Overtime on Two Pay Rates

 

*Updated with video – see below*

Many businesses have employees who perform more than one type of work. Usually these employees are paid different rates of pay for the different work they perform because one job requires more skill than the other. This is a perfectly acceptable practice as long as the employee is actually performing two or more different types of work and the employer is not using multiple job rates to avoid compliance with overtime regulations.

Employers often pay overtime to a two rate employee based on the higher of the two rates to cover their bases. However, federal labor regulations provide for two methods of overtime calculation in such situations and both are more economical than always paying the higher rate.

The first method is called the “weighted average method” and involves calculating the average hourly wage for all hours worked in the workweek and paying the additional overtime half time premium on that rate.

The second method is called the “wage in effect method” and requires accurate time keeping throughout the week in order to determine how many overtime hours of each job were worked each week. The overtime half time premium is paid at the hourly rate for each job for each overtime hour.  If an employer wants to use this method she must inform her employees prior to the work being performed that their overtime will be calculated in this manner.

An employer doesn’t have to use the same method for each employee.  For example, Sarah’s overtime could be calculated using the weighted average method while Jesse’s overtime is calculated using the wage in effect method.  However, an employer cannot go back and forth between the two methods for the same employee.

For example, employee Steve works as a delivery driver and a janitor for a local manufacturing business.  He is paid $17 per hour as a driver and $14 per hour as a janitor.  His driving hours fluctuate depending on the amount of product sold each week.  This week he worked 34 hours as a driver and 12 hours as a janitor for a total of 46 hours.  Steve spent hours 41 and 42 working as a driver and hours 43-46 working as a janitor.

Overtime premium owed using the weighted average method:

34 driver hours * $17 driver rate = $578

12 janitor hours * $14 janitor rate = $168

$578 + $168 = $746 total straight time pay

$746 / 46 hours = $16.22 weighted hourly rate

$16.22 * 0.5 * 6 hours = $48.66 owed in overtime premium 

Overtime premium owed using the wage in effect method:

2 overtime hours at driver rate = $17 * 0.5 * 2 hours = $17

4 overtime hours at janitor rate = $14 * 0.5 * 4 hours = $28

$17 + $28 = $45 owed in overtime premium

*Both of these calculations assume that Steve receive no other compensation that must be included in the regular rate for overtime purposes.

Also, an employer can’t take advantage of a two pay rate system in order to avoid overtime pay. For example, if Steve was required to work 40 hours per week as a driver and 5 hours per week as a janitor but the employer always made Steve do all of his driving hours first and then work his janitor hours the Department of Labor might be suspicious. Other illegal ways of manipulation would be falsifying time records to make it appear as if an employee’s overtime hours are always worked in the lower paid position or pretending that an employee has two different jobs that merit two pay rates in order to pay overtime on a lower rate.

We hope you found this week’s tip helpful and informative. Please pass it along to anyone you think might be at risk as a result of paying overtime incorrectly on two job rates. Follow us on facebook to get the next Tip of the Week on your newsfeed!

Check out our YouTube video on this topic!

Link: http://laborbrain.com/tip-of-the-week-overtime-on-two-pay-rates/

–      By Kalen Fraser

The Labor Brain Inc. is not a law firm and its employees do not practice law or provide legal services.  The information provided on our website,  in email correspondence with representatives of The Labor Brain, and at outreach events is for informational and educational purposes only.  The information provided is not a substitute for the advice of an attorney.