By OptiVal Editorial Desk
Overtime pay in Ontario starts after 44 hours in a work week, and it catches more small businesses off guard than almost any other payroll rule. Owners who assume a 40-hour threshold, or who figure salaried staff do not qualify, can rack up years of unpaid overtime liability without realizing it. The Employment Standards Act sets the rules in Part VIII, and the Ministry of Labour enforces them against complaints, so it pays to get this right before someone raises it.
Ontario’s 44-hour overtime threshold, explained
Here is the core rule. Once an employee works more than 44 hours in a single work week, every hour above 44 must be paid at least one and a half times the employee’s regular rate. A work week is the employer’s own defined seven-day period, usually Sunday to Saturday. Ontario has no daily overtime threshold, so a 10-hour Tuesday creates no overtime on its own if the week still totals 44 hours or less.
The regular rate matters more than most owners expect. For hourly staff it is straightforward, but for salaried employees the regular rate is the weekly salary divided by the non-overtime hours worked that week. Take a remote admin earning $1,100 a week who works 50 hours. The regular rate is $27.50 an hour ($1,100 divided by 40), and the six overtime hours cost $41.25 each, an extra $247.50 on top of the salary. Salary does not buy you out of overtime.
Who is exempt from overtime in Ontario
Not everyone qualifies. The ESA and Ontario Regulation 285/01 carve out several groups, and getting an exemption wrong is one of the costlier payroll mistakes a small business can make.
The common exemptions
- Managers and supervisors, but only if their work is genuinely supervisory or managerial in character and they do other tasks solely on an irregular or exceptional basis. Giving someone the title “manager” does not make them exempt.
- Certain licensed professionals, including doctors, lawyers, architects, and veterinarians.
- IT professionals, a group specifically exempted under the regulation.
- Salespeople paid primarily on commission.
- Employees in certain industries, such as farming and commercial fishing.
The manager exemption trips up remote teams most. A remote bookkeeper who also approves expenses is not a manager for ESA purposes. When in doubt, assume the employee qualifies and pay the overtime.
Averaging agreements: how to smooth out overtime legally
Some weeks are heavy and some are quiet. Instead of paying overtime every busy week, Ontario allows averaging agreements: the employer and employee agree, electronically or in writing, to average hours over a fixed period of two, three, or four weeks. Overtime is then owed only if the average weekly hours exceed 44.
The rules are strict, and casual verbal deals do not count. An averaging agreement must:
- Be in writing or electronic form, with a clear start date and expiry date. Non-union agreements cannot last more than two years.
- State the exact number of weeks being averaged. “Up to four weeks” is not good enough; the agreement must say two, three, or four.
- Cover consecutive, non-overlapping periods with no gaps or breaks.
Either side can revoke the agreement early, but only if both the employer and the employee agree to the revocation in writing. A simple example: an employee averaging over two weeks works 54 hours in week one and 36 in week two. The average is 45 hours per week, so the employee is owed one overtime hour per week at the overtime rate, two hours of overtime pay for the period instead of ten.
One important limit: an averaging agreement never removes the 48-hour weekly maximum. An employer still needs the employee’s written agreement to permit more than 48 hours in a week, and the employee can withdraw that consent with two weeks’ notice.
Time off in lieu of overtime pay
Instead of paying overtime in cash, an employer and employee can agree in writing that the employee takes paid time off. Each overtime hour converts to one and a half hours of paid time off. The banked time must be taken within three months of the week it was earned, unless the employee agrees in writing to extend it up to 12 months.
For remote teams, agree to it up front in writing, track the banked hours like payroll, and schedule the time off before the three-month clock runs out. Informal “we’ll sort it later” arrangements are where lieu-time disputes start.
Tracking overtime for remote staff
Remote work does not change any of the rules above, but it changes how you prove compliance. With no one watching the clock in an office, accurate time records are the employer’s best defence and the employee’s best evidence.
This cuts both ways. In a 2026 Ontario Labour Relations Board case reported by employment lawyers, an employer that used a 50-hour overtime threshold and then dismissed the employee for raising the issue was ordered to pay more than $185,000. The employee’s own timesheets, which the employer had relied on for billing, settled the hours question. Good records protect good employers; missing records sink everyone.
What good timekeeping looks like for a remote team:
- Require weekly timesheets with start and end times, not just task logs. A ticket system shows work done, not hours worked.
- Have a simple approval step. A supervisor signs off on the hours before payroll runs, which catches both under-reporting and misunderstandings about who authorized the extra hours.
- Keep the records for the period the ESA requires. If an officer comes knocking, the question will be “show me the hours,” and your memory is not a record.
- Separate authorized from actual hours in your head, not on the timesheet. Overtime is owed for hours actually worked whether or not the overtime was pre-approved, though you can discipline an employee for working unapproved hours separately.
What you cannot do
Three prohibitions are worth knowing because owners still try all three. You cannot ask an employee to waive their overtime right; such agreements are void under the ESA. You cannot lower the regular wage in a week when overtime was worked to shrink the overtime calculation. And you cannot punish an employee for asking about overtime. Reprisal for asserting an ESA right is prohibited, and the Board treats it seriously.
Overtime pay is employment income, so the normal payroll treatment applies. CPP, EI, and income tax get withheld the same as on regular wages, and overtime belongs on the T4 in the year it is paid. Non-discretionary bonuses can factor into the regular rate calculation, which is one more reason payroll software beats a spreadsheet for this.
Getting overtime right is cheaper than fixing it
The 44-hour rule, averaging agreements, lieu time, and the manager exemption give employers plenty of legal flexibility. The expensive mistakes come from guessing: assuming salaried means exempt, assuming remote means unmeasured, or assuming a handshake averaging deal counts. None of those survive a Ministry of Labour review.
Getting overtime right starts with accurate time tracking and payroll that handles the math. We run payroll for small businesses from $29 per employee per month plus a $149 setup, covering deductions, remittances, and year-end T4s, with the overtime and lieu-time rules baked in. See our pricing for the full rate card. Book a free consultation and we will review whether your overtime setup would survive a Ministry complaint.
