Q: Do I have to pay overtime to a nonexempt employee who is working two different jobs? If so, how do I calculate it?

A: According to the federal Fair Labor Standards Act (FLSA), employers must pay overtime to nonexempt employees for all hours worked over 40 in a single workweek, even if the employee is working two separate jobs for the same organization.

A common example is the employee who offers to provide custodial duties in the evening after his regular shift is over. The organization knows the individual and is confident that he will do a great job – plus the organization knows the employee needs additional income and this seems a great way to help both the organization and the employee.

However, this apparent win-win situation can create a huge problem if the employee’s pay is not calculated according to Department of Labor regulations.

Calculating overtime can be a little tricky when an employee works two or more jobs for which the employee is paid different hourly rates since overtime must be based on the employee’s “regular rate of pay.”

Typically, the employee’s regular rate of pay when he works two jobs (or more) is calculated as the weighted average of the different rates. For example, the regular rate of an employee who works 35 hours per week at $15 per hour as a machine operator ($525), and works 10 hours that same week at $7 per hour cutting the grass outside the plant ($70), is $595 divided by 45 hours, or $13.22 per hour.

35 hours x $15 + 10 hours x $7 = $525 / 45 hours = $13.22 (regular rate of pay)$525 (regular earnings) + 5hours x $6.61 ($6.61 is the premium rate for 5 hours of overtime – that base rate has already been included) This week’s pay would be $558.05.Thus, the overtime rate for this employee is one and one-half times $13.22, or $19.83 per hour, regardless of which job the employee performs during the extra hours. The employee’s regular and overtime rates will vary from week to week with the number of hours spent performing each job.

Thus, the overtime rate for this employee is one and one-half times $13.22, or $19.83 per hour, regardless of which job the employee performs during the extra hours. The employee’s regular and overtime rates will vary from week to week with the number of hours spent performing each job.Thus, the overtime rate for this employee is one and one-half times $13.22, or $19.83 per hour, regardless of which job the employee performs during the extra hours. The employee’s regular and overtime rates will vary from week to week with the number of hours spent performing each job.Alternatively, an employer and employee may agree, before the work is performed, that the overtime rate will be based on the regular rate that applies to the type of work performed during the hours in excess of forty (it is a good idea to memorialize this agreement with a signed document prior to having the work performed). Therefore, if an employee spends 35 hours in a week working as a machine operator at $15 per hour, and five hours a week cutting the grass at $7 per hour, the overtime rate for any additional hours spent cutting the grass is $10.50 per hour. Conversely, the overtime rate for any additional hours spent working as a machine operator is $22.50. This method of computation is available for hourly employees only and does not apply to nonexempt salaried employees.

A “red flag warning” – do not use the alternate method of calculating overtime unless you have a written agreement with the employee to pay the overtime premium on the rate of pay connected to the work done after 40 hours. A Plus Benefits will not calculate overtime using the alternate method unless a written agreement between the employee and employer is submitted with the payroll reports. A Plus will require new documentation (a new signed and dated agreement) for each week that the alternate method is used. If an organization is audited by the Department of Labor and claims to have used the alternate method of calculating overtime but does not have a written agreement for each week that the alternate method was used, the Department of Labor will require the organization to pay each employee affected back-pay along with some penalties and interest.

The overtime requirements, instituted in 1938 to prevent employers from taking advantage of employees, can turn what seems to be a “win-win” situation (allowing your employees to perform a necessary job and earn extra money) into a penalty for employers. As a result, some employers hire independent contractors to do these jobs (i.e. custodial work) at straight time rates instead of paying their own employees the overtime.

Beware – claiming that your employee was an independent contractor while performing additional work will surely result in fines and penalties if your organization is audited by the Department of Labor, be aware that the Department of Labor does not have a long term payment program - if an organization is found guilty of overtime violations the organization is generally expected to cut a check for any back-pay as well as interest, fines, and penalties within several days of the audit’s completion.

Our next HR Update will examine the subject of independent contractors and the hurdles that need to me cleared in order for a person to legally be an independent contractor.

Randall Barker is the VP of Human Resource for A Plus Benefits, Inc.

Read randall’s previous HR Update.

This entry was posted on Wednesday, October 10th, 2007 at 11:46 am and is filed under Compensation, Hiring, Human Resources. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.