Weighted Average Compensation

Steven Cesare, Ph.D.

 

A business owner from Kentucky called me the other day to discuss calculating compensation for an employee who performs two distinctly different jobs within the same workweek and its impact on overtime pay.  In this specific example, the employee worked 40 hours a week as a Foreman earning $22.00/per hour from Monday through Friday.  Then on Saturday, the employee performed shop responsibilities for 10 hours, at a rate of $15.00/per hour.

The business owner was under the impression that the employee would receive straight time pay of $880 (i.e., 40 hours multiplied by $22.00/per hour), and an additional $225 (i.e., $15.00/per hour multiplied by the overtime rate of 1.5, then multiplied by 10 hours) as overtime pay for his work on Saturday.  In the business owner’s calculation, the employee should receive $1,105 (i.e., $880 plus $225) for his weekly pay.

His calculation was wrong.

The correct manner for determining this employee’s weekly pay is based upon the weighted average formula.  In most states, the standard weighted average formula for the situation above is as follows:

40 hours worked as a Foreman @ $22.00/hour

10 hours worked as a Shop Employee @ $15.00/hour

50 total hours worked in the same workweek

40 (Foreman Hours Worked) * 22.00 (Foreman Hourly Rate) =  $880

10 (Shop Employee Hours Worked) * 15.00  (Shop Employee Hourly Rate) = $150

  • 1.) $880 + $150 = $1,030 (Regular Pay)
  • 2.) $1,030 divided by 50 (Total Hours Worked During the Workweek) = $20.60
  • 3.) $20.60 * .5 (Overtime Rate since employee has already received straight time pay) =  $10.30
  • 4.) $10.30 * 10 (Overtime Hours Worked During that Workweek) = $103.00 (Overtime Pay)
  • 5.) $1,030 + $103.00 = $1,133.00 (Total Weekly Pay)

Thus, the business owner would have underpaid this employee by $28.00 ($1,133 minus $1,105) for the workweek in question.  Within that context, the employee would generally have up to three years to file a lawsuit against the business owner for unpaid wages, with the possibility of additional penalties as determined by specific state and/or applicable federal law.

Please be reminded that employers should always ensure that their respective state law is consistent with these practices, and that there are multiple variations of the weighted average formula depending upon unique circumstances (e.g., performing three jobs instead of two, receiving a non-discretionary bonus in addition to differential hourly pay rates, and any compensation received as part of a piece rate system).

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Steve Cesare Ph.D.

Steve Cesare Ph.D.

has more than 25 years of Human Resources experience. Prior to joining The Harvest Group, Steve worked with Bemus Landscape, Jack in the Box, the County of San Diego, Citicorp, and NASA. Steve earned his Ph.D. in Industrial/Organizational Psychology from Old Dominion University, and has authored 34 human resources journal articles. As a member of The Harvest Group, Steve’s areas of expertise include: staffing, legal compliance, wage and hour issues, training, and employee safety.  Read Steve's full bio.