How to Calculate a Regular Rate of Pay

Written on behalf of Peter McSherry

The concept of a 40-hour workweek does not necessarily apply to everyone’s job. For many people, various aspects of their job may necessitate working more than 40 hours per week, so it is important to understand your overtime pay entitlement. Ontario law does not provide entitlement for everyone to receive overtime pay; however, if you are entitled to it, you should make sure that you are being properly compensated. If you do not believe that you have been appropriately compensated for your overtime hours, it is important to seek legal advice.

A recent case from the Ontario Superior Court of Justice explored how a “regular rate” of pay should be calculated in relation to overtime hours. In this case, the Court’s decision dealt with the issue of calculating employees’ unpaid wages and focused on whether the employees’ “regular rate” of pay should include overtime hours or not.

Salespeople seek overtime pay

In the matter of Director of Employment Standards v Sleep Country Canada, two employees were salespeople for a Canadian mattress and bedding company (“the employer”). They were each paid an hourly rate during their training with the employer. However, when the employees began working as salespeople, their compensation structure changed to commission.

The employees filed claims with the Employment Standards Branch of the Ontario Ministry of Labour, Training, and Skills Development in order to seek payment for overtime work in accordance with overtime provisions in the Employment Standards Act. Following the application, Employment Standards Officers assessed the claims and ordered the employer to pay the employees outstanding wages of $37,447.92 to Ms. Molodkova and $610.74 to Mr. Pane, respectively.

Employer seeks review of decision

The employer sought review of this decision. Upon review, the Ontario Labour Relations Board (the “Board”) lowered the amount owing to the employees on the basis that the “regular rates” were calculable based on commissions earned before any overtime hours worked in a week, as opposed to being inclusive of commissions earned during overtime work. In this instance, the employer was deemed to owe $1167.18 to Ms. Molodkova and was entitled to reconcile $370.23 which was overpaid to Mr. Pane.

The Director of Employment Standards (the “Director”) appealed this decision, arguing that the “regular rates” of pay for the employees should be their total earnings divided by non-overtime hours worked for any given week. This could be considered an attempt to secure more overtime pay for the employees since the Board’s calculation did not include earnings made in overtime, thus resulting in a smaller number to divide into the hours worked.

The Director argued that the legislation was not intended to reduce an hourly rate calculation when an employee works more hours.

How should overtime pay be calculated?

The Court began its analysis by considering the Employment Standards Act, which defines “regular rate” as:

“(a) For an employee who is paid by the hour, the amount earned for an hour of work in the employee’s usual work week, not counting overtime hours,

(b) Otherwise, the amount earned in a given work week divided by the number of non-overtime hours actually worked in that week.”

In this case, the employees were not paid by the hour, and therefore, they fell under the second category.

The Director submitted that the Board’s interpretation of the statute was an “impermissible rewriting of the statute” and argued that the Board’s decision essentially rewrote “amount earned in a given week” to read “amount earned in a given week prior to working overtime hours.”

Despite the parties’ agreement on the total hours to be used in the calculation of the “regular rate,” the question remained of whether non-overtime hours are divided into hours worked before overtime or inclusive of it.

Board argues Employment Standards Act differentiates between two rates of pay

The Board claimed that they looked at other provisions of the Employment Standards Act, which differentiated overtime pay from an employee’s regular rate. Specifically, section 22 states that:

“22(1) Subject to subsection (1.1), an employer shall pay an employee overtime pay of at least one and one-half times his or her regular rate for each hour of work in excess of 44 hours in each work week, or, if another threshold is prescribed, that prescribed threshold.”

The Board argued that the Employment Standards Act itself already states that the “regular rate” is an employee’s normal hourly pay. This is used to calculate the overtime rate of pay, which stands separate and apart from “regular” hours of work. The Court appreciated the Board’s interpretation and found that the Employment Standards Act distinguished between the two pay rates, namely regular and overtime.

Court upholds Board’s calculations

The Director was also concerned that the Board’s interpretation led to an absurd result, further stating that in some situations, calculating a “regular rate” of pay would mean that the more overtime hours an employee worked, the less their regular rate of pay would be. However, the Court found that this concern was not relevant to the facts in this case because the employer calculated the commission after a sale was complete. This calculation process allows the employer to calculate commissions made both during overtime hours and in overtime.

The Court also noted that overtime hours at this specific place of employment are voluntary and that salespeople, such as these employees, were not required to work beyond 40 hours per week. The Court also noted that the Director’s calculation would see someone earning more than they are entitled to if rates of 1.5x the normal rate are applied to overtime hour calculations. For these reasons, the Court upheld the Board’s calculation.

Contact Employment Lawyer Peter A. McSherry in Guelph for Advice on Overtime Wage Entitlement

Peter A. McSherry has years of experience assisting employees with various employment-related issues. We work with our clients to protect their best interests and pursue fair solutions to workplace disputes. If you believe you are owed overtime payment, or require assistance in securing your pay or severance entitlements, contact us by phone at 519-821-5465 or online to schedule a confidential consultation.