Some employers still consider the payment of “time and a half” for all hours worked over 40 in a week as satisfying their overtime obligation. But does it really? What if an employee works at two or more pay rates in one week? How does working on prevailing wage change time classification and overtime premium calculation? What happens if an employee works all seven days in the week? What is weighted average overtime?
This article attempts to explain the requirements and calculation methods of weighted average overtime, commonly called “blended rate overtime.” This most commonly applies to an hourly worker who may perform work on prevailing wage projects part of the week or who works at more than one classification in any one week. Several key components of overtime law are not covered, such as how exempt and nonexempt employees are defined; how commissions, pieceworkers or salaried persons affect calculations; or how other states identify and define their overtime requirements. This article is written for work performed in the state of Kentucky. Since overtime laws vary state to state, be aware of accounting programs or overtime calculators that do not take a state’s specific overtime requirements into account or do not require you to identify the specific hour worked as subject to overtime.
Identify the OT Hours
To properly calculate an overtime pay rate, the employer must first correctly identify which hours to classify as overtime hours. Identification starts with how the employer defines the “work week,” or the seven consecutive days adopted by the employer with the intention that it shall be permanently defined with no intention to evade overtime provisions. The most common overtime requirement is to pay a premium for employment in excess of 40 hours in a work week. Classifying hours worked over 40 as overtime is both a federal and state requirement.
Kentucky is also one of two states to have a “seven-consecutive-day” law. An employee who works all seven days of the workweek, and who exceeds 40 total work hours on the seventh day, shall have all hours worked on the seventh day classified as overtime.
In summary, and generally speaking, the state of Kentucky requires an overtime premium for the following:
- Greater than 40 hours worked in one work week
- Seven consecutive days in the work week (if exceeding 40 hours on the seventh day)
Calculate the “Regular Rate” and Overtime Premium
Once hours have been properly identified as overtime, the next step is correctly calculating the premium due for those hours.
For employees paid a single hourly rate only, the premium is determined by multiplying one-half by the hourly rate, then adding this amount to the straight-time regular earnings (hence “time and a half’). For employees working at two or more rates, the hourly rate for that week is the weighted average of the rates.4 In other words, divide the total straight-time wages by the total number of hours worked. This “blended rate” or “regular rate” is then multiplied by one-half to calculate the correct overtime premium. Adding this overtime premium to the base hourly straight-time rate for the specific hours identified as overtime yields the correct hourly rate. This is especially important in the prevailing wage context, where it must be shown that an overtime premium is applied to the correct hour.
An Example
John H. Employee works for Samples Contracting Company. Samples Contracting recently began work on Job 12-003.
John works Monday through Thursday, ten hours each day, at Job 12-003 as an electrician. The required prevailing wage base rate for electricians on this project is $29.27 per hour. On Friday, John works eight hours in the shop. John’s base wage is $18 per hour.
Samples Contracting must answer the following questions for John, and for every employee, every week:
- Which hours worked this week (if any) are overtime?
- What is the regular rate?
- What is the overtime premium?
- What is the correct hourly rate of pay?
- What are the total wages due?
Which hours worked this week (if any) are overtime?
Since John did not work all seven days of the work week, the seven-consecutive-day requirement is not applicable. John did, however, exceed 40 work hours this week. He reached 40 hours as of the end of the day Thursday, making all eight hours worked on Friday overtime hours.
What is the regular rate?
John worked at more than one hourly rate for the week, so his regular rate must be calculated.
“Regular Rate” = Total straight wages paid/ Total hours worked
= (($29.27/hour x 40 hours) + ($18.00/hour x 8 hours))/48 hours
= $1,314.80/48 hours
= $27.391/hour
What is the overtime premium?
The overtime premium due is one-half (1/2) the blended, or “regular,” rate.
OT Premium = 0.5 x “Regular Rate” = 0.5 x $27.391/hour
= $13.6958/hour
= $13.70/hour
What is the correct hourly rate of pay?
The overtime premium is added to the straight-time rate for the applicable hour(s) to calculate the appropriate hourly rate. In this example, the overtime hours were all worked on Friday, where the straight-time rate was $18/hour.
Hourly rate of pay ($/hour) = Straight-time base rate + OT premium
= $18.00/hour + $13.70/hour
= $31.70/hour
What are the total wages due?
Total wages due are the total sum of the hourly pay rates multiplied by the total hours at the pay rate, for all hours worked.
Total wages = ($29.27/hour x 40 hours) + ($31.70/hour x 8 hours)
= $1,170.80 + $253.60
= $1,424.40
An Additional Example
James K. Welder also works for Samples Contracting Company. Samples Contracting recently began work on Job 12-018.
James works a portion of the week at Job 12-018 as an electrician (Mon 6 hrs, Tues 12 hrs). The required prevailing wage base rate for electricians on this project is $26.11 per hour. James also works during the week at Job 12-018 as a sheet metal worker (Mon, 4 hrs), where the required prevailing wage base rate is $27.26 per hour. Additionally, James works at Job 11-216, a non-prevailing wage project, at his normal base pay wage (Wed 8 hrs, Thurs 8 hrs, Fri 8 hrs). James’ base wage is $23.00 per hour.
Samples Contracting must answer the same questions for James as it did for John:
- Which hours worked this week (if any) are overtime?
- What is the regular rate?
- What is the overtime premium?
- What is the correct hourly rate of pay?
- What are the total wages due?
Which hours worked this week (if any) are overtime?
James did not work all seven days of the work week so the seven-consecutive-day requirement is not applicable. James did, however, exceed 40 work hours this week reaching 40 non-overtime hours during the work day on Friday. As such, six of the hours worked on Friday are overtime hours.
What is the regular rate?
James worked at more than one hourly rate for the week so his regular rate must be calculated.
“Regular Rate” = Total straight wages paid / Total hours worked
= (($26.11/hour x 18 hours) + ($27.26/hour x 4 hours) + ($23.00/hour x 24 hours)) / 46 hours
= $1131.02/46 hours = $24.587/hour
What is the overtime premium?
The overtime premium due is one-half the blended, or “regular,” rate.
OT Premium = 0.5 x “regular rate”
= 0.5 x $24.587/hour
= $12.2935/hour
= $12.30/hour
What is the correct hourly rate of pay?
The overtime premium is added to the straight-time rate for the applicable hour(s) to calculate the appropriate hourly rate. In this example, the overtime hours were all worked on Friday, where the straight-time rate was $23/hour.
At Job 11-216:
Hourly rate of pay ($/hour) = straight-time base rate + OT premium
= $23.00/hour + $12.30/hour
= $35.30/hour
What are the total wages due?
Total wages due are the total sum of the hourly pay rates multiplied by the total hours at the pay rate, for all hours worked.
Total wages = ($26.11/hour x 18 hours) + ($27.26/hour x 4 hours) + ($23.00/hour x 18 hours) + ($35.30/ hour x 6 hrs)
= $469.98 + $109.04 + $414.00+ $211.80 = $1,204.82
Conclusion
The most critical step when calculating overtime premiums is the correct identification of hours.
Due to the differences between federal requirements and those of each state, be mindful of potential issues that accounting programs or overtime calculators may cause if they automatically identify overtime hours or calculate overtime premiums. This is especially true in the prevailing wage context, where states or localities may have additional prevailing wage overtime requirements that differ from federal requirements. As with everything, it is the responsibility of the employer to seek assistance as necessary to know the laws and correctly abide by them.
References
1. KRS 337.285; 803 KAR 1:060
2. KRS 337.050
3. 803 KAR 1:061
