Question: How do you calculate overtime pay for employees who are paid at multiple rates of pay during the same 7-day work week? - Feb, 2008
Answer: The Federal wage and hour laws are governed by the Fair Labor Standards Act (FLSA) which is under the control of the Department of Labor (DOL). The FLSA mandates the payment of overtime for time worked in excess of 40 hours in a 7-day workweek.Copyright © 2017 Magna HR.
According to the FLSA, hourly employees who are paid at multiple rates of pay shall have any overtime calculated based on a weighted average of all pay rates worked during the week. In other words, the gross pay includes all compensation earned during the week from all jobs, which are then divided by the total number of hours worked.
Example: Sally worked a total of 35 hours as a restaurant server Monday through Friday and earned $3.50/hour (plus tips). She also worked a total of 20 hours as a banquet manager on Saturday and Sunday and earned $12.00/hour. Her regular earnings (excluding OT) were $362.50 ($3.50 x 35 hours plus $12.00 x 20 hours). The overtime is calculated by taking the regular earnings ($362.50) and dividing by the total hours worked (55) to arrive at the weighted average hourly rate of $6.59 which is then multiplied by 1.5 to arrive at the weighted average overtime rate of $9.89. This rate is then applied to the 15 overtime hours to arrive at the overtime earnings of $148.35 plus the regular earnings of $362.50 or gross earnings of $510.85.
A common mistake is to treat the hourly rate in effect at the time the employee exceeded 40 hours as the rate for calculating overtime. In the example above, you can see just how much of a difference this can make if the overtime rate used was $18.00/hour. The overtime earnings would have been overstated by $121.65. On the flip side, you wouldn?t want to use the $3.50 rate to calculate overtime if it was the restaurant server position that created the overtime hours since this would have created an underpayment of $69.60.