Calculating overtime for non-exempt employees who work more than 40 hours in a workweek is straightforward if they have the same rate of pay the entire time.  But what if an employee has different pay rates during the week?  This calculation is known as Blended Overtime or Weighted Overtime, and it is essential to get it correct.

To calculate Blended Overtime, we must first establish some definitions.  The Fair Labor Standards Act (FLSA) sets the amount paid for overtime “as a rate not less than time and one-half their regular rates of pay.” The regular rate of pay at which an employee is employed “shall be deemed to include all remuneration for employment paid to, or on behalf of, the employee,” with some exceptions.  These exceptions include vacation pay, holiday pay, sick leave, gifts like a Christmas or anniversary bonus, profit sharing, etc.  For the whole list of exceptions, go here.  In addition, the regular rate of pay cannot be less than the federal minimum wage.

This regular rate of pay definition is essential when calculating Blended Overtime.  FLSA requires that overtime must be paid out at a blended rate when work is performed at two or more rates.  Therefore, where an employee in a single workweek works at two or more different types of work for which different straight-time rates have been established, the regular rate for that week is the weighted average of such rates.  That is, the earnings from all such rates are added together, and this total is then divided by the total number of hours worked at all jobs.

Calculating blended overtime is a four-step process:

1. Calculate gross wages for the workweek (Total Dollars Earned)
2. Divide Total Dollars Earned by total hours worked for the workweek (Blended Rate)
3. Multiply the Blended Rate by the number of overtime hours (Blended Earnings)
4. Add Blended Earnings to Total Dollars (Total Compensation)

The key is to include all of the gross wages for the workweek.

### When would a blended rate be needed?

While there are a variety of scenarios where a blended rate is used, here are a few examples.

#### Hourly employee with two or more different rates

One common situation where an employee can get two different rates of pay is when they temporarily fill a supervisor or trainer role that pays at a higher rate than their normal position.  For example, a baker at a grocery store making \$16/hour works as the department supervisor on Wednesday and Thursday, paying a rate of \$20/hour.

Let’s assume the employee supervised for 15 hours and performed their regular role for 30 hours in a workweek for a total of 45 hours. The blended rate would be determined by the following blended overtime rate calculation formula:

(15 hours X \$20) + (30 hours X \$15) = \$750
\$750/45 total hours = \$16.67 per hour

Therefore, \$16.67 per hour is the blended rate. The 5 hours of overtime are paid at time and one-half the blended rate or \$25.00/hour.

The total compensation for the week would be as follows:

Supervisor pay – 15 hours x \$20 = \$300
Regular pay – 25 hours x \$15 = \$375
Overtime pay – 5 hours x \$25 = \$125
Total compensation = \$800

#### Hourly rate and bonus

Where a bonus payment is considered a part of the regular rate at which an employee is employed, it must be included in computing their regular hourly rate of pay and overtime compensation.  For example, if the same employee above receives a production bonus of \$50 for baking X number of pies in the week, this \$50 must be added to the gross wages for the week.

(15 hours X \$20) + (30 hours X \$15) + \$50 production bonus = \$800
\$800/45 total hours = \$17.77 per hour

Therefore, \$17.77 per hour is the blended rate.  The 5 hours of overtime are paid at time and one-half the blended rate or \$26.67/hour.

The total compensation for the week would be as follows:

Supervisor pay – 15 hours x \$20 = \$300
Regular pay – 25 hours x \$15 = \$375
Overtime pay – 5 hours x \$26.67 = \$133.33
Production pay = \$50
Total compensation = \$858.33

#### Hourly rate and bonus

Premium rates are considered added to compensation when determining the blended rate.  For example, the company offers a premium of \$1/hour if a person works on a Saturday or Sunday.  Let’s say the company starts its workweek on Monday, and our baker works a Wednesday through Sunday schedule with a base rate of \$15/hour.  On Wednesday and Thursday, our baker works two additional hours for a total of 44 hours for the workweek.

The blended rate would be determined by the following blended overtime rate calculation formula:

(28 hours X \$15) + (16 hours X \$16) = \$676
\$676/44 total hours = \$15.36 per hour

The workweek overtime hours happen on Sunday, where they get \$16/ hour.  Even though the overtime hours for the workweek occurred on Sunday, the blended rate for overtime is \$15.36.  The blended rate must be applied to overtime hours.  The 4 hours of overtime are paid at time and one-half the blended rate or \$23.05/hour.

The total compensation for the week would be as follows:

Regular pay – 40 hours x \$15 = \$600
Premium pay – 16 hours x \$1 = \$16
Overtime pay – 4 hours x \$23.05 = \$92.20
Total compensation = \$708.20

#### How can we help?

As you can see, Blended Overtime can get more complicated as more rates or compensation for the regular rate of pay are added.

Time Equipment Company’s world-class time and attendance solution calculates Blended Overtime rates based on your parameters.  Employees can transfer to different roles, and the system automatically applies the correct rate for the position.  In addition, premium rates can be added for various purposes, including shift differentials, weekends, or location.  For more information about Blended Overtime, contact Time Equipment Company at sales@timeequipment.com or 800-997-8463.