Q: As an employee for a service provider company, I am paid an hourly rate and an additional piece rate if I respond to customer calls after hours. I often work more than 8 hours per day and on weekends. I am paid overtime based only on my hourly rate. Since I'm also receiving a piece rate, how should my overtime rate be computed?
A: Your overtime rate should be computed by also considering the amount you receive per piece rate. A higher overtime rate results in increased wages for you.
The overtime pay required by law is computed on the basis of the employee's “regular rate” of pay. If the employee receives only an hourly rate, then the hourly rate is the regular rate. Employees may be paid in more than one way, for example, an hourly rate and a bonus. If the employee does not work overtime, the question of the employee's regular rate is not an issue.
However, if the employee is paid an hourly rate plus some other type of compensation, and the employee works overtime too, then the employee's “regular rate” for purposes of computing overtime, must be determined. Below are three possible situations where the overtime rate is increased based on the methods of compensation used:
Hourly Rate + Piece Rate
If the employee is paid on a piecework basis with hourly guarantees, the employee's regular rate may be determined by dividing the employee's total earnings for the workweek by the hours worked during the workweek. The regular rate is then multiplied time and a half for work of more than 8 and up to 12 hours per day.
For example, an employee is paid $10 per hour and $5 for every piece of work completed, and the employee worked 50 hours per week having completed 100 pieces for the week. If the employee was only paid hourly, the time and half overtime rate would be $15. However, since the employee is also paid a piece rate, the employee's regular rate for overtime purposes is the weighted average between the hourly pay and the piece rate pay divided by all the hours worked . In this case, instead of $15, the employee should be paid a time and half overtime rate of $30.
Hourly Rate + Bonus
A nondiscretionary bonus, intended to increase productivity, is treated as wages. Therefore, it must be included in the employee's regular rate in computing the overtime rate. The bonus is apportioned over the workweeks in which the bonus was earned.
For example: The employee receives an hourly rate of $10 per hour, and receives a performance bonus of $2000 in a 6-month period (or 26 weeks). The employee's normal overtime rate would be $15. However, since the bonus is part of the employee's regular rate, then the employee's overtime rate should be $17.88, not $15. The difference of $2.88 per hour may become significant when spread over a long time.
Hourly Rate + Shift Differential Pay
Though not required by law, employers may pay a shift differential rate to employees for working undesirable hours or tasks. Shift differential pay is, thus, considered part of wages and must be included in computing the overtime rate.
For example: Employee works 14 hours per day and is paid $30 per hour plus a $3 per hour shift differential. When including the differential pay of $3 per hour for computing overtime, the regular rate should be $33 per hour. The overtime rate is $49.50/hour. The double time rate is $66/hour.
Determining the correct amount of your overtime compensation under the law can be highly technical and may become confusing. However, correct application of the law may mean more wages to benefit you and your family.