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    Calculating overtime based on two different hourly rates

    Article ID: 1002287

    Overview

    This article explains how to calculate the base rate for overtime hours when employees are paid two different hourly rates.

    Expected Outcome

    You'll calculate the correct base rate for overtime pay.

    Assumptions

    You have employees who are eligible for overtime pay, and who are paid at two hourly rates.

    Details

    Handling two or more hourly pay rates

    Some companies and organizations have hourly employees who are paid at two or more different rates for different tasks or circumstances. For example, a gardening supply store has an employee who is paid $15 an hour when operating heavy equipment and $12 an hour when performing other tasks. This employee is paid at two hourly rates for non-overtime work, and receives overtime and double overtime pay.

    If you have employees who are paid at two or more hourly rates, you can set up these rates in your payroll account and enter the employee s hours for each rate when you run payroll. You can also control the rate used to calculate overtime and double overtime.

    Setting up employees

    When you add an employee, you can enter up to eight (8) hourly pay rates. The first rate is always labeled Regular. You can enter whatever names you like for the additional hourly rates. For the remainder of this article, we'll only consider two hourly rates, with the second rate labeled Hourly 2.

    Paying employees with two hourly pay rates

    When you create a paycheck for an employee, just enter the hours worked at the Regular rate, the Hourly 2 rate, and any overtime or double overtime. By default, we use the higher of the two rates at which the employee is paid during the pay period as the base rate for overtime and double overtime calculations.

    For example, if you enter 30 hours worked at a Regular rate of $10 an hour, 10 hours worked at an Hourly 2 rate of $12 an hour, and 10 hours overtime, we calculate gross wages of $600.00:

    (30 x $10) + (10 x $12) + (10 x ($12 x 1.5)) = $600.00

    If you accept the higher rate for overtime calculations, you do NOT need to read the rest of this article.

    Special overtime situations

    The easiest method of calculating the overtime rate is simply to accept the default, which is the higher of the two rates at which the employee is paid during the pay period. Nevertheless, there are several other legal ways to calculate the base rate. Some companies must comply with union contracts requiring more complicated methods, such as using an overtime rate based on type of work or using a weighted average.

    The Check Details page enables you to calculate the base rate as required for your company and to enter it in the Base Rate box. On the Create Paycheck page, just click the Check Details icon on the line with the employee s name.

    Note: Calculating the base rate is easier if your employees are paid weekly.

    For help calculating overtime in special circumstances, please refer to the Fair Labor Standards Act (FLSA) Overtime Calculator Advisor.

    Entering the hours and base rate on the Check Details page

    To control the base rate used to calculate overtime and double overtime, follow these steps:

    1. On the Create Paychecks page, click the Check Details icon next to the employee s name.
    2. Choose the pay period and set the pay date.
    3. Enter hours worked for Regular and Hourly 2. The total of these two boxes must not exceed 40 hours per week
    4. Enter the Overtime and/or Double overtime hours, following the laws that govern your company.
    5. Enter the base rate you calculated.
    6. Complete the rest of the page and click Create Check.
    7. Return to the Create Paychecks page, where you can enter hours for other employees.

    How we use two pay rates

    When you enter two pay rates for employees on the Create Paychecks or Check Details pages:

    • We use the Regular rate to calculate sick pay and vacation pay.
    • We calculate Overtime and Double Overtime based on the higher pay rate unless you specify a base rate for overtime and double overtime on the Check Details page.

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