Blended Overtime Explained
Blended Overtime, sometimes referred to as Weighted Overtime, is a rule from the FLSA. Employers can decline to use the Blended Overtime method with a written agreement, signed by the employee, prior to the time the work is performed.
In a Nutshell, all the employee's earnings within an Overtime period, at regular rate, must be summed together to arrive at a Total Pay value. Then, that value must be divided by the number of hours it took to achieve those earning to arrive at an average hourly rate. Now, take that hourly rate and multiply it by 0.5 to arrive at the Blended Overtime Premium. Finally, add that blended premium to the hourly rate for any hours that are over 40 in the Overtime Period.
For employees that have the same pay rate for all hours, this simply means Pay Rate x 1.5 = Overtime Rate. But, for an employee that worked at multiple rates, then their premium is calculated at the Blended value. (See Multiple Rates example below)
Another situation that occurs is when an hourly employee also receives other compensation, such as Commissions, Tips, Bonus', etc., even Holiday pay. In these situations, the additional compensation must be incorporated into the Average Hourly Rate, which is then used to determine the Blended Overtime Premium. (See Commissions Example below)
Disabling Blended Overtime
Within Timekeeper, you have the ability to exclude certain hour types and monetary types. You will want to do this for any types that are used for Retro Pay, Advances, Meal deductions and other Non-Compensation types of entries.
If you wish to Disable blended overtime, you can do so by unchecking the "Use Blended Overtime" option in the Overtime Rule configuration.
Example (Multiple Rates):
Cindy works 24 hours on the Factory Floor at the rate of $20 per Hour
And she works 24 hours as a Forklift Operator at the rate of $30 per hour
Without Blended Overtime, her total compensation would change, depending on which work she performed at the end of the overtime period.
Factory First:
$ 480.00 - 24 regular hours x $20
$ 480.00 - 16 regular hours x $30
$ 360.00 - 8 overtime hours x $45 (30 x 1.5 = 45)
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$ 1320.00 - Total Pay
Forklift First:
$ 720.00 - 24 regular hours x $30
$ 320.00 - 16 regular hours x $20
$ 240.00 - 8 overtime hours x $30 (20 x 1.5 = 30)
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$ 1280.00 - Total Pay
However, by applying Blended Overtime, it doesn't matter when in the Overtime Period the work occurred.
Determine the Premium:
$ 480.00 - 24 hours x $20
$ 720.00 - 24 hours x $30
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$ 1200.00 - Total Compensation at Regular Rate
$ 25.00 - Blended Pay Rate ($ 1200.00 / 48.00 - Total Regular Compensation / Total Hours Worked)
$ 12.50 - Blended Overtime Premium ($25 x 0.50 = $12.50)
Using Cindy's example above, but applying blended overtime...
Factory First:
$ 480.00 - 24 regular hours x $20
$ 480.00 - 16 regular hours x $30
$ 340.00 - 8 overtime hours x $42.50 (30 + 12.50 = 42.50)
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$ 1300.00 - Total Pay
Forklift First:
$ 720.00 - 24 regular hours x $30
$ 320.00 - 16 regular hours x $20
$ 260.00 - 8 overtime hours x $32.50 (20 + 12.50 = 32.50)
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$ 1300.00 - Total Pay
Example (Commissions):
Jacob works 50 hours on the sales floor at the rate of $15 per hour, plus Commissions. Without blended overtime, the commissions will not be considered in the Overtime Premium calculation.
Not Blended:
$ 800.00 - 40 hours x $20
$ 300.00 - 10 hours x $22.50 ($20 x 1.5 = 30.00)
$ 500.00 - Commissions
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$ 1600.00 - Total Pay
However, when Blended rules are applied, the Commission amount is included in determining the Premium Pay
Determine the Premium:
$ 1000.00 - 50 hours x $20
$ 600.00 - Commissions
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$ 1600.00 - Total Compensation at Regular Rate
$ 32.00 - Blended Pay Rate ($ 1600 / 50.00 - Total Regular Compensation / Total Hours Worked)
$ 16.00 - Blended Overtime Premium ($32 x 0.50 = $16.00)
Blended:
$ 800.00 - 40 hours x $20
$ 360.00 - 10 hours x $36.00 ($20 +16.00 = 32.00)
$ 500.00 - Commissions
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$ 1660.00 - Total Pay
Some companies attempt to achieve same by figuring out the Overtime component on Commissions like this:
$ 500.00 - Commissions
$ 10.00 - Base Hourly Rate of Commission ($500 / 50 hours)
$ 400.00 - Regular Commissions ($10 x 40 hours)
$ 150.00 - Overtime Commissions ($15 x 10 hours)
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$ 550.00 - Total Commissions
$ 1650.00 - Total Pay ($800.00 Regular + $300.00 Overtime + $550.00 Commissions)
As you can see, this is $10 short, leaving the company with an overtime compensation liability under FLSA