Hourly employees with variable hours: the two-year average rule.

A salaried employee's pay doesn't change week to week regardless of how many hours they actually work. An hourly employee's pay changes constantly — with the schedule, the season, business volume, and how much overtime is available. The hourly rate is stable; the hourly income is not, and it's the income figure that matters for qualifying.

That variability is exactly why a single pay stub is the wrong evidence to build a qualifying number from — it shows one week, which could be typical or a clear outlier in either direction.

Lenders typically take total earnings from box 14 of the last two T4 slips (or, for a newer employee, year-to-date pay stub totals annualized alongside the prior year's T4) and average the two years, rather than annualizing a recent pay period. This captures slow weeks and busy weeks together, over a long enough window to represent the real pattern.

For an hourly employee with less than two years at the current job, most lenders will still want a full first T4 or a substantial year-to-date history before treating the income as stable — a few months of pay stubs alone is thin evidence for a number that will carry a 25-year mortgage.

Overtime is qualified the same way a variable bonus is: averaged over two years using T4 or year-to-date figures, and only included once there's a documented pattern of it recurring. A single busy quarter with heavy overtime, sitting on top of an otherwise steady base, doesn't automatically inflate the qualifying number — the underwriter is looking for overtime that shows up reliably, not occasionally.

An employer letter that confirms overtime is a normal, recurring part of the role — rather than a rare exception — is the single most useful document for getting it included.

A downward trend — this year's T4 meaningfully lower than last year's, or year-to-date pay tracking below the same period last year — gets flagged before the average does the flagging for you. Some lenders will use the lower, more recent figure instead of the two-year average once a decline is evident, on the theory that the trend is more predictive than the historical average.

A documented, explainable reason for the dip — a temporary reduction in available shifts industry-wide, rather than a personal performance issue — can help, but it rarely restores the higher historical number. The safest approach is to qualify on the more conservative figure and treat anything above it as a bonus for the borrower, not a plan for the lender.

A clean hourly-income file typically includes:

• →T4s for the last two years, showing total employment income.
• →Recent pay stubs with year-to-date totals and, ideally, hours worked shown separately from the rate.
• →A letter of employment confirming the hourly rate, typical scheduled hours, and whether overtime is a normal part of the role.
• →An explanation for any gap or dip in hours — a temporary layoff, a schedule change, or a leave — so the underwriter isn't left to interpret it unfavourably by default.