How to Calculate Blended Overtime Rate
Master how to accurately calculate employee overtime when varying pay rates apply within a workweek. Understand the precise method for compliance.
Overtime pay is a standard component of compensation for many workers. When an employee works at different pay rates within a single workweek, calculating this premium becomes more complex, requiring a “blended overtime rate.” This method ensures compliance with wage laws by accurately reflecting all forms of compensation in the overtime calculation. Understanding how to calculate this blended rate is important for both employers and employees to ensure fair and accurate pay.
What is Blended Overtime
Blended overtime applies when an employee performs work at varying rates of pay within the same workweek. This often occurs when an employee takes on different tasks, works in multiple departments, or has different shifts with varying pay scales. The Fair Labor Standards Act (FLSA) mandates that eligible employees receive overtime pay based on their “regular rate of pay” for all hours worked over 40 in a workweek.
The blended overtime calculation establishes this regular rate when multiple hourly rates or other forms of compensation are involved. It ensures the overtime premium reflects the average value of all work performed during the week. A workweek under the FLSA is a fixed and regularly recurring period of 168 hours, or seven consecutive 24-hour periods. This workweek can begin on any day and at any hour, and it does not need to align with a calendar week.
Determining the Regular Rate of Pay
The “regular rate of pay” is the foundation for calculating blended overtime. It is determined by dividing an employee’s total compensation for the workweek by the total hours worked in that week. The FLSA defines the regular rate to include “all remuneration for employment paid to, or on behalf of, the employee,” with specific exceptions.
Included Compensation
Compensation types included in the regular rate are hourly wages for all different rates worked, non-discretionary bonuses, and shift differentials. Commissions, whether based on sales percentages or other formulas, are also included. On-call pay and other similar payments that compensate for work performed or time spent for the employer’s benefit are typically included.
Excluded Compensation
Certain payments are excluded from the regular rate calculation. These exclusions include genuine gifts given on special occasions, provided they are not tied to hours worked or production. Discretionary bonuses, where both the decision to pay and the amount are solely at the employer’s discretion and not promised in advance, are also excluded. Payments for unworked hours, such as vacation, holiday, or sick leave pay, and reimbursements for legitimate business expenses, are not part of the regular rate.
To calculate the regular rate, sum all included compensation for the workweek. This total is then divided by the total hours the employee worked in that same workweek. For example, if an employee earns $800 in total includable compensation and works 40 hours, their regular rate would be $20 per hour.
Calculating Overtime Pay
Once the regular rate of pay is determined, calculating the overtime premium involves applying FLSA requirements. The FLSA mandates that non-exempt employees receive overtime pay at a rate of not less than one and one-half times their regular rate of pay for all hours worked over 40 in a workweek. This means an employee is due an additional half (0.5) of their regular rate for each overtime hour.
To calculate, identify the total overtime hours worked within the workweek. The overtime pay due is then calculated by multiplying the regular rate of pay by 0.5 (the “half-time premium”) and then multiplying that result by the number of overtime hours. For example, if the regular rate is $20 per hour and an employee works 8 overtime hours, the additional overtime pay would be $20 x 0.5 x 8 = $80.
This additional amount is then added to the employee’s total straight-time earnings for the week to arrive at their gross pay. It is important to note that the overtime requirement cannot be waived by agreement between the employer and employees.
Applying the Calculation to Different Scenarios
The blended overtime calculation is best illustrated through practical examples, which account for all forms of compensation.
Example 1: Multiple Hourly Rates
Consider an employee who works 50 hours in a workweek. For 30 hours, they perform administrative tasks at $15 per hour, and for the remaining 20 hours, they work on a specialized project at $20 per hour.
1. Calculate total straight-time earnings: (30 hours × $15/hour) + (20 hours × $20/hour) = $450 + $400 = $850.
2. Determine the regular rate of pay: $850 / 50 hours = $17 per hour. This is the blended regular rate.
3. Calculate overtime premium: The employee worked 10 overtime hours (50 – 40). The additional overtime premium owed is ($17 × 0.5) × 10 hours = $85.
4. Calculate total gross pay: $850 (straight time) + $85 (overtime premium) = $935.
Example 2: Hourly Rate with Bonus
In another scenario, an employee works 45 hours at a single hourly rate of $25 per hour and receives a non-discretionary productivity bonus of $100 for the week, requiring a similar calculation.
1. Calculate straight-time hourly earnings: 45 hours × $25/hour = $1,125.
2. Add non-discretionary bonus: $1,125 + $100 = $1,225.
3. Determine the regular rate: $1,225 / 45 hours = $27.22 per hour (rounded).
4. Calculate overtime premium: The employee worked 5 overtime hours (45 – 40). The overtime premium is ($27.22 × 0.5) × 5 hours = $68.05.
5. Calculate total gross pay: $1,225 (straight time earnings plus bonus) + $68.05 (overtime premium) = $1,293.05.