When it comes to employee compensation, one thing is certain: it simply has to be right. And when it comes to tracking and paying employees time spent at work, few things are as intricate and potentially perplexing as weighted and blended overtime calculations.
Imagine you're a nurse who has just put in extra hours on a weekend or a holiday. Your expectations of fair compensation are clear. But in the tangled realm of overtime pay, where hours are not just hours and days are not just days, the path to an accurate paycheck can be anything but straightforward. This is where the concepts of "weighted" and "blended" overtime come into play, promising fairness and transparency to employees but often leading to complexity and confusion for employers trying to ensure proper budget allocation.
In this blog, we'll explore what is weighted and blended overtime, the industries where they commonly come into play, and the myriad challenges and pitfalls employers encounter when striving to get them right—and how to overcome them.
What is weighted overtime? Is it different from blended overtime?
Weighted overtime is a calculation method used in organizations where an employee works two different jobs at two different rates of pay. Weighted average overtime uses a formula to get the average of a worker’s different pay rates so they can be paid for overtime without the employer having to calculate and add up the overtime pay for each rate separately. The terms weighted overtime and blended overtime are often used interchangeably though organizations may have slightly different methods for calculating it. For simplicity, we will use the term weighted overtime from here on.How to calculate weighted overtime:
Calculating weighted overtime involves assigning different weights to various types of work hours. For example, hours worked on weekends or during holidays may be assigned a higher weight than regular weekday hours. The weighted average of these hours is then used to calculate overtime pay. As mentioned, there are a few different ways organizations may calculate weighted overtime pay, the following example shows the most common method.
A paramedic earns $30 an hour for regular shifts and $40 an hour for holiday shifts. The paramedic works 32 regular shift hours and 12 holiday shift hours, which means you owe them four hours of overtime pay. Below is how to calculate weighted overtime for this scenario:
Base pay: (32 hours x $30) + (12 hours x $40)=$960 + $480=$1440
Weighted average pay rate: $1440 / 44=$32.73
Weighted overtime rate: $32.73 x 0.5=$16.37
Total overtime wages: $16.37 x 4=$65.48
Weighted overtime wages: $1505.48
What industries commonly use weighted overtime?
Weighted overtime is most commonly used in industries where the timing of work hours significantly impacts labor costs, such as healthcare, construction, K-12 education, and state and local governments. However, any industry where employees work irregular hours, night shifts, or weekends is likely to utilize weighted or blended overtime calculations.
Here’s an example…a nurse's regular shift is from Monday to Friday, but she occasionally works on weekends and holidays She earns more money for working weekend or holiday shifts. In a weighted overtime system, the hours she works during weekends and holidays might be given a 1.5x or 2x weight. If she works 10 hours on a Saturday and 8 hours on a Sunday, she should earn overtime pay for those hours based on the weighted average of her hourly wage.
In the public sector, school and state or local government employees may work different jobs during the day or week at varied pay rates. For example, a bus driver may be paid different amounts for field trips compared to their regular rate for driving their daily route.
Why is it so difficult to get weighted overtime right?
Overall, weighted overtime only affects and small subset of workers, but it is one of the top reasons workers are paid incorrectly. Calculating weighted overtime accurately is a complex task due to several reasons:
- Varying Weight Assignments: Different types of work hours may have different weight assignments. These can change based on company policies, union agreements, or legal regulations, adding to the complexity. For example, construction workers may earn different rates for lots of different types of work. Standard labor is $20 an hour, welding may pay $30 an hour and drywall installation could earn a worker $40 an hour. Some organizations pay according to average rate while others track exact hours. Errors can occur if the wrong weight is applied to specific hours, resulting in underpayment or overpayment of overtime.
- Tracking Work Hours: Accurately recording the type and duration of work hours for each employee can be challenging, especially in industries with shift rotations or irregular schedules. Failure to accurately record work hours, especially for remote or off-site workers, can lead to incorrect overtime calculations. Challenges arise in tracking work hours when organizations don’t use consistent, automated methods for tracking employee time and when employees don’t understand the importance of tracking the hours for each type of work.
- Manual Tracking & Calculation Methods: Many organizations track weighted overtime using inefficient, untransparent methods that only select employees are privy to, and if that employee is out or leaves the company, it’s all lost. It often involves paper timesheets or a spreadsheet with formulas that are easily corrupted or manual calculations. Unfortunately, timesheets get lost, spreadsheets may not be accessible to workers in the field, and complex, manual calculations are easy to get wrong.
- Compliance: Companies must navigate a maze of labor laws, regulations, and union collective bargaining agreements (CBAs) that dictate how overtime should be calculated, adding to the difficulty of getting it right. Misunderstanding or misinterpretation of labor laws and regulations can result in non-compliance and costly legal issues.
At the end of the day, even if you understand exactly how weighted and blended overtime is supposed to be applied, it’s still difficult, time-consuming math.
What are the risks in getting weighted overtime incorrect?
There are plenty of mistakes workers may make during the workday are relatively inconsequential, but payroll mistakes aren’t one of them. Payroll errors can mean the difference between an employee being able to pay their bills on time or not. But payroll errors don’t just impact the employee.
Financial Costs: Incorrectly calculating overtime can lead to either underpaying or overpaying employees, which can result in financial losses and potential legal actions to the organization.
Employee Morale: Employees who feel they are not being compensated fairly for their overtime work may become disengaged and demotivated, and if it happens frequently, they are likely to leave for another opportunity.
Legal Consequences: Violating labor laws and regulations can result in penalties, fines, and damage to a company's reputation. One Texas restaurant misunderstood laws regarding tips and overtime and learned this lesson the hard way. It underpaid 910 employees between 2019 and 2021 and the Department of Labor ordered it to pay over $800,000 owed to employees and managers, but the publicity around this mistake only added to the consequences.
Can TCP Software’s TimeClock Plus work as a weighted overtime calculator?
Absolutely! Our TimeClock Plus software offers four different methods for calculating weighted overtime. Why four different methods? Because the correct way to calculate weighted overtime differs by states, unions, and various company policies.
TimeClock Plus’ weighted overtime calculator is one of the most complex features of our software, because these calculations are nearly impossible for companies to do without automation. For example, we have one customer whose employees are paid at different rates nearly every day. It was features like this one that led them to choose TCP. Many ERPs, HCMs, and payroll systems can’t handle complicated calculations like this, so if your organization offers weighted or blended overtime, you need a robust time and attendance solution like ours.
At TCP, we thrive on complexity. Wondering if TimeClock Plus can handle the intricacy of your organization’s weighted overtime practices? Talk to an expert to find out!