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Averaging Agreement
An Averaging Agreement for overtime is a contractual agreement between an employee and your company that allows you to bypass overtime rates by averaging the employee’s hours of work over a period of 1, 2, 3, or 4 weeks, depending on the Province of employment.
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Overview
Companies with employees working outside a standard work week will benefit from an Averaging Agreement. With an averaging agreement, costly overtime pay can be avoided while providing employees with more flexibility and a better work life balance. The request for more flexibility can be triggered by changes in an employee's personal circumstances requiring more work hours in a day which under a "normal" employment contract may trigger payment of overtime pay.
The Averaging Agreement captures important elements such as duration of the Agreement and start and end date of the work schedule. The work schedule states clearly the number of work hours in a day and in which day of the week.
There is strict employment law governing the implementation of Averaging Agreements. If making major changes to the Agreement, it is highly recommended that you seek legal review before implementing it.
How is the Averaging Agreement Used?
Once customized for your company, the Overtime Averaging Agreement is intended to be used:
- When extending an offer of employment to a prospective job candidate.
- When making changes to the terms and conditions of employment of an existing employee.
Why do I need an Averaging Agreement?
It is less expensive than paying standard overtime rates. Where applicable, an averaging agreement decreases overtime costs by having an employee sign off that they’ve acknowledged that they have read, understand, and agree to give up paid or banked overtime by averaging their hours during a period where overtime is not calculated on hours that normally would be subject to overtime rules.
What are the Risks if I don't use an Averaging Agreement?
- Company incurs significant overtime expenses to meet schedules that are outside the normal employment standards that regulate hours of work and overtime requirements.
- If you and your employee have verbally agreed on a modified work week but did not sign off on an Averaging Agreement, your company could be liable for expensive overtime pay and be in violation of employment law.
| Averaging Agreement | | | Accompanying Instructions for HR |
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