What Is Blended Overtime and How Is It Calculated?

Overtime pay compensates employees for working beyond standard hours. When an employee works at different pay rates within a single workweek, calculating overtime requires a specific method called blended overtime. This article explains blended overtime, detailing when it applies, how it is calculated, and its regulatory basis.

Defining Blended Overtime

Blended overtime is a method for calculating the “regular rate of pay” when an employee works at more than one hourly rate or receives various forms of compensation within a single workweek, and also works overtime hours. This calculation ensures that overtime pay reflects a fair average of all wages earned during the week, rather than simply using the highest or lowest rate. This approach prevents employers from basing overtime on a lower rate, ensuring compliance with compensation laws.

Situations Where Blended Overtime Applies

Blended overtime becomes necessary in various employment scenarios where an employee’s compensation structure is not a single, consistent hourly wage for all hours worked. This method is required any time a non-exempt employee is paid two or more different wage rates or types and works over 40 hours in a workweek. One common situation involves an employee performing two or more different jobs for the same employer, each with a distinct hourly rate, within a single workweek. For instance, a restaurant employee might work as a hostess at one rate and then as a server at another rate within the same week.

Another scenario that necessitates blended overtime calculations is when an employee receives their hourly wage along with non-discretionary bonuses. Non-discretionary bonuses, such as production bonuses, attendance bonuses, or those tied to specific performance metrics, must be included in the regular rate of pay calculation for overtime purposes. Similarly, commissions or shift differentials, which are additional payments for working specific hours or under certain conditions, also factor into the blended rate calculation.

Steps for Calculating Blended Overtime

Calculating blended overtime involves several distinct steps to arrive at the correct total weekly pay. This method ensures the overtime premium is based on an accurate average of all earnings.

1. Calculate Total Straight-Time Earnings

This involves summing up all wages earned at different hourly rates, as well as including any non-discretionary bonuses or commissions. For example, if an employee works 30 hours at $15 per hour and 15 hours at $20 per hour, their straight-time earnings would be (30 hours $15/hour) + (15 hours $20/hour) = $450 + $300 = $750. If they also received a $50 non-discretionary bonus, the total straight-time earnings would be $750 + $50 = $800.

2. Determine Total Hours Worked

This sum includes all hours, both regular and overtime, for which the employee was compensated. Using the previous example, the total hours worked would be 30 hours + 15 hours = 45 hours.

3. Calculate Blended Regular Rate of Pay

This is achieved by dividing the total straight-time earnings (from the first step) by the total hours worked (from the second step). In our example, the blended regular rate would be $800 (total straight-time earnings) / 45 hours (total hours worked) = $17.78 per hour. This blended rate forms the basis for calculating overtime compensation.

4. Calculate Overtime Premium

The overtime premium represents the additional half-time pay due for overtime hours. This is calculated by multiplying the blended regular rate (from the third step) by 0.5 (or one-half) and then by the number of overtime hours worked. If the employee worked 45 hours, they have 5 overtime hours (45 total hours – 40 regular hours). The overtime premium would be $17.78 (blended regular rate) 0.5 5 hours (overtime hours) = $44.45.

5. Calculate Total Weekly Pay

This is the sum of the total straight-time earnings (from the first step) and the overtime premium (from the fourth step). In our example, the total weekly pay would be $800 (total straight-time earnings) + $44.45 (overtime premium) = $844.45.

Regulatory Basis for Blended Overtime

The requirement for blended overtime calculations stems from federal labor law, specifically the Fair Labor Standards Act (FLSA). The FLSA mandates that most employees in the United States receive overtime pay at a rate not less than one and one-half times their “regular rate of pay” for all hours worked over 40 in a workweek. This “regular rate” is not simply the employee’s base hourly wage but includes nearly all forms of compensation for employment. When an employee works at different rates within a single workweek, the FLSA requires that the regular rate for that week be the weighted average of all rates paid. The Department of Labor, which enforces the FLSA, provides guidance on what constitutes the “regular rate” and how to calculate it in various scenarios, including those necessitating a blended rate.