A Commentary by Wendy Ferguson
Most employees in Alberta (including those paid hourly, weekly, monthly or by annual salary) are entitled to overtime pay, meaning an employer must pay at least 1.5 times the employee’s wage rate for overtime hours worked. Then why is it that I’ve come across so many organizations where employees were not being paid overtime when they should have been?
Some employers believe that if an employee is on salary, then that ought to cover any overtime they work. Others believe that those on an hourly rate don’t qualify for overtime, even when they are employees. I have even come across a company that thought they could make up for overtime in year-end bonuses. But the most common fault I see is that a company may mistakenly label an employee as a ‘professional’, ‘manager’ or ‘supervisor’ or as someone who is “employed in a confidential capacity’, and therefore automatically deem them exempt from overtime, when in fact many times they are not according to the law.
Yes, exemptions do apply for certain industries and professions. The Alberta Employment Standards Code lists the following categories of employees as non-eligible in terms of the overtime rules. Highlighted below are two categories that I will delve into further because this is where I believe most of the mistakes occur in employee classification.
- managers, supervisors and those employed in a confidential capacity
- waged, non-family farm and ranch employees
- professionals, including: agrologists, architects, certified or chartered accountants, chiropractors, dentists, denturists, engineers, geoscientists, information systems professionals, lawyers, students-at-law, optometrists, podiatrists, psychologists and veterinarians
- salespersons of automobiles, trucks, buses, farm machinery, road construction equipment, heavy duty equipment, manufactured homes or residential homes
- salespersons who solicit orders, principally outside of the employer’s place of business, who are fully or partly paid by commission (this does not apply to route salespersons)
- licensed salespersons of real estate and securities
- licensed insurance salespersons who are paid entirely by commission income
- salespersons who are at least 16 years old and are engaged in direct selling for licensed direct sellers
- licensed land agents
- extras in a film or video production
- counselors or instructors at an educational or recreational camp that is operated on a charitable or not-for-profit basis for children, persons with disabilities, or religious purposes
- domestic employees
As I said, where it often gets confusing for employers is interpreting the law regarding the two categories in red above, and this is precisely where I want to shed some light.
Confidential Capacity Exemption
I contacted Alberta Employment Standards to get more information on how to properly determine exemption when it comes to ‘those employed in a confidential capacity’ They provided me with some helpful information on how to perform this overtime exemption test. Quite honestly, I had never before seen this information previous to this response…not on the Alberta.ca website and not even in the Code. Here’s what I found out…
In very limited circumstances employees may be exempted because they are in a capacity concerning matters of a confidential nature. Mere exposure to confidential information is not sufficient to warrant exemption. To fall within this exclusion, it must be shown that an employee not only has a substantial degree of access to confidential information, but also that their job function consists entirely of the use or preparation of such information for matters relating to the employer’s policies or strategies. The employee’s duties must not consist of work similar to that performed by other employees. So, think of these employees as specialized individuals that are in highly confidential roles.
Factors to consider when determining whether an employee falls within this exemption include:
- The information to which the person has access must be in relation to matter of some confidentiality. The information must be out of the ordinary and kept within a strictly limited group. It does not include matters to which others have regular access.
- The information must be of such a nature that its disclosure would adversely affect the employer. In many cases, it is the essence of the confidence that the information not be disclosed to anybody outside of the group that has access to it.
- The employee must be involved with the confidential matters as a regular part of his or her duties. It is not sufficient to have a casual or incidental connection to the confidential matters.
Then ask yourself…
- Is the employee exposed often and regularly to the strategy or policy of the firm?
- Is the employee involved in strategic planning in any capacity? Does the employee attend management meetings where matters such as budget, corporate policy, competitive strategy, etc. are discussed?
The exemption refers to the capacity of an employee, not the information which the employee is exposed to. Generally, an employee who falls within the exemption will have access to confidential information, but it is the manner in which the employee uses the information on a regular basis that determines whether the exemption will apply.
An example of this type of employee would be an employee who assists in the strategic decision making for a company. The employee has no formal managerial responsibilities but participates in high level financial planning and establishes the future direction of the company. An example of someone who would not be considered a ‘confidential employee’ would be an Executive Assistant who has access to confidential information, but certainly is not in a capacity to strategically alter the organization.
Employment Standards Regulations exempts an employee who is employed in a supervisory and/or managerial capacity from the basic overtime rules. And keep in mind, simply giving someone the title of Manager or Supervisor is not reason enough to not pay them overtime, there is much more to it.
An important factor in determining exemption is the degree to which the person in question can materially and substantially affect the employment conditions of those for whose work they are held responsible by the organization. The degree to which fellow workers regard them as ‘management’ is also important, regardless of title.
Alberta Employment Standards indicated that factors to consider when determining if an employee is a manager/supervisor are:
- What is the approximate percentage of time spent: on actual direction and supervision of employees; on other work that is supervisory or managerial; on work the same or similar to that of other employees who are supervised?
- Is the employee paid in a manner different than non-manager/supervisor employees? (i.e. separate bonuses, incentive pay)?
- Is the remuneration in excess of that received by other employees?
- Are there any other benefits provided to this employee that are exclusive to the managers/supervisors?
- Does the employee have the authority to hire and fire, or effectively recommend such action?
- Does the employee have the authority to discipline other employees, or effectively recommend such action?
- Does the employee have the power to make decisions on matters of significance that commit the company, even if there are certain checks on their authority?
- Does the employee attend management meetings where policies are discussed and business decisions are made?
- Does the employee exercise a greater degree of discretion in the performance of their duties than non-manager/supervisor employees?
- Does the employee prepare work/shift schedules?
- Does the employee arrange for upgrading, promotion, wage increases, leaves, vacations, overtime and layoffs of employees?
Employment Standards provides a list of ‘professionals’ that are automatically exempt from the rules of overtime (shown above), but it only lists 15 professions on the “Overtime Hours and Overtime Pay” guidance sheet for employers on the website. If you dig further into the Alberta Employment Code, it will list in more detail these 15 professions. I contacted Alberta Employment Standards to inquire if there were any other occupations or designations that are deemed “professional” (such as my own designation which is a Chartered Human Resources Professional). Turns out, no. There are no other defined professions other than those listed above that may be deemed as a “professional” in terms of determining overtime eligibility.
I have seen a lot of non-compliance surrounding this ‘professional’ label in organizations. The truth is that a company can’t call just anyone a professional, thereby determining they are not eligible for overtime. Sure, they could fall under another non-eligible category such as manager, but that must be proven by using the test above.
Employers cannot make agreements with their employees that do not meet the minimum standards of the Employment Standards Code and Regulation and are prohibited by law from providing an employee with less than legislated minimum entitlements or requiring an employee to work hours more than their maximum allowable hours. Employers who fail to comply with the Alberta Employment Standards Code pertaining to overtime legislation are guilty of an offence under the law and could very well end up paying hefty penalties and substantial back-pay to employees.
Typically, it is the HR or Payroll department who determines the status of an employee in terms of overtime eligibility. They will decide how to place employees into the HR information system and will indicate them as ‘exempt’ or ‘non-exempt’ or ‘eligible’ or ‘non-eligible’. I urge all leaders to question if the correct methods are in place in determining the proper status of each employee in your organization. Are certain employees truly exempt? Are they tracking their time and being paid properly? I would be reviewing this article with your HR leaders and asking the questions to ensure compliance.
I always suggest that when in doubt, contact the Alberta Employment Standards Contact Centre at 1-877-427-3731 to assist with applicable legislation. Or contact me, your friendly HR Professional!
Wendy Ferguson is a Human Resources Professional and owner of Stick People Solutions, providing simple, flexible and effective solutions for complex people issues.