Overtime payments: Multiple different hourly rates
Non-exempt employees working more than 40 hours in a workweek must be paid an overtime rate. Typically, the overtime rate is easy to calculate by taking the employee’s regular hourly rate and multiplying by 1.5.
This can get tricky however, when the employee performs two or more different jobs, each with different pay rates. This scenario recently came up at a recent meeting with Construction clients. For those not familiar with the "construction" industry, or “automotive” it is quite common to have an employee in the payroll system with several different hourly rates! Some rates are based on the kind of work being done, the travel time, or just sitting around waiting for work.
When faced with this situation, employers must use a regular rate of pay calculation. By adding all the earnings together and dividing this total by the number of hours worked, employers will calculate the appropriate regular rate of pay for overtime purposes. An example follows:
Amy works 30 hours a week on a drywall team, earning $19 per hour. Amy agrees to work additional hours each week unloading work site deliveries for job materials, for which she will be paid $14 per hour. Amy travels between jobsites, on the clock, at a rate of $10 per hour.
Last week, Amy clocked 30 hours of drywalling, 8 hours of job site travel, and 14 hours of unloading job materials onsite, which, when added together, means she is owed 12 hours of overtime pay. But her regular rate for overtime purposes is not $19, $14, or $10 per hour. Overtime is calculated as follows:
First, calculate the wages earned for each job:
Wages earned drywalling: 30 hours x $19 = $570
Wages earned unloading materials: 14 x $14 = $196Wages earned travelling between job sites: 8 x $10 = $80
Total: $570 + $196 + 80 = $846
Next, divide these total earnings by the total number of hours worked:
$846/52 hours = $16.27 (this is her regular rate of pay)Using this regular rate of pay ($16.27), calculate the overtime premium (50%):
$16.27 x 0.5 = $8.135Finally, apply this premium to any overtime hours worked:
12 hours x $8.135 = $97.62
Total pay for the week = $846 + $97.62 = $943.62
As one can imagine, this calculation could be administratively cumbersome to perform, given the number of pay rates in play during the week as well as the number of employees affected. We always encourage you to check your payroll system functionality to see if these calculations can be automated.
Still in a jam? A way to avoid this calculation all together is to always pay overtime based on the highest rate of pay worked during the week. Sure, it costs the organization more in overtime payments, but often employers will opt for a solution that meets legal compliance and minimizes administrative support.