If your business pays employees by the hour, you probably have to budget for overtime wages and during certain pay periods. Rather than paying out overtime wages as they’re earned, you might want to discuss banking overtime pay with your employees. It’s a way for employees to earn time off for overtime hours worked.
Normally, employees who work overtime earn 1.5 their normal hourly rate for each hour of overtime worked. 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 terms suggests, you "bank" this time in your records. Then, at any point, the employee can request the time be paid in cash or used as paid time off.
If you have a busy season in your business or need for lots of employees to work overtime during a particular time period, banking overtime can be a huge benefit to both you and the employees. You get all the labour you need at the time, and the 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, anytime the employee or employer decides to close the time bank, all hours must be paid to the employee. 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 one week. Normally, you’d 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.