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Terms and Conditions Apply: Understanding Averaging Agreements

Posted by HRdownloads on Nov 14, 2019 2:45:00 PM

Working nine to five, five days a week, is not a schedule that all industries can adopt, because many jobs experience high and low periods that cannot be supported by a steady schedule. This is the case for many of the nearly 25% of the North American workforce whose jobs require shiftwork (according to the Canadian Centre for Occupational Health and Safety), as well as many seasonal workers in various industries.

Managing these types of schedules can be complicated, which is why averaging agreements exist to help better manage the pay that results from irregular hours of work. A common misconception about averaging agreements is that they are like flexible work schedules or even flex time, which is not the case.

Averaging agreements are legislatively governed agreements that an employer may enter into with an employee or a group of employees that average hours over two or more weeks rather than the standard single week for the purpose of determining overtime pay. The averaging agreement comes in response to irregular hours of work, but does not establish those hours. The primary benefit employers stand to gain from using averaging agreements is limiting the amount of overtime that is paid out.

Let’s look at how this works in practice by examining two scenarios. In our example, a worker with a variable schedule is required to work 45 hours one week, but only 30 hours the next week. In a standard arrangement (our first scenario), the employer has set the overtime threshold at 40 hours per week. If the employee works more than 40 hours in a week, they are entitled to overtime pay for the overage. This would result in the employee being owed five hours of overtime pay for their first week and no overtime in their second week.

Under an averaging agreement, the employer and employee could agree that overtime would be averaged over a two-week period, where the employee is only paid overtime if they exceed 80 hours worked over the two-week period. The result for this second scenario would be that the employee would not be owed any overtime pay, but rather regular pay for the 75 hours they worked, as they did not exceed the 80-hour overtime threshold under the averaging agreement. Note that the employee’s schedule is the same in both scenarios, and the averaging agreement only affects the overtime calculation, not the actual hours worked or entitlement to regular pay for hours worked.

Could your organization benefit from using averaging agreements? Download our FREE Implementing Averaging Agreements Guide for more detailed steps on how you could start using agreements in your workplace.

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Topics: Compensation, HR Challenges

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