The Magic of Getting What You Pay For!
Are there times you look at your hourly non-exempt employees and think: why am I paying X for them to do a job that is only worth Y? There is a cure for that! You might consider paying non-exempt employees different hourly rates for different duties. Yes, Toto, even in Kansas you can do it!
Let’s look at a quick example:
Jane is a skilled locksmith. She is busy! She works on average 52 hours per week, averaging 12 hours of overtime. Her time is spent doing all sorts of duties: Driving to and from job sites, changing locks at job sites, and performing administrative paperwork back at the office. Her employer can pay her different hourly rates for those different duties. For instance, her employer can pay her $7.25 per hour for all time spent driving between job sites, $20 per hour for all time spent changing locks at job sites, and then $15 per hour for all time spent performing administrative paperwork.
But what rate do we base her overtime pay on?
Well, her overtime rate would be based on her regular rate of pay, which is essentially a blended rate of pay for all those hours worked. Let’s see how it works:
Jane worked a total of 54 hours last week. She spent 10 hours driving, 30 hours performing work at job sites, and 14 hours filling out administrative paperwork.
- Figure out her base pay (aka straight-time pay):
(10 hrs. x $7.25) + (30 hrs. x $20) + (14 hrs. x $15) = $882.50
- Determine her regular rate of pay (aka her blended weekly rate of pay):
$882.50/54 hrs. = $16.34/hr.
- Calculate her overtime based on the regular rate of $16.34:
1.5 x $16.34 = $24.51
- Multiple her overtime rate by her overtime hours (all hours over 40):
$24.51 x 14 = $343.14
- Add her overtime pay to her base pay:
$882.50 + $343.14 = $1,225.64
Thus, her weekly wages come out to $1,225.64 using a blended rate of pay.
What are the benefits to blended pay?
If Jane’s employer paid her $20.00 per hour for all job duties and she worked 54 hours that week, she would have earned $1,500. Thus, using varying rates for different job duties can be beneficial to employers. It can even help incentivize employees to perform certain duties.
This analysis also can be used if an employee works in different positions during the week for the same employer and those positions have different rates of pay.
Click here for an example from the DOL Wage and Hour Division. [PDF]
Are there downsides to blended pay?
One drawback is by using various pay rates, the employer must calculate the employee’s blended rate of pay for each week.
As with any good thing, there are also risks, so do it right!
- Make sure your employees know the actual rate they are owed for the work performed. Consider reducing it to a written plan to avoid confusion.
- Just because you can, doesn’t mean you should. Consider the impact on morale and the workplace culture you worked so hard to build before making drastic changes!
- As always, treat all similarly situated employees similarly. Always confirm the accuracy of your payroll practices and be sure that it is being implanted in a fair manner.
All that being said, paying different rates for different work is a tool that you can add to your toolbox. Just follow the old adage “measure twice, cut once!”
We know that overtime compensation can get complicated, especially with fluctuating workweeks, additional compensation, and other pay-per-job arrangements. The Labor & Employment team is always here and happy to help with questions!