Do you have an employee who has two or more positions in your business with different pay rates? Does that employee work overtime? If the answers to these questions are yes, you need to know about weighted overtime. Weighted overtime is common in small businesses that pay multiple pay rates to an employee. Learn what overtime is, what weighted overtime is, and how to calculate weighted overtime.
What is overtime?
Overtime is additional compensation you provide to nonexempt employees when they work more than 40 hours in a workweek. The federal overtime rate is time and one-half per hour worked beyond 40.
For example, if you have an employee who works 45 hours in a workweek, you need to pay them five hours of overtime. Multiply their hourly rate by the overtime rate of 1.5 to determine their overtime pay rate. Then, add the employee’s overtime wages to their regular earnings to get the total wages for the workweek.
The Fair Labor Standards Act (FLSA) governs overtime law. And, some states have overtime laws. You also need to know about FLSA weighted average overtime laws, explained below.
What is weighted overtime?
Some employees work multiple positions within the same organization. Employers might pay an employee different pay rates for each job they work.
For example, you can have an employee who works as a waitress, hostess, and dishwasher in your business. You pay them $5 per hour for waitressing, $12 per hour for hostessing, and $11 per hour for dishwashing.
If an employee who earns more than one hourly rate works overtime, how do you determine their overtime rate? Which hourly rate do you use to run payroll?
You can determine an employee’s overtime wages by finding the weighted average overtime. Weighted overtime, also called blended overtime, uses a weighted average of the employee’s different pay rates, based on how many hours they worked at each rate. Then, you must use this weighted regular rate to find their overtime wages.
How to calculate weighted overtime
Calculating weighted overtime is more extensive than calculating regular overtime wages, but it doesn’t have to give you a headache.
Blended overtime can be broken down into four steps: finding the employee’s base pay, determining the weighted average pay rate, calculating the blended overtime total, and finding the employee’s total compensation for the week.
Use the following steps to calculate weighted overtime:
- Find the employee’s base pay
- Multiply all hours (regular hours and overtime hours) with each regular hourly rate.
- Add together the total wages from both positions to get the total compensation.
- Add any nondiscretionary bonus for that week.
- Find the weighted average pay rate
- Divide the total from steps 1 and 2 (straight-time wages for all hours plus nondiscretionary bonus) by the total hours worked that week (both the first 40 and the OT hours).
- Find the weighted overtime total
- Multiply the weighted average by 0.5 to get the blended overtime rate.
- Multiply the weighted overtime rate by the number of overtime hours to get the total bonus overtime pay.
- Find the total earnings
- Add together the employee’s base pay (Step 1) and their weighted overtime total (Step 3).
It’s easy to get overwhelmed by the formula steps. Use the following example to help you visualize the process.
Example
Let’s say you own a pizza shop. You pay an employee $14 per hour when they make pizzas and $10 per hour when they deliver. Your employee worked 30 hours making pizzas and 20 hours delivering them. Because the employee worked a total of 50 hours, you owe them overtime wages for 10 hours of work. They also receive a $100 bonus for hitting a performance goal.
First, you need to find the employee’s base pay for all hours worked (regular and overtime):
(30 hours X $14) + (20 hours X $10) = $620 “straight-time” pay
That $620 already includes straight-time pay for all 50 hours, including the 10 overtime hours. The overtime calculation will add only the extra half on those 10 hours.
Add the employee’s nondiscretionary bonus of $100 to the straight-time pay
$620 + $100 = $720
Next, find the employee’s weighted average pay rate by dividing their total compensation ($720) by the total number of hours worked, which is 50:
$720 / 50 = $14.40 (weighted average pay)
Take the employee’s weighted average pay rate $14.40 and multiply it by 0.5 to get their weighted overtime rate:
$14.40 X 0.5 = $7.20
Now, multiply the employee’s overtime rate by the number of overtime hours worked (10) to get their total overtime wages:
$7.20 X 10 = $72
Find the employee’s total compensation for the week by adding their base pay and weighted overtime wages:
$620 (straight-time for all 50 hours) + $100 (non discretionary bonus) + $72 (overtime premium on the 10 hours of OT) = $792
The employee’s total compensation for the week is $792.
Alternative to weighted average overtime
You might be able to pay your employee an overtime rate based on the regular rate of the position in which they worked overtime.
According to the Department of Labor (DOL), you are only able to put away your weighted overtime calculator and use this method if you and your employee establish an agreement before they perform the work. And, the regular hourly rate used must be at least the minimum wage.
Be sure to check with your state’s wage and hour division to verify you can use the blended overtime alternative.
Let’s say an employee works as both a receptionist and a nail technician. The employee earns $10 per hour as a receptionist and $17 per hour as a nail technician. One week, the employee works four hours of overtime performing receptionist duties. And, the employee works two hours of overtime performing nail technician duties. You would compute the employee’s four hours of overtime as a receptionist using their hourly pay rate of $10. You would also compute their two hours of overtime as a nail technician using their regular rate of $17 per hour.
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This article has been updated from its original publication date of May 23, 2018.
This is not intended as legal advice; for more information, please click here.
