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Weighted Overtime

Introduction

Weighted Overtime is a calculation method used to determine overtime (OT) pay for employees who receive varying pay rates during a work week. This calculation helps employers ensure that their OT payouts are applied as needed per this fact sheet confirming the compliance need from the WHD and FLSA.

Please Note: Empeon's payroll OT Calculation is a two part solution. This article reviews the more often needed part of calculating the proper weighted overtime premium rate. If you happen to need Workforce to automatically determine at what point overtime earnings should start to be applied within a work week (usually over 40 worked hours a week) in your payroll batch, review Empeon's article OT Conversion.

Empeon provides an optional service that automatically calculates weighted OT and will apply it as needed to all applicable employees. If you determine that you need Workforce to calculate weighted OT for your employees and it's not doing so already, submit the Custom Services Request Form to begin the setup process. Read below for details on how Empeon calculates Weighted OT; there is also an attached Excel spreadsheet example that breaks down the calculation. For any additional questions regarding this service, contact Empeon Client Services. 

Calculating Weighted OT

Scenario: Empeon's Weighted OT solution works by determining the needed OT Premium rate and adding this to employee earnings. To help illustrate the steps in how this calculation applies, we'll use an example of an employee who worked a total of 60 hours within a work week and has a regular rate of $22.08. Over the course of those 60 hours, this employee also works nights and weekends that apply shift differential hours adding additional hourly pay when worked.

  • Weekend Shift Differential (All Weekend Hours): 24 hours qualified for this shift differential at an extra $2.50 per hour.
  • Night Shift Differential (6pm - 6am): All 60 hours qualified for this shift differential at an extra $2.00 per hour.

Step 1: Calculate Total Earning Amount for the Week

With this scenario in mind, the first step is to total all the earnings amounts accumulated for the work week.

  • Worked Regular: 40 hours X $22.08 = $883.20
  • Worked Overtime: 20 hours X $22.08 = $441.60
  • Weekend Shift Differential: 24 hours X $2.50 = $60.00
  • Night Shift Differential: 60 hours X $2.00 = $120.00

Total Earnings = $1,504.80 ($883.20 + $441.60 + $60.00 + $120.00).

Step 2: Calculate Weighted Hourly Rate

The Total Earnings calculation in Step 1 is then divided by the total Hours Worked (both Regular and Overtime) to determine the Weighted Hourly Rate. Please Note: Only earnings representing a "worked hour" should be included in Hours Worked.

Weighted Hourly Rate = Total Earnings ÷ Hours Worked ($1,504.80 ÷ 60)

Weighted Hourly Rate = $25.08 per hour

Step 3: Calculate Weighted Overtime Premium Rate

Overtime Pay is applied to every worked hour beyond 40 hours in a work week. It is typically paid out at 1.5 times the Weighted Hourly Rate. In Empeon's Weighted Overtime solution, the calculation is applied across two separate earning codes representing:

  • Overtime: The calculation of the Regular Rate x Hours Worked over 40 hours.
  • Overtime Premium: Represents the additional half-time rate applied to the overtime hours.

With the Weighted Hourly Rate of $25.08 calculated in Step 2, Empeon Workforce multiplies this by 0.5 to get the Weighted Overtime Premium Rate.

Weighted Overtime Premium Rate = Weighted Hourly Rate × 0.5 ($25.08 × 0.5)

Weighted Overtime Premium Rate = $12.54

Step 4: Calculate Overtime Premium Pay

Now that the Weighted Overtime Premium Rate is determined, the next step is to multiply the Overtime Hours Worked (20) by the Weighted Overtime Premium Rate ($12.54).

Overtime Premium Pay = Weighted Overtime Premium Rate × Overtime Hours Worked ($12.54 × 20)

Overtime Premium Pay = $250.80 

Step 5: Calculate Total Gross Pay

The final step of the calculation is adding the Total Earnings from Step 1 to the Overtime Premium Pay of Step 4 which is ultimately applied to the employee's gross pay.

Total Gross Pay = Total Earnings + Overtime Premium Pay ($1,504.80 + $250.80)

Total Gross Pay = $1,755.60

Reviewing and Managing Empeon's Weighted Overtime Calculation

The Overtime Premium Pay calculated in Step 4 is identified on the employee's pay records per the highlighted "OTPR" earning in the Pay Entry earning calculation screenshot below, ultimately adding the needed OT premium amount to the employee's gross. The Clock In and Clock Out field records is verification for which work week the OT Premium is being applied. The exact earning code used for Overtime Premium can vary, but the most common codes used for Empeon clients is "OTPR" or "OTPrem".

There are also two Code Groups where the appropriate earnings need to be included in order for Weighted OT to correctly calculate. The exact codes vary, but any company with an active Weighted Overtime solution should have a code group description that refers to Weighted Dollars and another that refers to Weighted Hours. All earnings that should be included in the Weighted OT calculations should be included in Weighted Dollars, while earning codes that only represent hours worked should be included in the Weighted Hours Code Group.

Referring back to the earlier scenario, only the Regular and Overtime earning codes are included in the Weighted Hours Code Group. Shift Differentials, Regular, Overtime, and any other types of earnings that should be factored into the weighted average are included in the Weighted Dollars Code Group. For more information about configuring Code Groups, please refer to Empeon's article Code Groups.