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How to Calculate Blended Overtime Pay

Max Freedman
Max Freedman
business.com Contributing Writer
Updated Feb 16, 2022

When a multi-wage employee works overtime, on which of their wage rates do you base their overtime rates? Blended overtime pay answers this question.

If an hourly employee works beyond 40 hours in a week, they are entitled to overtime pay. However, if that employee performs different roles for different pay, you may have to use what is called a “blended rate” to calculate their overtime pay. This can make payroll a more arduous process, especially if a lot of employees are entitled to blended overtime pay. Here is everything you need to know about blended rates and how to manage your employee payroll effectively.

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.

Did you know?Did you know? Many employees are exempt from the FLSA’s mandatory overtime pay rules, including salaried employees in managerial or executive positions.

An employee’s overtime pay rate must be at least 1.5 times their standard wage. For example, in overtime, an employee earning $15 per hour will be paid $22.50 per hour. The $7.50-per-hour wage increase in overtime is an amount often called a “shift differential,” a term we’ll use later in this article.

Notably, you can mandate that your employees work overtime. In other words, it’s not illegal (though 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 non-overtime 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.

FYIFYI: Blended wages are perhaps most prevalent in the construction industry and can significantly complicate running payroll.

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.

However, calculating blended overtime rates for every employee manually would take a lot of time and effort. That’s why many small business owners choose payroll software such as Intuit QuickBooks and OnPay over spreadsheet tabulation.

Looking for payroll software to streamline the way you calculate employee payroll? Reading our reviews of the best payroll software providers should tell you all you need to know about why payroll software may prove superior and which platforms will best serve your needs.

Examples of blended overtime pay

Below, we’ll provide 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.

2-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 hrs x $20/hr + 15 hrs x $30/hr) ÷ (30 hrs + 15 hrs)

Blended overtime pay = ($600 + $450) ÷ (45 hrs) = $23.33/hr

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 hrs x $20/hr + 15 hrs x $30/hr + 5 hrs x $23.33/hr

Total pay = $1,166.65

3-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 hrs x $15/hr + 20 hrs x $20/hr + 17 hrs x $25/hr) ÷ (5 hrs + 20 hrs + 17 hrs)

Blended overtime pay = ($75 + $400 + $425) ÷ (42 hrs) = $21.43/hr

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

Total pay = standard wages + blended overtime pay

Total pay = 5 hrs x $15/hr + 20 hrs x $20/hr + 17 hrs x $25/hr + 2 hrs x $21.43/hr

Total pay = $942.86

4-role employee

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

 Hourly wageDay 1 (hrs)Day 2 (hrs)Day 3 (hrs)Day 4 (hrs)Day 5 (hrs)Day 6 (hrs)Day 7 (hrs)Total hrs
Job 1$204 4 4  12
Job 2$22.50 4 4 4 12
Job 3$254 4 4  12
Job 4$30 4 4 4 12

 

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/hr + $22.50/hr + $25/hr + $30/hr) x 12 hrs)] ÷ (48 hrs)

Blended overtime pay = $1,170/48 hrs = $24.38/hr

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

Total pay = standard wages + blended overtime pay

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

Total pay = $1,365.04

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

 Hourly wageDay 1 (hrs)Day 2 (hrs)Day 3 (hrs)Day 4 (hrs)Day 5 (hrs)Day 6 (hrs)Day 7 (hrs)Total hrsTotal weekly wages
Job 1$204 4 4  12$240
Job 2$22.50 4 4 4 12$270
Job 3$254 4 4  12$300
Job 4$30 4 4 4 12$360
Total wages         $1,170

 

Image Credit:

cat-scape / Getty Images

Max Freedman
Max Freedman
business.com Contributing Writer
Max Freedman is a content writer who has written hundreds of articles about small business strategy and operations, with a focus on finance and HR topics. He's also published articles on payroll, small business funding, and content marketing. In addition to covering these business fundamentals, Max also writes about improving company culture, optimizing business social media pages, and choosing appropriate organizational structures for small businesses.