In certain types of small businesses, it’s common for employees to fill more than one role and be paid different wages for each. But what does this mean for overtime pay?
Under the Fair Labor Standards Act (FLSA), employers must pay non-exempt employees who work over 40 hours in a week an overtime rate of 1.5 times their hourly rate. Suppose an employer has employees who hold multiple positions within the business and, therefore, receive multiple pay rates. In that case, the employer must calculate weighted overtime when these employees work over 40 hours in a week.
So, what is weighted overtime, and how does it work? This formula averages the employee’s different pay rates, which you must use to calculate their overtime wages.
Keep reading below for a breakdown of when and how to calculate weighted overtime.
When Do Employers Have to Calculate Weighted Overtime?
In addition to non-exempt employees with more than one job and pay rate, you have to perform weighted overtime calculations for non-exempt employees who have overtime and earn:
- A non-hours-based pay like commission, or
- Earn a fixed salary for an alternating workweek
Weighted overtime pay does not apply to employees with one role at one pay rate. For those workers, use the standard overtime calculation of 1.5x their regular pay rate.
Don’t Forget Non-discretionary Bonuses & Commission
A common oversight we see among employers is not including nondiscretionary bonuses and commissions in overtime calculations. Both are considered part of an employee’s regular pay rate, so they must be included in overtime.
As the name suggests, discretionary bonuses are awarded at your discretion. They are issued near the end of the pay period and are not part of a contract, agreement, or promise that led employees to expect them.
On the other hand, non-discretionary bonuses are those that are predetermined and that employees expect to receive based on factors like performance, productivity, or attendance. These bonuses are typically included as part of an employee’s compensation package and are not solely at your discretion. This means that during overtime pay calculation, you must:
- Add the value of the bonus to the employee’s total regular earnings for the pay period
- Recalculate the regular rate of pay for the specific pay period in which the bonus was earned by dividing the total earnings for the pay period, including the bonus, by the total hours worked
- Calculate the overtime pay based on this new rate
The same goes for commission, which is based on an agreement. For example, suppose you have a contract with a salesperson stating that you’ll give them a 5% commission for every sale. In that case, that is a non-discretionary amount—you can’t suddenly decide to pay them an arbitrary amount one week.
As you’d expect, this rule also applies to weighted overtime calculations. However, employers can avoid accounting for overtime bonuses by paying them “as a percentage of a nonexempt employee’s total straight-time and overtime earnings over the bonus period,” according to the Society for Human Resource Management (SHRM).
How to Calculate Weighted Overtime
Calculating weighted overtime involves adjusting the overtime rate based on an employee’s different pay rates for various job duties or shifts. Let’s break down this process into a few steps, followed by an example:
- Calculate the total regular wages: Add the employee’s regular wages multiplied by the hours worked at each pay rate.
- Determine the weighted average pay rate: Divide the employee’s total compensation by the total hours worked to get the weighted average.
- Find the weighted overtime total: Multiply the weighted average from Step 2 by 0.5 to get the weighted overtime rate. Then, multiply this rate by the overtime hours to determine the additional overtime wages.
- Add the total earnings: Combine the employee’s regular wages (Step 1) and their weighted overtime total (Step 3).
Even with this step-by-step, calculating weighted overtime can get muddy. So, let’s say a coffee shop employee works front-of-house shifts for $12 per hour and kitchen duty at $15 per hour. She worked 30 hours in the front and 20 hours in the kitchen in one pay period.
- Start by finding her regular pay: (30 hours x $12) + (20 hours x $15) = $660
- Next, divide the employee’s total wages by the total number of hours worked (50) to get her weighted average pay: $660 / 50 = $13.20
- Multiply the weighted average pay rate by 0.5 to get her weighted overtime rate: $13.20 x 0.5 = $6.60
- Calculate her total overtime wages by multiplying the overtime rate by the number of overtime hours worked (10): $6.60 x 10 = $66
- Determine the employee’s total pay for the pay period by adding her regular earnings and weighted overtime wages: $660 + $66 = $726 (her total pay)
Calculate Weighted Overtime Properly & Comply with FLSA
Calculating weighted overtime is easier to understand with an example in front of you, but adding in nondiscretionary bonuses and commissions can complicate matters. The overall process can also be time-consuming.
Despite the apparent tedium, using the weighted overtime pay calculation is not optional when you have non-exempt employees working in different roles at different pay rates who work beyond 40 hours in a workweek. To remain compliant with FLSA rules, develop clear bonus and commission structures, track them carefully, and invest in an automated payroll system that can handle time-tracking and calculations.
Do you have questions about how weighted overtime works or other FLSA regulations? Contact BlueLion today at 603-818-4131 or info@bluelionllc.com, and our HR consultants will happily answer them!
The information on this website, including its newsletters, is not, nor is it intended to be legal advice. You should contact an attorney or HR specialist for advice on your individual situation.
