For many businesses, overtime is often a necessity. While there are certain strategies that your business can explore to reduce the amount of overtime you are paying, sometimes there is no way around it. Generally, overtime pay is an easy number to calculate. However, overtime calculations are not as straightforward for those employees that work multiple positions for your company at different pay rates. This is referred to as blended overtime. Let’s take a look at what blended overtime is.
What is blended overtime?
Blended overtime is the pay an employee, who works at two or more pay rates, receives for working more than 40 hours in a given 7 day period. As with standard overtime, blended over is a federal requirement for those working at multiple rates and is enforced by the Department of Labor.
There are many examples of an employee who would work at multiple pay rates. A restaurant employee may work as a hostess one shift at minimum wage, and then a server the next day and fall under the FICA Tip Credit rules and make a lower wage. Another example would be a construction worker having different responsibilities at different jobsites, resulting in different pay rates for each. Should these two employees work overtime hours, their overtime pay would be calculated using the blended overtime formula.
How to calculate blended overtime
Traditionally, overtime is calculated at 1.5 times an employee’s hourly rate.
For example, Joe earns $20 per hour and worked 50 hours last week. First, to calculate his regular pay, multiple $20 per hour by 40 hours: $20 x 40 = $800. Then, calculate the overtime rate: $20 per hour x 1.5 OT rate = $30 per hour. Next, calculate Joe’s overtime pay: $30 per hour x 10 hours = $300. Finally, add the regular pay with the overtime pay: $800 + $300 = $1,100.
Calculating blended overtime is a bit more complicated.
For example, Lucy works 25 hours as cashier, 15 hours as a hostess, and 10 hours as a cook. As a cashier, she makes $15 per hour. As a hostess, she earns $20 per hour. When working as a cook, she makes $25 per hour.
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First, calculate gross wages from base pay alone. Since Lucy mainly works as a cashier, this is considered her base pay. 50 hours x $15/hour = $750.
Next, calculate the extra pay. This is also known as shift differential. Lucy’s differential is $5 for hostessing and $10 for cooking. ($5 x 15 hours) + ($10 x 10 hours) = $175.
Next, add the two amounts together and calculate the blended rate: $750 + $175 = $925. The total pay of $925 divided by 50 hours worked gives us the blended rate of pay: $925/50 = $18.50 per hour.
Calculate the blended overtime rate: $18.50 per hour x 1.5 OT rate = $27.75 per hour.
Finally, calculate Lucy’s pay: $18.50 per hour x 40 hours = $740. $27.75 per OT hour x 10 hours = $277.50. $740 + 277.50 = $1,017.50
How to simplify this process
Using a time tracking software that integrates with your payroll software automates this process. Eliminate manual calculations and potential errors with an integrated solution like isolved. Your employees can be setup by job codes or departments with different rates of pay. The system can automatically calculate the blended rates and overtime pay for these employees. This will ensure your employees are receiving the correct pay each pay period.