Variable Pay Rates and OT Implications: Clarifying Overtime Pay

WHEN AN EMPLOYEE WORKS MULTIPLE JOBS AT VARYING RATES, WHAT DO YOU DO ABOUT OVERTIME PAY?

Many businesses have employees with multiple skill sets who can use these different skill to benefit the business. This may mean that one employee works as a file clerk during the day and cleans the office as a janitor at night. Or an employee works part of the day as an office assistant and the other part of the day as a customer service representative. While it is beneficial to have employees fill multiple roles in your business it can cause some issues in terms of different rates of pay and overtime.

There is nothing in the Fair Labor Standards Act (FLSA) prohibiting an employer from paying an employee different rates for various types of work, as long as those rates are not less than the statutory minimum wage (Federal minimum wage is currently $7.25). Ordinarily, when an employee in a single workweek works two or more different types of jobs or tasks for which different hourly rates of pay have been established, the employee’s regular rate to be used for overtime calculations for that week is the weighted average of those rates.

Take Sarah as an example. Sarah works for EAT, Inc. performing two jobs – her day job as a waitress and her night job as a bartender. For her waitress job, Sarah is paid $15/hour; as a bartender she’s paid $10/hr. She works 40 hours as a waitress during the workweek and then another 10 as a bartender. There are different methods to do the algebra on this to determine the regular rate of pay, but one way to do it is: $15 x 40 hours = $600 (waitress); $10 x 10 hours = $100 (bartender). Total compensation is $700. $700/50 hours worked = $14/hr regular rate of pay. This does not calculate the overtime premium for Sarah though. To calculate that we add the premium as such: $14/hr (regular rate of pay) x .5 (OT multiplier) x 10 (number of OT hours worked) = $70. $700 (regular pay) + $70 (OT premium) = $770.

However, if an employee meets certain conditions, an employer can pay that employee different overtime rates based on one and one-half times the differing hourly rates established for each task or job. In order to be able to pay an employee different overtime rates, an employer must satisfy the following requirements:

The employee must perform two or more kinds of work;
The employer must establish a bona fide different hourly rate for those different kinds of work;
The compensation must be paid pursuant to an agreement or understanding arrived at between the employer and the employee in advance of performing the work; and
The compensation must be computed at rates not less than one and one-half times such rates applicable to the same work when performed during non-overtime hours.

If you have any questions regarding variable pay or overtime pay or if you have any other questions regarding information addressed in this tip, please contact your Thompson Coe attorney at (651) 389-5000 or at myHRgenius@thompsoncoe.com. You can also find additional information and tips for your company and HR professionals at https://myhrgenius.co/.

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