Generally speaking, managers and supervisors are not entitled to overtime pay unless they spend over 50% of their time doing non-managerial work. However, if the employment contract specified a salary based on a fixed hour work week, the “manager” could be entitled to overtime pay.
In your situation, it seems as if the manager assumed everything was accepted because there was no push back to time sheets being submitted. The office manager made an error in judgement by not addressing this immediately, and that error may actually end up costing you. You are not legally bound to honour this overtime pay in lieu; however, the employee/manager could have a pretty good claim if they chose to file one. You may want to find some sort of mutual agreement here and be very clear in your new policies, their effective date and the fact that they are retroactively applied should also be clearly spelled out.
