HR Question of the Week – November 15, 2015

Question:

My employees have different pay rates depending on what job they are performing (landscaping or snow removal). How should I calculate what rate to use for overtime pay?

Answer:

Most of our clients prefer to use the second method, which is commonly called the “weighted average” overtime calculation method. For the weighted average calculation, you will determine the regular rate of pay for the pay period by calculating the weighted average of the two rates. It is important to note that it does not matter in which position the employee was working for the overtime hours for this calculation. This method is best illustrated by an example.

An employee who is paid weekly works 32 hours as a landscaper at $15 per hours and 16 hours doing snow removal at $11 per hour in one week. In order to determine the pay using the weighted average method you would do the following calculation:

32 hours x $15/hour + 16 hours x $11/hour = $656 (total straight time compensation)
$656 (total straight time compensation) ÷ 48 hours worked = $13.67 (regular rate)
$13.67 (regular rate) x 1½ = $20.51 (overtime rate)
$13.67 (regular rate) x 40 hours= $546.80 (total straight time earnings)
$20.51 (overtime rate) x 8 (overtime hours) = $164.08 (total overtime earnings)
$536.80 (total straight time earnings) + $164.08 (total overtime earning) = $710.88 (total compensation)

The third option for determining the overtime rate is more limited in use. For this option, the time-and-a-half overtime rate is determined based on the position in which the employee is working during the overtime hours. This method is allowed under federal law, but in order to use it, the employer must reach an agreement with the employee, in advance of the performance of the work, that the overtime pay for any hours in excess of 40 will be calculated using the straight time pay rate for the work the employee is performing during the overtime hours. While this agreement can be oral, written documentation is recommended.

It is important that you remain consistent with which method you use for an employee. Once you choose a method, you should use that same method each pay period for the overtime calculation. Keep in mind that if your state or municipality has more employee-friendly overtime regulations, such as daily overtime or double-time, you will need to ensure that you are complying with those as well as complying with the federal regulations.

Source: HR Support Center | Copyright © 2017 AdvaPay Systems, LLC

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