In a bid to stay profitable, many businesses are operating with a lean staff. But even with fewer employees, work still needs to get done in a timely manner, so it’s no surprise that some companies are increasingly asking employees to put in more hours. Calculating overtime pay for non-exempt, or hourly workers—who must generally be paid 1.5 times their base hourly pay once they work more than 40 hours in a week—is pretty simple.
An employee may do different tasks at different hourly rates
But what happens if an employee has two or more job titles at the same business, and receives a different base hourly pay for each job? Then things get a little more complicated, but it’s not too tough to determine the wages that are due.
Basically, the employer determines a “blended” overtime rate by using the “weighted averaged” method. The first step is to determine the total gross wages due on a straight-time basis (hours worked at job title “A” times hourly rate, plus hours worked at job title “B” times the “B” hourly rate, and so on). Then take that gross total and divide it by the total number of hours worked to obtain the “regular” blended hourly wage.
Now take that blended “regular” hourly wage and divide it in half to determine the additional “premium” (half-time) rate that’s due to the employee. Finally, add that “premium” rate to the “regular” blended rate, and multiply that by the number of hours worked in excess of 40 hours. Voila, you have the blended overtime premium that’s owed to the employee.
Here’s an example. Let’s assume that William works as an hourly draftsman at $22.00 an hour; but is so talented that he also spends part of each week developing his employer’s Web site, for which he gets $39.00 an hour. Let’s further assume that in a single week, William works for 30 hours as a draftsman, but puts in another 15 hours developing the company’s Web site.
So in this week, William put in a total of 45 hours. He earned $660 (30 hours x $22.00 an hour) for his draftsman’s work, and $585 (15 hours x $39.00 an hour) for his Web development work. We would calculate William’s overtime rate as follows:
30 hours x $22.00 per hour = $660
15 hours x $39.00 per hour = $585
Total gross = $1,245
That total straight-time gross ($1,245.00) is then divided by the total hours worked (45) to calculate the “regular” (straight-time) blended hourly wage, which is equal to $27.67 per hour. Of course, William is still due the additional premium pay (half-time) for the five overtime hours he worked. So the average “blended” straight time hourly rate ($27.67) is divided in half, yielding a half-time rate of $13.83 (rounded to the nearest tenth) per hour.
The 5 overtime hours are multiplied by the “blended” overtime premium of $13.83, to yield a total “premium pay” of $69.17 (if you do the multiplication, the difference is due to rounding), which is added to the original gross amount of $1,245.00, giving us the new gross amount of $1,314.17, which is the amount that must be paid to William for the week.
Both the state and US Department of Labor are paying more attention to wage-and-hour calculations, and an increasing number of wage and hour lawsuits are being filed. To stay on the safe side, be sure to consult with your accounting and/or legal advisor if you have any employee classification, overtime or other questions.