How to Calculate Blended Overtime Pay

What is overtime pay?

Overtime pay is any money paid to employees for hours worked beyond their typical schedule. According to a federal law known as the Fair Labor Standards Act (FLSA), employees must be paid overtime for all hours worked over 40 in a week. However, some types of employees are exempt from FLSA provisions due to their role within the company.

An employee’s overtime pay rate must be at least 1.5 times their standard wage. For example, an employee earning $15 per hour will be paid $22.50 per hour for the overtime hours worked. The $7.50-per-hour wage increase in overtime is an amount often called a “shift differential.”

Notably, you can mandate your employees to work overtime. In other words, it’s not illegal (although it may be frowned upon) to fire employees who refuse to work overtime after you demand it. However, if you do demand overtime work, you must pay nonexempt employees at overtime rates. Overtime pay should be included in the employee’s paycheck for the pay period during which they worked overtime.

What is a blended rate in overtime?

A blended rate in overtime, also known as blended overtime pay, is the incorporation of several different wage amounts for employees paid differently for different functions. The blended rate must be at least 1.5 times the weighted average of all the employee’s nonovertime wages.

Blended overtime pay is common in industries where laws or union rules result in employees earning different wages for different types of work. These variable wages per employee are especially prevalent in the construction industry.

When is a blended rate required?

A blended rate is required any time an employee who earns different wages for different roles works overtime in any of these roles. Importantly, an employee who works 35 hours in one role and six in another during one week still earns overtime pay. Although this employee worked less than 40 hours in each role, the roles together amount to over 40 hours. That sum is what the FLSA uses to determine whether blended overtime pay is required.

How do employees benefit from shift differentials?

As mentioned earlier, the amount by which employee wages increase in overtime is called a shift differential. These differentials can motivate your employees to work undesirable hours, such as overtime or holiday hours. Think about it like this: Even the most motivated, enthusiastic employees likely want some sort of work-life balance. Overtime hours can tilt that balance in the direction of work, but employees are compensated at a higher rate in exchange.

How to calculate blended overtime rates

The blended overtime pay formula is as follows:

Blended overtime pay = (h1w1 + h2w2 + h3w3) / (h1 + h2 + h3)

In the above equation, 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 the employee works in four different roles, you can add an “h4w4” term to the numerator and an “h4” term to the denominator. The formula works as such no matter how many roles the employee fills. You must use it every week that a nonexempt employee works overtime.

Examples of blended overtime pay

Below are three examples of blended overtime pay — one each for an employee with two, three and four roles — so you can see the formula in action.

Two-role employee

Let’s start with an employee who earns $20 per hour for onsite construction tasks and $30 per hour for offsite tasks. Let’s also say this employee works 45 hours during a given week: 30 onsite and 15 offsite. In this case, h1 = 30 hours, w1 = $20 per hour, h2 = 15 hours and w2 = $30 per hour. The employee’s blended overtime pay is thus:

Blended overtime pay = (h1w1 + h2w2) ÷ (h1 + h2)

Blended overtime pay = (30 hours x $20/hour + 15 hours x $30/hour) ÷ (30 hours + 15 hours)

Blended overtime pay = ($600 + $450) ÷ (45 hours) = $23.33/hour

This employee has worked a total of five hours of overtime. Their total pay is thus:

Total pay = standard wages + blended overtime pay

Total pay = 30 hours x $20/hour + 15 hours x $30/hour + 5 hours x $23.33/hour

Total pay = $1,166.65

Three-role employee

Let’s say an 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, their blended pay would be as follows:

Blended overtime pay = (h1w1 + h2w2 + h3w3) ÷ (h1 + h2 + h3)

Blended overtime pay = (5 hours x $15/hour + 20 hours x $20/hour + 17 hours x $25/hour) ÷ (5 hours + 20 hours + 17 hours)

Blended overtime pay = ($75 + $400 + $425) ÷ (42 hours) = $21.43/hour

Given this employee’s two total overtime hours, their total pay would be:

Total pay = standard wages + blended overtime pay

Total pay = 5 hours x $15/hour + 20 hours x $20/hour + 17 hours x $25/hour + 2 hours x $21.43/hour

Total pay = $942.86

Four-role employee

For our final example, let’s look at a week where someone has worked the below schedule:

This employee has worked 48 hours during the week and thus qualifies for overtime. You can calculate their blended overtime pay this way:

Blended overtime pay = (h1w1 + h2w2 + h3w3 + h4w4) ÷ (h1 + h2 + h3 +  h4)

Blended overtime pay = [($20/hour + $22.50/hour + $25/hour + $30/hour) x 12 hours)] ÷ (48 hours)

Blended overtime pay = $1,170/48 hours = $24.38/hour

The employee’s total pay for this week is thus:

Total pay = standard wages + blended overtime pay

Total pay = [($20/hour + $22.50/hour + $25/hour + $30/hour) x 12 hours)] + $24.38/hour x 8 hours

Total pay = $1,365.04

Notably, you can calculate the total nonovertime wages easily with some minor additions to the above table:

The best payroll software for calculating blended overtime pay

As you can see, calculating blended overtime can be done using the formulas above. However, calculating blended overtime rates for every employee for each pay period would take a lot of time and effort. That’s why many small business owners choose payroll software or an automated human resources (HR) system over spreadsheet tabulation.

If you are looking for payroll software to streamline the way you calculate employee payroll, we’ve got what you need. We have tested many different solutions and have chosen the best payroll software providers available. Here are a few of our top picks.

ADP

ADP is the most well-established company in the payroll services industry, having been in business for more than 70 years. Its payroll software makes it easy to account for and pay employees the right amount of compensation, comply with applicable laws such as the FLSA, and file employee payroll taxes. It supports different pay rates so you can keep track of various rates for different tasks. ADP also enhances attendance tracking, making it easy to spot when a nonexempt employee has worked more than 40 hours in a given week. Another ADP feature that helps with blended overtime calculation is how it flags employee records that need attention on the dashboard, ensuring they are not overlooked. Check out our full review of ADP’s payroll software for more details. 

OnPay

OnPay allows you to process as many payroll runs as you need and manage multiple pay rates, making it easy to pay employees working in multiple roles correctly. The company only offers one plan, which includes many of the features that are only accessible with other companies’ higher-tier plans. OnPay has a self-service app that gives employees lifetime access to their pay stubs and documents, so they can understand and verify their pay. To find out more, read our full review of OnPay.

Zenefits HR Software 

Zenefits HR Software handles payroll, employee onboarding, recruiting and benefits administration. Most other payroll software integrates with third-party time tracking software. However, with Zenefits, time and attendance tracking is included. Zenefits has a mobile app that employees can use to clock in and out and view pay stubs, among other things. The company has three different tiers; however, payroll is considered an add-on service and costs an additional $6 per employee, per month. If you are considering using this solution, see the full Zenefits HR Software review.

QuickBooks Payroll

QuickBooks Payroll is from Intuit, the creator of QuickBooks Online, the most popular accounting software. This integration means your payroll is brought over seamlessly into your central accounting system, syncing records for overtime and taxes. However, you can still use QuickBooks Payroll as a stand-alone product even if you don’t use QuickBooks Online. Its Premium and Elite plans include time tracking. If you have the Core plan, you must input time manually. The newest version of the software has an employee workforce portal where you can enter each employee’s basic information as well as wage rates and additional pay types. Learn more by reading our review of QuickBooks Payroll.

Jennifer Dublino contributed to this article.