How to Calculate OT with Two Rates of Pay

June 28, 2018

Use the weighted average method to calculate overtime pay for an employee with two rates of pay.

When you pay an employee two rates of pay, calculating overtime pay can be a conundrum. You want to calculate OT at the lower rate; the employee thinks you should calculate it at the higher rate. Let’s break it down together using an example.

Step One: Calculate the straight rate of pay.

  • Joe drives 3 hours each day to and from a job site. You pay him $20/hour for travel time. So, 3 hours x 5 days x $20 = $300.
  • Joe works on-site for 40 hours a week. You pay him $35/hour. So, 40 x $35 = $1,400.
  • Straight Pay: $300 + $1,400 = $1,700.

Step Two: Calculate weighted average hourly rate.

  • Divide the straight pay amount ($1,700) by the total number of hours worked (55). Joe’s weighted average regular rate is $30.91.

Step Three: Calculate the amount of overtime pay using the weighted average regular rate. (Remember, you’ve already paid straight rate for the overtime hours, so multiply the number of overtime hours by .5.)

  • Number of hours of overtime (15) multiplied by .5 = 7.5
  • 7.5 x $30.91 = $231.83

Step Four: Add the total straight pay ($1,700) to the overtime pay ($231.83). Joe’s gross pay is $1,931.83.

Still have questions? Your payroll specialist can help walk you through the particulars of your situation.