Multiple Rates of Pay—Finally a Use for High School Math

Under the FLSA it is required that employers pay employees overtime based upon the regular rate of pay. Over the course of the next few months we will often discuss this topic. But today I want to look at one facet of calculating overtime and the regular rate of pay. What to do when an employee works at two or more different rates within the same workweek. In this type of situation, the regular rate of pay for the week is the weighted average of all the rates. Remember weighted average is not the same as average.

Let’s do an example: At Secrest Corp this week Paul worked to cover for other employees on vacation. His time card reads as follows:

Day                     Per Hour Rate               Number of Hours Worked
Monday                    $8.00                                 8
Tuesday                    $8.00                                 8
Wednesday               $9.00                                 8
Thursday                   $8.75                                 9
Friday                       $7.50                                10
Total Hours                                                        43

Paul does not work in a state which requires daily overtime. So under the FLSA we would calculate his gross pay as follows:

Step 1… Calculate the Earnings for Each Day
Monday                            8 x $8.00 = $64.00
Tuesday                            8 x $8.00 = $64.00
Wednesday                       8 x $9.00 = $72.00
Thursday                           9 x $8.75 = $78.75
Friday                             10 x $7.50 = $75.00
Total                                                    $353.75

Many times I have seen payroll professionals confuse weighted average with average. They add up the rates then divide by the number of rates. For example $41.25 (total of all the rates) divided by 5 (number of rates) = $8.25 and try to use that as the regular rate of pay. In this case it would be close enough. But unfortunately it doesn’t always work out so close and can end up underpaying the employee.

Step 2: Divide the total earnings by the total hours worked to determine the regular rate of pay
$353.75 divided by 43 = $8.23 (regular rate of pay)

Step 3: Determine the premium pay for overtime by multiplying the regular rate of pay by .5 (or divide by 2) then multiplying that amount by the number of overtime hours
$8.23 x .5 x 3 = $12.35

Step 4: Determine the total weekly compensation by adding the total earnings (step 1) and the premium pay (step 3)
$353.75 + $12.35 = $366.10 (total weekly compensation)

These 1938 rules under the FLSA require this method to properly pay employees working at more than one rate in a workweek. So you see, you should have paid closer attention to your teacher in high school math class.

Do you have to do weighted averages where you work? How do you handle it?

Let us know. Join in the discuss.