. After these 16 work days, there must be 12 days free from work, before the 4-week averaging cycle started again, if overtime is to be avoided.

However, there are some fine points in the BC employment standards, that employers must consider, that might diminish the appeal of averaging agreements.

In BC, employers can impose an averaging agreement on new hires. This is done by having letters of offer specify the offer is subject to written acceptance of the averaging agreement’s terms. While not quite so simple, the same can be done for existing employees. Existing employees must give written consent to an averaging agreement, meaning they also have the right to refuse these terms. The only means of overcoming such resistance is by giving written notice that ongoing employment, past the end of the notice period, is contingent on written acceptance of the averaging agreement. In effect, the employer is threatening to terminate, unless employees agree to the new terms and conditions of employment. Some people might not be comfortable with a tactic that might be perceived as “harsh”.

Another consideration is that averaging agreements, at least in BC, require the employer to define pay weeks and pay periods on a Sunday to Saturday calendar week basis. In BC, overtime, even under an averaging agreement, must be calculated on the hours worked between midnight on Sunday morning and midnight on the Saturday night concerned. For example, if a 4-week averaging agreement starts Sunday morning, January 1, 2017, it ends at Saturday midnight, January 28.

This requirement must be read together with the one that says employers must define a work schedule for each day covered in the cycles over which hours of work are averaged. If an averaging agreement covers 4 weeks, the pattern of hours and days worked must be defined for each of the 28 days in that 4-week period. This works well where a large enough group of employees share the same pattern of work, but perhaps not so well were all employees work the same cycle of days worked and time off, but employees start these cycles on different days, i.e. a few employees start a 4-week averaging cycle on Monday, a few more on Tuesday, a few more on Wednesday, and so on. Here, the problem is that each different day on which such a 4-week cycle starts must be defined in a separate averaging agreement. For example, if over a 4-week averaging cycle, a different set of employees started the cycle on each of those 28 days, there would be at least 28 separate averaging agreements required, each with its own unique work schedule.

The final consideration is that employees subject to an averaging agreement don’t have to meet the 15 work days in the prior 30 test, to qualify for statutory holiday pay. Employees on an averaging agreement are entitled to statutory holiday pay if they have any work in the 30 calendar days prior to the statutory holiday. For the February 13, 2017, Family Day, employees on an averaging agreement would be entitled to statutory holiday pay if they have a single day’s work between January 14 and February 12, inclusive. Since statutory holiday pay is the earnings in the 30 prior calendar days, divided by the number of those days worked, an employee, subject to an averaging agreement, who worked a single day on January 16, would be entitled to that days pay again for Family Day. Depending on the nature of the work schedules involved, an averaging agreement might mean a significant increase in the statutory holiday pay owing.

Alan McEwen is a Vancouver Island-based HRIS/Payroll consultant and freelance writer with over 25 years’ experience in all aspects of payroll. He can be reached at armcewen@shaw.ca or (250) 228-5280. If you like these articles, please sign up to my email list to be notified of future postings.

About Alan R. McEwen

HRIS/Payroll consultant and freelance writer
Gallery | This entry was posted in Best Practices, Employment Standards, Payroll / HR sofware and systems and tagged , , . Bookmark the permalink.

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