Time Banking
If your business pays employees by the hour, you probably have to budget for overtime wages. Rather than paying out overtime wages as employees earn them, you might consider banking on overtime pay. It’s a way for employees to earn time off for overtime hours worked.
Normally, employees who work overtime earn 1.5 times their normal hourly rate for each hour of overtime they work. With banked overtime, the employee earns 1.5 hours of paid time off at their normal hourly rate for each hour of overtime worked. As the term suggests, you “bank” this time in your records. Then, at any point, the employee can request the time to be paid in cash or used as paid time off. This offers your hourly employees more flexibility in how they receive compensation for the extra hours they work.
If you have a busy season in your business where employees end up working lots of overtime, banking overtime can be a huge benefit to both you and the employees. You get all the labour you need when you need it, and employees happily earn paid time off for future use. It’s a win-win.
To start banking overtime, you and the employee should sign a written agreement. Then, any time the employee or employer decides to close the time bank, you pay the employee for all of the hours. This is also true if the employee quits or is fired.
As an example of banked overtime, assume an employee earns $10 per hour. Also assume the employee works six overtime hours a week. Normally, you pay 1.5 x $10 x 6, or $90, of overtime pay. With overtime banking, you instead keep a record of the six overtime hours and covert them to 1.5 x 6, or nine hours of paid time off at $10 per hour. As an expense for you, the business owner, these amounts are the same.
Banking overtime is a great way to let your employees earn paid time off for overtime hours worked. You can get your employees to work lots of overtime hours when you need it most, since they get paid vacation time in the future.