How to Calculate Overtime for Commissioned Salespeople

Written on behalf of Peter McSherry

It’s a common myth that only employees who are paid on an hourly basis are entitled to overtime pay. However, many employees in Ontario are entitled to overtime, including many salaried employees and commission-based sales employees.

What Is the Standard for Overtime Compensation?

Ontario’s Employment Standards Act sets out the minimum standards for many non-unionized employees, including overtime pay. Under the Employment Standards Act, employees are entitled to overtime pay for each hour of work over 44 hours in a week. The rate of pay is 1.5 times the regular rate of pay for the work.

If an employee has more than one rate of pay, the overtime rate is applied to the relevant rate for the overtime work. For example, an employee may have different rates for different tasks, such as a rate of pay for childcare of $18/hour and a rate of pay for tutoring of $24/hour. If the overtime work is related to tutoring, the overtime rate of pay is $36/hour. If the overtime work is related to childcare, the overtime rate of pay is $27/hour.

Who Is Eligible for Overtime Compensation?

While most employees covered by the Employment Standards Act are eligible for overtime pay, exceptions include:

• Hours of work that are covered by a valid averaging agreement;
• Employment governed by a valid agreement that provides time off in lieu of overtime pay;
• Certain professions, including lawyers, engineers, architects, teachers, firefighters, hunting or fishing guides, taxi cab drivers, ambulance drivers, and information technology professionals.

Overtime Pay for Commissioned Salespeople

Regulation 285/01 of the Employment Standards Act (“When Work Deemed to Be Performed, Exemptions and Special Rules”) provides that a worker is not eligible for overtime when they are employed:

(g) as a salesperson or broker, as those terms are defined in the Real Estate and Business Brokers Act, 2002; or

(h)  as a salesperson, other than a route salesperson, who is entitled to receive all or any part of his or her remuneration as commissions in respect of offers to purchase or sales that,

(i)  relate to goods or services, and

(ii)  are normally made away from the employer’s place of business.

There are many commissioned salespeople that remain eligible for overtime compensation. Sales roles that involve performing duties at the employer’s place of business would likely fall outside of the regulated exemption.

Exemptions for Managers

Regulation 285/01 of the Employment Standards Act states that the standards for overtime pay do not apply to “a person whose work is supervisory or managerial in character and who may perform non-supervisory or non-managerial tasks on an irregular or exceptional basis”.

As per the wording of this exception, simply calling someone a “manager” does not mean the exemption automatically applies. The employee may only perform non-managerial or non-supervisory tasks on an irregular or exceptional basis. If a manager routinely performs other tasks and does not have the authority to hire or terminate employees, they may still be eligible for overtime pay, regardless of their “manager” title.

Recent Case Law on Overtime Pay Entitlement for Commissioned Salespeople

In 2021, the Ontario Labour Relations Board heard two separate cases involving overtime compensation for commissioned sales employees just a few months apart: RBC Insurance v. Ali and Sleep Country Canada v. Molodkova

Overtime Hours “Permitted” by Employer: RBC Insurance v. Ali

Under the regulations of the Employment Standards Act, work is deemed to be performed when work is “permitted or suffered to be done by the employer”. The employee in RBC Insurance v. Ali provided evidence that it was known he was putting in significant hours of work, and no one took steps to stop him. The employer provided evidence that the employee never told managers he was working in excess of 44 hours.

The Ontario Labour Relations Board determined that there was sufficient evidence demonstrating that the employer ought to have known about the overtime hours:

“Having enabled Mr. Ali with a computer and VPN to work remotely and having no policy that prohibited or prevented overtime work, in light of a Compensation Plan structured to reward sales (with no apparent time limitation) RBC IA ought to have known that Mr. Ali was working overtime.”

The Board noted that the employer did not take reasonable steps to stop the excess hours of work.

How to Calculate Overtime Pay: Sleep Country Canada v. Molodkova

The formula for overtime pay was set out in RBC Insurance v. Ali and applied by the Ontario Labour Relations Board again in Sleep Country Canada v. Molodkova.

The Board determined the appropriate formula is as follows:

[(Variable Compensation earned for the entire week x (44 ÷ (44+OT hours)) ÷44] x 1.5

For example, if an employee is in electronics sales and receives $1,000 in commission compensation for one week, and worked 60 hours that week, the formula would apply as follows:

[($1,000 x (44 ÷ 60)) ÷ 44] x 1.5 = $25

The Ontario Labour Relations Board determined this formula allows for overtime compensation based on the appropriate regular rate of pay. Writing for the Board, Vice-Chair Leonard Marvy wrote:

In my view the last calculation is in keeping with the statute and its purposes.  It bases a determination of the “regular rate” for variable compensation on only the variable compensation earned prior to the commencement of working overtime and uses that amount of wages to multiply by 1.5 to determine the overtime rate.  This is consistent with the definition of regular rate in s. 1(1)(a) for hourly workers where it is clear that one only uses the “amount earned for an hour of work in the employee’s usual work week, not counting overtime hours”. 

Contact Peter A. McSherry in Guelph for Advice on Unpaid Overtime

Employment lawyer Peter A. McSherry provides experienced and trustworthy advice to employees on their entitlement to pay for overtime hours. To find out how our office can help you with your employment law matter, contact us online or by phone at 519-821-5465 to schedule a consultation.