Calculating Overtime with Different Hourly Rates
By Kathryn O'Connor, PHR, SHRM-CP, CCP, GRP, Director, Compensation Services
Published April 10, 2018
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 our new Park & Recreation Roundtable. For those not familiar with the "park and rec" industry, it is quite common to have an employee in the payroll system with up to 10 different rates! Imagine the same employee working for you as a soccer coach, scorekeeper, swim instructor, lifeguard and program instructor.
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:
Mary works 30 hours a week as a lifeguard, earning $9 per hour. Mary agrees to work additional hours each week as a program instructor, for which she will be paid $10 per hour.
Last week, Mary clocked 12 hours of program instruction, which, when added to her 30 hours a week as a lifeguard, means she is owed two hours of overtime pay. But her regular rate for overtime purposes is neither $9 nor $10 per hour. Overtime is calculated as follows:
- First, calculate the wages earned for each job:
Wages earned lifeguarding: 30 hours x $9 = $270
Wages earned doing program instruction: 12 x $10 = $120
Total: $270 + $120 = $390
- Next, divide these total earnings by the total number of hours worked:
$390/42 hours = $9.29 (this is her regular rate of pay)
- Using this regular rate of pay ($9.29), calculate the overtime premium (50%):
$9.29 x 0.5 = $4.65
- Finally, apply this premium to any overtime hours worked:
2 hours x $4.65 = $9.30
Total pay for the week = $390 + $9.30 = $399.30
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.
Questions? Members of the Management Association can call on our compensation professionals at 800-448-4584 or email us at email@example.com.