Anonymised, illustrative composite. The buyer of a food co-packing business found an unbooked overtime liability that was not a contractor-misclassification problem and did not appear on any invoice. It lived in the salary grid of eleven people who had always been on payroll.
At a glance
The target ran two co-packing lines under private-label contracts for grocery and food-service customers. Of 148 employees, 137 were hourly and 11 were salaried “line supervisors” at between $68,000 and $74,000. The supervisors had been salaried since a payroll reorganisation six years earlier, and no overtime had been paid to any of them since.
The payroll file recorded the basis in one line: supervisory staff exempt, management. Nothing else in six years of records tested it.
Ontario's exemption from overtime is in the regulation, not the Act, and it turns on what the person does. Under O. Reg. 285/01 s.8, “Part VIII of the Act does not apply to” a list of persons including, at clause (b), “a person whose work is supervisory or managerial in character and who may perform non-supervisory or non-managerial tasks on an irregular or exceptional basis”.
The permission inside that clause is narrow and it is the only one. Non-supervisory work is allowed on an irregular or exceptional basis. It is not allowed as the ordinary content of the week. The target's own time-clock and line-assignment records showed each supervisor personally running a line for between 26 and 34 hours of an average week, with scheduling, quality sign-off and staffing occupying the balance. On those facts the clause does not reach them, and s.22(1) of the Employment Standards Act, 2000 does: “an employer shall pay an employee overtime pay of at least one and one-half times his or her regular rate for each hour of work in excess of 44 hours in each work week”.
Two features of Ontario's rule surprise buyers who have priced this exposure in another jurisdiction. There is no salary threshold at all — a $200,000 salary does not create the exemption and a $45,000 salary does not defeat it. And a signed acknowledgment in the employment contract is worthless, because ESA s.5(1) provides that “no employer or agent of an employer and no employee or agent of an employee shall contract out of or waive an employment standard and any such contracting out or waiver is void”.
For a salaried employee the regular rate is defined by ESA s.1(1), paragraph (b) of the definition: “the amount earned in a given work week divided by the number of non-overtime hours actually worked in that week”. Non-overtime hours stop at the 44-hour threshold, so the divisor for a supervisor working 53.5 hours is 44, not 53.5.
On the file's average: a $71,200 salary is $1,369.23 a week; divided by 44 non-overtime hours gives a regular rate of $31.12; the 9.5 hours above the threshold attract one and one-half times that, or $443.46 a week; across 46 working weeks that is $20,399 a year per supervisor, and $224,400 a year across the eleven.
Getting the divisor wrong is the commonest arithmetic error here, and it runs in the employer's favour: dividing the same salary by 53.5 hours gives a regular rate of $25.59 and understates the annual figure by about $50,000 across the group.
The unit that matters most is not the rate but the recovery window, and this is where the exposure is routinely mis-sized. Six years of practice does not produce six years of liability through an employment standards officer. ESA s.96(3) provides that “A complaint regarding a contravention that occurred more than two years before the day on which the complaint was filed shall be deemed not to have been filed.” And on an inspection, s.111(3) provides that “the officer may not issue an order for wages that became due to the employee more than two years before the officer commenced the inspection”.
So the statutory order route reaches roughly $448,800 on these numbers, not the $1,350,000 that six years of arithmetic suggests. The qualification is that the ESA is a floor and not an exhaustive remedy: s.8(1) provides that, subject to s.97, “no civil remedy of an employee against his or her employer is affected by this Act”, so a contractual claim for unpaid wages is a separate route with its own limitation rules. Sizing the exposure needs both figures, kept apart.
A related trap sits one regulation away. The identical wording — a person whose work is supervisory or managerial in character, performing other tasks only on an irregular or exceptional basis — appears again at O. Reg. 285/01 s.4(1)(b). But s.4(1) exempts only “Sections 17, 18 and 19 of the Act do not apply to” those persons: the maximum-hours, eating-period and exceptional-circumstances provisions. It is not an exemption from Part VII as a whole, and it has nothing to do with overtime. The finding on the duties travels between the two provisions; the consequence does not.
The parties agreed a $470,000 price reduction, held as a specific indemnity outside the general indemnity basket and surviving longer than the general representations. The buyer moved all eleven onto an hourly rate with overtime from closing, which raised the ongoing cost of the department by about $224,000 a year and removed the contingency.
The reclassification also reset the working-capital position, because accrued overtime is a current liability the target had never carried. See accrued vacation, overtime and banked time for the mechanics of that adjustment, and the net working capital peg for why a systematically absent accrual does not surface in a true-up.
Left unchanged, the exposure renews every fortnight. Each pay period adds another two weeks of unpaid overtime to the rolling two-year window, so the liability does not decay — it holds at roughly $450,000 indefinitely while the practice continues, and it is joined by an independent penalty route. Under ESA s.113(1), “If an employment standards officer believes that a person has contravened a provision of this Act, the officer may issue a notice to the person setting out the officer's belief and specifying the amount of the penalty for the contravention.” That is separate from any order to pay wages.
The tell was a payroll register with a salary column and no overtime column for a role whose own time clock recorded 53 hours a week. Contractor misclassification announces itself in an invoice file. This announces itself in the absence of a line item, which is why diligence that starts from the accounts payable ledger never finds it.
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