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How to Calculate Banked Overtime for Your Employees

If you have employees who you pay on an hourly basis, you may want to use banked overtime instead of paying outright for overtime. In terms of dollars, it costs you the same, but the employee might prefer this benefit over pure cash.

Banked overtime, or time-off in lieu, describes paid time off that’s earned through working overtime hours. When employees work overtime, they earn 1.5 times their hourly rate. With banked overtime, employees earn 1.5 hours of regular pay time off for each hour of overtime worked. Economically, these two options are equal for you as a business owner but having paid time off might be more important to some employees.

Here’s the most important point regarding banked overtime. You and your employee should agree in writing when they should take the time off, say within three to six months of the week they worked the overtime hours. You can choose to extend the period in which they can take time off through a collective bargaining agreement.

You can use customized agreements between an individual employee and you, or you can set up a group overtime agreement covering all employees.

Canadian law allows you to offer banked overtime regardless of where in the country your business is located. Note, though, that Ontario has provincial laws regarding banked overtime that you need to know about and follow if your business is located in the province.

To offer banked overtime to your employees, all you need to do is track their overtime hours just as you would regularly. Then, you can convert the overtime hours to paid time off, which helps you calculate how much time away from work they’ve accumulated.

Banked overtime is a different way to compensate employees for overtime worked. Paid time off to employees for overtime might be a benefit that your employees would prefer, so perhaps it’s something you should consider offering.

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