Understanding Overtime, Minimum Wage and Evolving Pay Standards

Employees in British Columbia are earning higher wages every year. In order for employers to plan accordingly, it is important to understand new entitlements under recent legislation, and to understand the fundamental rules concerning overtime.

Employers with entry level employees and those who engage “gig” workers should be familiar with two recent changes concerning minimum wage entitlements in B.C. Further, all employers should strive to avoid common errors when scheduling or allowing employees to work overtime.

Minimum Wage

Since forming the government in 2017, the NDP has instituted substantial increases to the minimum wage, which has risen by 53.3% in the past seven years. Only the Yukon has a higher minimum wage in Canada today, and no province or territory has a higher rate of increase over the last decade. Future minimum wage increases are indexed to inflation, which puts B.C. on pace to hit a $20 minimum wage between 2027 – 2028.  

Increases to the minimum wage at this rate are one of the top drivers of wage compression; a challenging phenomenon that narrows the gap between wages for new, entry level employees and existing employees with greater tenure, skill and experience. This can create morale and other employee relations concerns if senior or skilled employees begin to feel under-valued. 

Employers need to be proactive to avoid demotivating or losing longer-service and loyal employees while carefully managing already increasing labour costs. To this end, employers should regularly engage with staff to assess morale and look for creative pathways to reward experienced and skilled employees, such as more flexible work schedules or locations, emphasizing paths to promotion, and providing performance-based bonuses, in addition to fostering a positive workplace environment overall.  

Gig Worker Protections

Another recent change to labour costs in B.C. concerns protections for ‘gig’ workers under regulations that will come into force on September 3, 2024. The new regime – first announced in November 2023 – is applicable to all app-based ride hailing and food delivery gig workers, such as those employed by Uber, Lyft, DoorDash, SkipTheDishes, or other similar vendors.

The new minimum wage for gig workers will be $20.88 – equal to 120% of the provincial minimum wage – and must be paid during “engaged time,” which covers the time between acceptance of an assignment until completion. In addition to the increased wage, gig workers will be entitled to several new protections, including 100% ownership of tips, additional compensation for the use of personal vehicles (at a rate yet to be determined), the ability to see the earnings and destination before accepting an assignment, regulations regarding disciplinary actions taken by the employer, termination pay, and access to worker’s compensation coverage. 

It is important to note that the new gig work wage rate and protections do not change the fact that gig workers are not “employees.” As a result, they are not subject to hours of work or overtime protections or many other of the entitlements and protections of the Employment Standards Act. 

Nevertheless, the consequences for employers and customers are still significant. This scheme is unprecedented in Canada and will result in substantially increased costs to companies providing these services, both due to wages and the administrative costs associated with the new protections. 

Common Overtime Errors

Employers facing the crunch of increased labour costs might be motivated to find ways to reduce overtime liabilities.  To this end, one common mistake employers make is to formally or informally work out alternative overtime arrangements with employees that are contrary to the minimum statutory requirements. 

Under the Employment Standards Act,  employees must be paid overtime wages (at least 1.5 times the normal rate) for any hours worked above eight per day, or forty per week.  Alternatively, at the written request of an employee, the employer may establish a time bank for overtime work. An employer and an employee cannot “contract out” of these rules, even by mutual agreement. 

Nevertheless, it is common for an employer to instruct or allow an employee to work overtime but without any overtime pay or formalized overtime bank.  Instead, the employer might just promise to allow the employee some paid time off in the future or otherwise allow the employee to just “manage their own time”. This kind of arrangement might appear to work just fine for everyone – until it doesn’t. 

The fact is that arrangements like these create an accruing liability. The employee could, at any time, change their mind and make a claim for every minute of uncompensated or under-compensated overtime, and any agreement or informal arrangement that was in place will not reduce the liability. 

As noted, a formal overtime bank can be established. However, an agreement to bank overtime should be recorded in writing, and the employer must credit overtime hours worked at overtime rates rather than on a straight-time basis, such that an employee who works one hour of overtime will be entitled to bank 1.5 hours to the overtime bank.

The key takeaway is simple – it can be tempting to adopt a “you scratch my back and I’ll scratch yours” approach to overtime, but it’s important to know that those sorts of arrangements are not lawful and are always accompanied by an accruing liability for overtime pay.