The sample Weekly Time Record (top) shows hours worked for an employee who is paid at different rates for different types of work. Weekly pay, including overtime based on $14 per hour, would be $776. But this does not comply with the Fair Labor Standards Act, which gives employers two options for figuring overtime in this situation: 1) Determine an average hourly pay rate for the week ($15.25 in “Weighted Average” example above), then calculate overtime pay based on that amount; or 2) use an overtime rate based on the pay rate for each type of work. Both options increase the employee’s weekly pay by about $18.
The sample Weekly Time Record (top) shows hours worked for an employee who is paid at different rates for different types of work. Weekly pay, including overtime based on $14 per hour, would be $776. But this does not comply with the Fair Labor Standards Act, which gives employers two options for figuring overtime in this situation: 1) Determine an average hourly pay rate for the week ($15.25 in “Weighted Average” example above), then calculate overtime pay based on that amount; or 2) use an overtime rate based on the pay rate for each type of work. Both options increase the employee’s weekly pay by about $18.

What happened

Good Guys Construction Co. pays entry-level carpenters a base rate of $14 per hour. A few of these carpenters have become quite skilled, and when they perform higher-level carpentry, such as trim work, the company pays them an extra $3 per hour. When the company pays them overtime, however, it bases the calculation on the $14-per-hour base rate.

Why it’s wrong

The Fair Labor Standards Act (FLSA) states that a non-exempt employee’s regular rate of pay for overtime calculation “includes all remuneration for employment …” (with a few exceptions). This “remuneration” includes incentives or bonuses tied to the employee’s work, commissions based on production, and—significantly in this case—different rates for certain types of work or jobs. That means Good Guys Construction cannot pay overtime using the employee’s base rate.

What you should do

Good Guys Construction has two options. The first is to calculate a weighted average of the two rates, then use it as the “regular rate” to calculate overtime pay for that week. To do this, the company would add together total earnings for the week, divide by the total number of hours worked at all jobs, then multiply this new “regular rate” by 1.5 to determine that week’s overtime rate of pay.

The other option is to calculate overtime based on the rate paid for any work that was done after the employee qualified for overtime. If during this time the employee worked at jobs paying different rates, calculate overtime separately for each job.

Keep in mind that overtime regulations can vary by state as well. Some states require overtime to be paid when an employee works more than eight hours a day. To stay out of trouble, review your payroll recordkeeping, types of compensation, and overtime computation procedures. For questions about compliance, contact an attorney or a human resources professional.

—Doug Delp is founder of The Delp Group (delpgroup.com), which provides human resources, benefits, insurance, and payroll services to small businesses.