Pay at Different Rates—How to Calculate Overtime?
Employees often are paid different hourly rates during a workweek. There are lots of benign reasons for this behavior. Perhaps the employer wishes to pay different rates for different tasks. Perhaps the employer wishes to pay a shift differential for different shifts. Perhaps even the employee works at different locations in the same week and those locations are paid at different rates. While many of these reasons are benign, some employers use different pay rates to nefariously mask improper overtime payments.
The Fair Labor Standards Act (“FLSA”) and many state laws regulate how overtime must be calculated when an employee is paid multiple pay rates in the same week. Normally, overtime is calculated as one and a half, also known as time and a half, an employee’s regular rate. When an employee works at multiple hourly rates in the same week though, the regular rate becomes a weighted average of the different hourly rates in most cases. The weighted average is done by adding up all non-overtime pay and dividing it by the total number of hours worked. For example, if an employee spends twenty-five hours making $8/hour and another twenty-five hours making $10/hour then that employee’s regular rate that week is $9/hr. ((25*8+25*10)/50 hours=$9/hr). That regular rate is then used to calculate the proper overtime rate.
Like any rule, there are exceptions. Most of these exceptions though require that the employer and the employee agree ahead of time that the exception will apply. For example, if an employer is paid different rates for different tasks, the employer can pay one and a half times the hourly rate of the tasks that are completed after forty hours. Using the prior example, if the employee spends the first twenty-five hours in the week performing tasks that are paid at $10/hour and the second twenty-five hours in the week performing the tasks paid at $8/hour then the employer may, only on a prior agreement with the employee, pay the employee overtime at time and a half of $8/hour.
While these exceptions do exist, the Fair Labor Standards Act is designed to benefit employees. Thus, whenever an employer is using an exception there is always a risk that the exception is incorrectly applied or merely a pretext to avoid paying the employee properly.
If you work for an employer who pays multiple pay rates in the same week, you should consult with an FLSA Lawyer or overtime lawyer who can educate you about your employment rights.