What Is a Blended Rate of Pay?

Employee compensation often involves various methods, from fixed salaries to hourly wages. While a single hourly rate simplifies pay calculations, situations can arise where an employee earns different rates within the same workweek. Understanding how these rates are handled is important for proper compensation, especially when overtime hours are involved.

Defining Blended Rate of Pay

A blended rate of pay, also known as a weighted average or weighted overtime, is an average hourly rate for an employee who performs different types of work at varying hourly rates within a single workweek. This rate applies when an employee works multiple jobs for the same employer, each with a distinct hourly wage, or when they earn different rates for different duties within one role. For example, an employee might earn $15 per hour for general tasks and $18 per hour when operating specialized equipment.

The Fair Labor Standards Act (FLSA) mandates that when an employee works over 40 hours in a workweek and earns multiple rates, their overtime pay must be calculated using this blended rate. This ensures that overtime compensation accurately reflects the overall average earning capacity during that week. The blended rate is necessary for employers to accurately calculate overtime wages and comply with federal and state wage and hour laws.

Calculating the Blended Rate

Calculating the blended rate determines the employee’s average hourly earnings for a given workweek. First, sum all gross earnings from all hourly rates and tasks performed during the workweek. Then, divide this total gross earning by the total number of hours worked in that same week. This calculation yields the “regular rate of pay,” which cannot be less than the federal minimum wage or any higher state or local minimum wage.

For example, consider an employee who works 30 hours at $15 per hour and 15 hours at $18 per hour in a single workweek, totaling 45 hours. Their earnings would be (30 hours $15/hour) = $450 and (15 hours $18/hour) = $270, for a total of $720. To find the blended rate, divide the total earnings ($720) by the total hours worked (45 hours), resulting in a blended rate of $16 per hour. Since the employee worked 5 overtime hours (45 total hours – 40 standard hours), the overtime premium is calculated as half of the blended rate ($16 0.5 = $8) multiplied by the overtime hours ($8 5 hours = $40). The total compensation for the week would be $720 (straight time) + $40 (overtime premium) = $760.

Why Blended Rates Matter

Accurately calculating and applying blended rates is important for both employers and employees. Employers must ensure compliance with wage and hour laws. Miscalculations can lead to legal issues, including back pay damages and potential penalties.

For employees, the proper application of blended rates ensures they receive fair and accurate compensation for all hours worked, especially when they contribute in various capacities at different pay scales. This method prevents underpayment for overtime hours, reflecting their true average earning rate across all duties. Adhering to these regulations helps maintain transparent and equitable payroll practices.