Q: My employer pays me at one rate of pay for my regular work, but then pays me minimum wage for travel and attending seminars after-hours. How is my overtime supposed to be calculated?
--Bad at Math (CA)
A: Calculating overtime for an hourly employee who is paid at two separate hourly rates is a fairly complicated analysis and does not come up very often, but hopefully the explanation below makes some sense to you. If you need more help understanding the calculation, please feel free to contact me.
Introduction to the "Regular Rate" (versus the "Base Rate")
An employee's "regular rate" of pay is a legal term for the number used to calculate their "overtime rate" of pay, which is either 1.5 or 2 times the "regular rate," depending on how many hours are worked.
What I call the "base rate" of compensation is the typical rate at which you are paid in a regular day, week or hour of work, whether at an hourly rate, salary, commissions, etc.
Some people get confused by the term "regular rate" and mistake it as a synonym for what I call the "base rate". However, the "regular rate" is only used to calculate the "overtime rate". It really has no other purpose and often bears little resemblance to an employee's actual "regular wages".
In fact, the "regular rate" can often differ greatly from the "base rate," as explained below.
Calculation of "Regular Rate" for Hourly Employees
For hourly employees, the "regular rate" is determined by taking all of the money an employee is paid in any given week and dividing it by the total number of hours worked that week.
The Usual Situation
Hourly employees are usually paid just a straight hourly rate for their "base rate". So, for most hourly employees their "regular rate" is the same as their "base rate".
- Employee is Paid $15 per hour ("base rate")
- ($15/hr X 45 hours=$675)/45=$15 ("regular rate")
For purposes of this example, we will assume that he employee worked 40 regular hours and 5 overtime hours. To calculate overtime pay, the "regular rate" is multiplied by 1.5 to determine the "overtime rate", which in this example would be $22.50.
The most common way to calculate overtime in this situation is to multiply the "base rate" by 40 hours to get the employee's "regular pay" ($600), multiply the "overtime rate" by 5 to get their "overtime pay" ($112.50), and add the two figures together ($712.50) to calculate the wages owed.
However, this is not technically correct, because what the law says is that the employee is entitled to additional "premium pay" for overtime hours worked. So really the way this should be calculated is to multiply the number of hours worked by the "base rate" ($675) and then multiply the 5 overtime hours by the difference between the "overtime rate" and the "regular rate" ($7.50) to determine the additional "premium pay" owed and add the two figures together ($712.50) to calculate the wages owed.
The reason you must subtract the "base rate" from the "overtime rate" is because the employee has already been compensated partially for the overtime hours worked at the "base rate".
While both methods seem to work in this example, the reason the longer version is correct becomes apparent from the next example.
The Complicated Situation
When an employee is paid at two different hourly rates for different tasks, the employer must calculate the "regular rate" using a "weighted average" of the different hourly rates.
Using the same example above, assume that the employee is paid $10 per hour for time spent doing janitorial duties at a retail sales job and that the first 40 hours of the week were spent doing sales work at $15 per hour and the last 5 were spent doing janitorial work.
First, calculate the "regular rate," which is done the same as above--by adding all of the money earned by that employee for the week and dividing it by the number of hours worked:
- [($10/hr X 5 hours=$50)+($15/hr X 40 hours=$600)]/45=$14.44
Second, calculate the "overtime rate" by multiplying the "regular rate" by 1.5 ($21.67). Finally, calculate the "overtime pay" by taking the difference between the "overtime rate" ($21.67) and the "base rate" for the overtime hours ($10.00) and multiply that number ($11.67) by the number of overtime hours worked (5) to determine the additional "premium pay" owed ($58.35).
The total pay for this week should be $708.35.
Again, I know this analysis is complicated, but if you have any questions about whether you are being paid overtime correctly, you should contact an employment law attorney.