If an hourly employee works beyond 40 hours in a week, they are entitled to overtime pay. However, if that employee performs different roles at different pay rates, you may have to use a “blended rate” to calculate their overtime pay. This situation can make running payroll more complicated, especially when several employees qualify for blended overtime pay. Here’s what you need to know about blended rates and how to manage payroll effectively.
What is overtime pay?
Overtime pay is the additional compensation nonexempt employees receive when they work more than 40 hours in a workweek. Under the Fair Labor Standards Act (FLSA), most covered employees must be paid overtime for all hours worked beyond 40 in a week, although certain employees are exempt from these requirements based on their job duties and compensation.
An employee’s overtime rate must be at least 1.5 times their regular rate of pay. For example, an employee earning $15 per hour would earn $22.50 per hour for overtime hours worked.
Employers can generally require employees to work overtime. However, if nonexempt employees work overtime hours, they must be paid the appropriate overtime rate. Overtime pay should be included in the paycheck covering the pay period in which the overtime was worked.
The federal overtime
exemption salary threshold remains $35,568 annually ($684 per week) for most executive, administrative and professional employees. A 2024 rule temporarily raised the threshold, but a federal court later vacated the rule, returning the threshold to its previous level.
What is a blended rate in overtime?
A blended overtime rate is a weighted average pay rate used to calculate overtime for employees who earn different rates for different jobs, shifts or tasks during the same workweek. The rate is based on the employee’s earnings across all non-overtime hours worked.
Ed Hones, an attorney at Hones Law, explained that blended overtime applies when employees work multiple jobs or receive different pay rates from the same employer during a single workweek. “[Blended overtime pay] ensures they are fairly compensated for overtime hours based on their average hourly rate across all jobs,” Hones said.
Employers that overlook blended overtime rules can create HR compliance problems for themselves. “Blended overtime is federally required under the Fair Labor Standards Act, though some states may have additional rules,” Hones noted. “Many employers overlook this nuance, especially in industries like retail or hospitality, where workers often juggle multiple roles.”
Justin Schnitzer, an employment attorney at The Law Office of Justin Schnitzer, also emphasized the importance of calculating blended overtime correctly. “Failing to properly calculate blended overtime can lead to significant back pay liability, penalties and potential FLSA violations,” Schnitzer cautioned. “Employers can get this wrong by paying the overtime at the rate of one of the employee’s jobs when the overtime rate must take into account all of the rates at which the employee worked that week. This mistake can trigger DOL [United States Department of Labor] investigations and employee claims. The statute of limitations allows claims going back two years.”
How to calculate blended overtime rates
When calculating blended overtime pay, employers must first determine the employee’s “regular rate of pay” — the weighted average of all their hourly rates for the week. “For example, if an employee splits their time between a $15 per hour role and a $20 per hour role, their ‘regular rate of pay’ for overtime is calculated by dividing their total weekly earnings by total hours worked,” Hones explained. “This ensures the overtime pay reflects their actual blended earning rate rather than a flat figure.”
The blended regular rate formula is as follows:
Blended regular rate = (h1 x w1 + h2 x w2 + h3 x w3) / (h1 + h2 + h3)
The overtime pay rate is then calculated as:
Overtime pay rate = Blended regular rate x 1.5
In the formula above, the variables represent the following values:
- h1 = number of hours worked in first role
- h2 = number of hours worked in second role
- h3 = number of hours worked in third role
- w1 = standard wages for work in first role
- w2 = standard wages for work in second role
- w3 = standard wages for work in third role
If an employee works in four different roles, add an “h4 x w4” term to the numerator and an “h4” term to the denominator. The formula scales consistently, no matter how many roles are involved.
Julia Yurchak, a senior recruitment consultant at Keller Executive Search, emphasized the need for precision when calculating blended overtime rates. “My advice is to double-check your calculations, keep detailed records and when in doubt, consult with an employment law attorney,” Yurchak said. “Your payroll system should be able to handle blended overtime, but it’s worth verifying the math periodically to ensure everything is running correctly.”
Examples of blended overtime pay
The following are three examples of blended overtime pay calculations to help illustrate how the process works in practice.
Two different pay rates
This employee earns $20 per hour for onsite construction tasks and $30 per hour for offsite tasks. Suppose they worked 45 hours during the week in question — 30 onsite and 15 offsite. This is five hours of overtime. Let’s calculate their blended overtime pay and total wages:
Step 1: Calculate the blended regular rate of pay:
Blended regular rate = (h1 x w1 + h2 x w2) / (h1 + h2)
= (30 x 20 + 15 x 30) / (30 + 15)
= (600 + 450) / 45 = 23.33
The blended regular rate is $23.33 per hour.
Step 2: Calculate the overtime pay rate:
Overtime pay rate = Blended regular rate x 1.5
= 23.33 x 1.5 = 35
The overtime pay rate is $35 per hour.
Step 3: Calculate the overtime pay for 5 hours:
Overtime pay = 5 x 35 = $175
The overtime pay is $175.
Step 4: Calculate the standard pay:
Standard pay = (h1 x w1) + (h2 x w2)
= (30 x 20) + (15 x 30)
= 600 + 450 = 1,050
The standard pay is $1,050.
Step 5: Calculate the total weekly pay:
Total weekly pay = Standard pay + Overtime pay
= 1,050 + 175 = 1,225
Total weekly pay is $1,225.
Three different pay rates
This employee earns $15 per hour for disinfecting, $20 per hour for deep cleaning and $25 per hour for sanitation work. During a week when this employee spends five hours disinfecting, 20 hours deep cleaning and 17 hours on sanitation, they also work two overtime hours. Here’s how to calculate their blended pay and total wages:
Step 1: Calculate the blended regular rate of pay:
Blended regular rate = (h1 x w1) + (h2 x w2) + (h3 x w3) / (h1 + h2 + h3)
= (5 x 15) + (20 x 20) + (17 x 25) / (5 + 20 + 17)
= (75 + 400 + 425) / 42 = 21.43
The blended regular rate is $21.43 per hour.
Step 2: Calculate the overtime pay rate:
Overtime pay rate = Blended regular rate x 1.5
= 21.43 x 1.5 = 32.15
The overtime pay rate is $32.15 per hour.
Step 3: Calculate the overtime pay for 2 hours:
Overtime pay = 2 x 32.15 = $64.30
The overtime pay is $64.30.
Step 4: Calculate the standard pay:
Standard pay = (h1 x w1) + (h2 x w2) + (h3 x w3)
= (5 x 15) + (20 x 20) + (17 x 25)
= 75 + 400 + 425 = 900
The standard pay is $900.
Step 5: Calculate the total weekly pay:
Total weekly pay = Standard pay + Overtime pay
= 900 + 64.30 = 964.30
Total weekly pay is $964.30.
Four different pay rates
This employee performed four distinct jobs at four different pay rates and worked 12 hours at each job during the week. Their total hours worked were 48, which entitles them to overtime. Their pay rates were:
Job 1: $20 per hour
Job 2: $22.50 per hour
Job 3: $25 per hour
Job 4: $30 per hour
Here’s how to calculate their blended pay and total wages:
Step 1: Calculate the blended regular rate of pay:
Blended regular rate = (h1 x w1) + (h2 x w2) + (h3 x w3) + (h4 x w4) / (h1 + h2 + h3 + h4)
= (12 x 20) + (12 x 22.50) + (12 x 25) + (12 x 30) / (12 + 12 + 12 + 12)
= (240 + 270 + 300 + 360) / 48
= 1,170 / 48 = 24.38
The blended regular rate is $24.38 per hour.
Step 2: Calculate the overtime pay rate:
Overtime pay rate = Blended regular rate x 1.5
= 24.38 x 1.5 = 36.57
The overtime pay rate is $36.57 per hour.
Step 3: Calculate the overtime pay for 8 hours:
Overtime pay = 8 x 36.57 = $292.56
The overtime pay is $292.56.
Step 4: Calculate the standard pay:
Standard pay = (h1 x w1) + (h2 x w2) + (h3 x w3) + (h4 x w4)
= (12 x 20) + (12 x 22.50) + (12 x 25) + (12 x 30)
= 240 + 270 + 300 + 360 = 1,170
The standard pay is $1,170.
Step 5: Calculate the total weekly pay:
Total pay = Standard pay + Overtime pay
= 1,170 + 292.56 = 1,462.56
Total weekly pay is $1,462.56.
When is a blended rate required?
A blended rate is required when an employee who earns different pay rates for different roles works more than 40 hours in a workweek.
Blended overtime pay is common in industries where regulations or union agreements result in employees earning different wages for different types of work. These variable wages are especially prevalent in the construction, healthcare and hospitality industries, where workers regularly shift between roles or job classifications within a single workweek.
If you're
growing a construction firm, make sure your payroll service can accurately calculate blended overtime rates. Employees who perform multiple types of work may qualify for blended overtime more often than you think.
What is a shift differential?
A shift differential is extra pay given to employees for working less desirable hours, such as nights, weekends or holidays. It’s meant to encourage workers to accept these shifts by offering a small increase in their hourly rate.
A shift differential differs from overtime pay, which is federally required for nonexempt employees who work more than 40 hours in a week. Overtime is calculated as time-and-a-half — 1.5 times the employee’s regular hourly rate. For example, someone earning $18 per hour would receive $27 per hour for any overtime hours worked beyond the 40-hour threshold.
Shift differentials work differently. Employers can choose whether to offer them, and employees earn the additional pay no matter how many hours they’ve worked. For example, if a position pays $18 per hour and includes a $2 per hour night shift differential, an employee working nights would earn $20 per hour from the start of that shift.
Both overtime pay and shift differentials help employers attract employees to shifts that may be harder to fill. Additional compensation can encourage workers to accept nights, weekends and holidays, as well as working long shifts during busy periods. When used thoughtfully, these pay incentives can help businesses meet staffing needs while supporting employees’ work-life balance.
Jennifer Dublino contributed to this article. Source interviews were conducted for a previous version of this article.
