WORKPLACE LAW -
Hourly Workers and Overtime
Question:
I have at least one hourly employee who travels a good deal, and who is therefore paid two different rates of pay depending on what he is doing (he is paid one hourly rate for his regular work at my place of business, and a lower rate for travel time). I am always confused about how to calculate overtime for this employee, if he ends up working more than 40 hours in a week. Can you help?
Answer:
Dealing with multiple rates of pay is a very common source of confusion for employers in California. To begin with, some employers may not realize that they can pay the same individual different hourly wages depending on the nature of the work being performed. However, as long as the state’s minimum wage requirements are satisfied, employers are permitted to compensate employees at different rates of pay for different types of work that are performed during the same workweek. Your question provides the perfect example of this differential in compensation—an employee who receives one hourly rate for “regular” work performed for his/her employer, and who receives another (lower) rate for “downtime” work such as time spent traveling for business purposes.
Paying an employee two different rates of compensation can be beneficial for employers, especially when an employee works a significant amount of hours at the lower rate of compensation. However, paying multiple wage rates also complicates the calculation of overtime compensation, which is based on the employee’s “regular rate” of pay. In order for the overtime rate to be correct, the employee’s regular rate must reflect both of the employee’s hourly wage rates.
When two different rates of pay are paid during a workweek, the California method for determining the regular rate of pay for calculating overtime in that workweek mirrors the federal method, and is based upon a “weighted average” of all the hourly rates that were paid. The weighted average rate is determined by adding all hours worked in the workweek, including any overtime hours, and then dividing that number into the employee’s total compensation for the week. Overtime is then paid at one-half the weighted average rate. The following example illustrates how this calculation should work.
Assume that your employee is regularly paid $15.00 per hour, and that he works 35 hours in a week. Also assume that he is paid $8.00/hour for travel time, and that he travels another 15 hours in that same workweek. The employee would therefore have worked a total of 50 hours for the workweek, and is thus entitled to 10 hours worth of overtime pay (the time worked in excess of 40 hours). The question involves the proper rate at which that overtime should be paid. Using the figures in our example, you would calculate the overtime rate as follows:
35 regular hours x $15.00 = $525.00
15 travel hours x $ 8.00 = $120.00
Total dollars earned = $645.00
The total dollars earned by the employee ($645.00) is then divided by the total number of hours worked (50), with the following result: $645.00/50 hours = $12.90. This figure, which is the employee's "weighted average" rate, is then divided by half, resulting in the calculated overtime rate of $6.45. The overtime rate is then multiplied by the number of overtime hours that the employee worked; in our example, the employee worked 10 overtime hours and would therefore be entitled to $64.50 in overtime ($6.45 x 10 = $64.50). The employees' total compensation for the week would therefore be:
$645.00 "straight time" pay + $64.50 overtime pay = $709.50
A related issue is the proper method of calculating the employee's underlying regular rate, which is in turn used to calculate the weighted average and overtime rates. As a general rule, the regular rate includes all remuneration received by the employee, though there are several exceptions that allow certain payments to be excluded. These excluded payments include gifts and certain types of bonuses, payments for periods when no work is performed (e.g., because of vacation, holidays or illness), paid meal periods, reimbursement for expenses, and other similar payments that are not considered compensation for hours worked by the employee. It is important to be familiar with the rules regarding the computation of the regular rate, since that rate will affect your calculation of your employees' weighted average and overtime rates as well.
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