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Are ‘Managers’ Exempt from Overtime?

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Here’s a quiz that you can download and give to your staff, CEO, Board or members or senior management to educate them on important aspects of OHS law that impact them personally or the company in general.

Are ‘Managers’ Exempt from Overtime?

Most employers make an honest effort to obey overtime laws. The reason there are so many overtime claims in Canada each year is that the laws are so confusing—especially the one on managers. The rule: Employees don’t get mandatory overtime if they’re managers or supervisors (which we’ll refer to collectively as “managers”). But exactly what functions make someone a manager? And how much time must they spend performing those functions? The laws don’t provide clear answers.

And that puts HR managers in a tough spot. Paying overtime when you’re not required to is a huge waste of money; but not paying employees the overtime to which they’re legally entitled can lead to overtime claims—not just individually but where the misclassification is widespread as multi-million dollar class actions. This article will show you how to determine who’s a manager exempt from overtime.

What The Law Requires

Not every person who works for an employer is necessarily guaranteed the right to receive overtime for long work under employment standards laws. 11 jurisdictions—AB, BC, FED, MB, NS, NT, NU, ON, QC, SK and YT—specifically exempt managers from mandatory overtime. 2 provinces—NB and PE—accomplish the same result by defining managers as “employers” rather than “employees.”

INSIDER Says: Many employment laws also specifically exclude classes of employees from overtime including farm workers, professionals, salespersons, home healthcare workers and domestic workers.

Who Is a Manager?

The line between manager and employee isn’t always clear, especially when individuals perform both managerial and non-managerial duties. To draw it, you must look at your province’s employment standards laws.

Primarily” engaged in managerial duties. MB, NT, NU and YT say that individuals are managers or supervisors if they’re engaged “primarily” in managerial or supervisory duties; but they don’t specifically define what those duties are. Nor are they clear about what constitutes “primarily.” Courts and the CRA generally interpret “primarily” to mean 50% or more, says Ontario payroll expert Alan McEwen.

“Employed” in supervisory/managerial capacity. AB says that the individual must be “employed in” a managerial or supervisory capacity to be exempt from mandatory overtime. “Employed in” presumably refers to how the job is described in the employment contract. NS uses a similar definition—saying managers are employees “holding supervisory or management positions.” (Note that NS also exempts those “employed in a confidential capacity” from overtime).

“Principal” employment responsibilities. BC says that a manager is someone whose “principal employment responsibilities” consist of supervising and directing. Experts suggest that “principally” is more than “primarily” but less than “entirely.”

Non-supervisory tasks on an irregular/exceptional basis. ON defines manager as one “whose work is supervisory or managerial in character” and who may perform non-managerial tasks on an “irregular or exceptional basis.” Again, this definition raises as many questions as it resolves. What does “irregular” mean? It’s different from infrequent. It’s not simply a question of percentage of time. An irregular non-managerial task means something exceptional and that isn’t covered in the job description. For example, an employee required to clean the gutters each spring is performing a non-managerial task infrequently, but not irregularly.

Entirely managerial. SK uses a relatively clear definition. It says a manager must perform services that are “entirely of a managerial character.” That would mean that an employee who performs any non-managerial tasks would be eligible for overtime.

Senior management. QC exempts “senior management personnel” from mandatory overtime. While the labour standards law doesn’t define “senior management personnel,” the government website (www.cnt.gouv.qc.ca) does. It says such personnel includes one: who’s part of senior management; participates in big global decisions of the company (rather than just day-to-day decision-making); enjoys a degree of autonomy; manages management personnel (not just personnel); and is among the highest paid.

What The Law Means

The vague definitions of manager set out in the employment standards laws don’t do a whole lot to clear up the confusion. So, we need to look beyond the statutes to 2 sources of guidance on whether an employee is a manager exempt from overtime under the employment standards laws.

The first source is guidelines issued by the government agency that administers the employment standards laws. The second source of guidance is court cases and arbitration rulings that interpret the manager rules in actual situations. Although rules vary slightly, there are a number of general principles that apply in all jurisdictions.

What Does Not Determine Manager Status

Let’s start by identifying the red herrings:

Not Based on Title: Individuals may be considered managers under the law even if they don’t have the word “manager” in their title; conversely, individuals may be considered not to be managers even if they do.

Not Based on What Job Description Says: Job functions are critical in evaluating an employee’s status as manager or employee. But don’t make determinations based solely on how the individual’s position is described in a written job description. The question will always be what does the person actually do, rather than how is the job described.

Not Based on How Compensation Is Paid: The most common misconception is that employees on a fixed salary are automatically considered to be managers. In fact, managers usually are paid a salary and non-managers an hourly wage. But this has nothing to do with whether the employee is a manager exempt from overtime.

What Does Determine Manager Status?

So what does determine if an individual is a manager? There are 3 factors that regulators, courts, arbitrators and labour boards (which we’ll refer to collectively as “courts”) consider:

1. Supervision of Other Employees

One of the first things courts look at is whether the employee supervises or directs other employees. Indications typically include authority to:

  • Hire and fire;

  • Discipline—either directly or as part of a management team;

  • Set work schedules;

  • Evaluate employees’ performance;

  • Make or recommend promotions; and

  • Assign tasks to employees.

No single factor—or absence thereof—is decisive in determining managerial status.

Example: Simply inspecting work of other employees and reporting their mistakes wasn’t enough to make an employee a manager. The Alberta Employment Standards Umpire noted that the employee in question couldn’t hire or fire or take disciplinary action against employees. Nor could he delegate assignments, set wages or approve requests for time off [Great Canadian Roofing Corporation v. Lafleur].

Example: An ON employee overseeing how work was done wasn’t a manager because he didn’t have power to hire, fire, set wages or discipline. If quality issues or other problems arose, he had to refer them to a senior manager and carry out that manager’s decisions [Baarda v. Plywood and Trim Co. Ltd.].

2. Employee’s Role in Running the Business

Another factor courts consider is the employee’s role in running the business. This involves scrutiny of the employee’s:

Functions: BC, MB and NS guidelines suggest that management functions would typically include project leadership, implementation of management policies, marketing, budgeting and other activities involving allocation and disposition of company resources.

Example: Ally works for a large retail chain as a Pharmacy Manager. Although the pharmacist hires the employees she supervises, Ally is accountable for directing the department and its staff’s day-to-day activities. She’s in charge of merchandising, advertising, budget and policy development and other administrative functions related to pharmacy operations. Ally would be considered a manager, at least in BC [BC, Interpretations Guidelines Manual, “Definitions—Manager”].

Autonomy: Can the employee make day-to-day business decisions without getting the approval of management? “A key factor,” according to MB guidelines, “is the amount of independent judgment and discretion employees have when operating the business.” The greater the employee’s discretion, the more likely she is to be considered a manager.

Influence over Management: An employee’s “power of effective recommendation” is often enough to prove managerial status. In other words, an employee who can’t officially sign off on a decision independently can still be considered a manager if she makes recommendations that are generally followed.

Example: An Ontario labour board ruled that an employee was a supervisor. Even though she didn’t have absolute authority to hire and fire, she participated in hiring decisions, ran the hiring/interview process and made recommendations to management [Bowes v. Code’s Mill on the Park].

3. How Much Employee Earns

While salary v. wages isn’t definitive, the amount of compensation may be. If employees are paid substantially more than the persons they oversee, they’re more likely to be considered managers. Accordingly, NS guidelines list the fact that the employee “makes significantly more than other employees” as a sign of managerial status. NB guidance (in the form of FAQs) says that an employee who earns more than one-and-a-half times the minimum wage is exempt from overtime.

Employees Who Have Mixed Duties

Although job functions aren’t the lone or decisive factor, they make a major difference. But what happens when an employee has a mixture of managerial and non-managerial duties? As noted above, several provinces say an employee must be “primarily” or “principally” engaged in managerial duties to be a manager. How much time must an employee spend on managerial functions to cross the “primary” line?

It depends on the province. For example, ON uses something called the “50% rule” to determine if an employee who’s required to do more than one kind of work, one part of which is covered by overtime and another part of which isn’t, is subject to overtime. If at least 50% of the employee’s hours are spent on duties that are covered by mandatory overtime, the employee gets overtime. This rule, of course, would apply to employees who split their time between managerial and non-managerial work.

But in most cases, the “primarily” test isn’t based simply on hours. For example, in BC, an individual’s “principal employment responsibilities” must consist of supervising or directing employees and other resources. According to BC guidelines, “principally” “depends on a total characterization of that person’s responsibilities,” including:

  • How much time they spend supervising;

  • The priority the employer places on the person’s supervising and directing responsibilities; and

  • The nature and size of the business.

Example: An ON court ruled that an employee wasn’t a manager, even though he was principally responsible for customer service. Ninety to 95% of his work was spent on customer service and hardware sales with some clerical and administrative duties. Although he occasionally trained staff and organized work efforts, the court found he regularly engaged in non-managerial duties and was essentially a salesperson in both time spent and nature of duties [Baarda v. Plywood and Trim Co. Ltd.].

Example: An AB court ruled that a chef supervising other cooks was a manager even though he did “considerable” non-supervisory work. The chef had to cook and clean when there were staff shortages in the kitchen; but his duties were predominantly supervisory and managerial: He managed stock, bought supplies, set work hours, scheduled staff vacations, hired, disciplined staff (subject to management approval), prepared budgets and had his own office. His cooking and cleaning work were subordinate and “incidental” to these managerial duties, according to the Alberta umpire [1015714 Alberta Ltd. v. Cross].

Conclusion

Remember that employment standards laws aren’t always the final word on whether an employee is entitled to overtime. Employees may still have a right to receive overtime even if they’re considered managers under the employment standards laws in 1 of 2 ways:

  • They’re covered by the mandatory overtime provisions of the employment standards law; and/or

  • Overtime is required under the terms of the employment contract or collective agreement.

Consequently, you need to consider not just what the employment standards law says but what the contract requires when tallying up wages and salary owed for long work hours.

Know The Laws Of Your Province

Here’s what your provincial law says about overtime for managers and supervisors

FEDERAL: a. Managers, superintendents and employees who carry out management functions exempt from overtime; and b. No definition of manager or management functions (Canada Labour Code, Sec. 167(2)(a) and (b)).

ALBERTA: a. Employees “employed” in supervisory or managerial capacity or a capacity “concerning matters of a confidential nature” exempt from overtime; and b. No definition of “supervisory” or “managerial” (Employment Standards Code Regs., Sec. 2(1)).

BRITISH COLUMBIA: a. Managers exempt from overtime; and b. “Manager” defined as person whose “principal employment responsibilities consist of” supervising and/or directing “human or other resources,” or person employed in “executive capacity;” (Employment Standards Reg., Secs. 34 and 1(1), respectively). ESB guidelines clarify definitions, http://www.labour.gov.bc.ca/esb/igm/esr-part-1/esr-s1-manager.htm.

MANITOBA: Employees exempt from overtime if they: a. Perform “management functions primarily”; or b. Have “substantial control” over hours of work and have annual wages of at least twice the MB industrial average wage (Employment Standards Code, Sec. 2(4)). Guidelines: http://www.gov.mb.ca/labour/standards/print,doc,overtime-managers,factsheet.html.

NEW BRUNSWICK: Employment Standards law doesn’t include an exemption of managers from overtime. But Act defines “employers” (to whom mandatory overtime doesn’t apply) as a “person, firm, corporation, agent, manager. . . having control or direction of or being responsible, directly or indirectly” for another’s employment (emphasis added) [Employment Standards Act, Sec. 1].

NEWFOUNDLAND/LABRADOR: Labour Standards law doesn’t include an exemption of managers from overtime.

NORTHWEST TERRITORIES & NUNAVUT: Employees “who are employed primarily in a managerial capacity” exempt from overtime (Labour Standards Act, Sec. 2(2)).

NOVA SCOTIA: a. Persons “holding supervisory or management positions,” or who are “employed in a confidential capacity” exempt from overtime; and b. Code doesn’t define “supervisory or management” (Labour Standards Code Reg., Sec. 2(2B); and c. Govt. FAQs list factors including whether employee: i. Supervises or directs workers; ii. Imposes discipline; iii. Evaluates performance of subordinates; iv. Hires, promotes or recommends hires or promotions; v. Exercises discretion in performing duties; vi. Participates in budgeting and creation of performance requirements; and vii. Makes significantly more money than other employees (http://www.gov.ns.ca/lwd/employmentrights/overtimefaq.asp. ).

ONTARIO: a. Person “whose only work is supervisory or managerial in character and who may perform non-supervisory or non-managerial tasks on an irregular or exceptional basis” exempt from overtime; and b. Regulations don’t define “supervisory or managerial” (Exemptions, Special Rules & Est. of Minimum Wage Reg., Sec. 8(b)).

PRINCE EDWARD ISLAND: Employment Standards law doesn’t include an exemption of managers from overtime. But Act defines “employers” (to whom mandatory overtime doesn’t apply) as a “person, firm, corporation, agent, manager. . . having control or direction of or being responsible, directly or indirectly” for another’s employment (emphasis added) [Employment Standards Act, Sec. 1(d)].

QUÉBEC: a. “Senior management personnel” exempt from overtime; and b. No definition of “senior management personnel” provided (Labour Standards Act, Sec. 3(6)).

SASKATCHEWAN: a. Employees who perform services that are “entirely of a managerial character” exempt from overtime (Labour Standards Act, Sec. 4(2); b. Law doesn’t define “managerial character”; and c. Definition of “employer” (who aren’t covered by overtime) includes every agent, manager [or other person] who: i. Has control or direction of one or more employees; or ii. Is responsible, directly or indirectly, in whole or in part, for payment of wages to, or receipt of wages by, one or more employees (LSA, Sec. 1(e)).

YUKON: a. Employee whose duties are “primarily of a supervisory or managerial character” exempt from overtime; and b. No definition of “supervisory or managerial” (Employment Standards Act, Sec. 4(1)(c)).

HR Compliance Insider| Bongarde Media Company | 501 Main St. Penticton, B.C. | V2A 9A6 | 1.800.667.9300 | description: c:\stocklayouts\current projects\fn99804-pl\fn99804-img02.emf

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