California HR

Wage and Hour: Can We Pay Employees at Different Rates If They Do Different Jobs?

We have several employees who, as a result of downsizing, are now doing two different jobs during the same workweek. Can we pay them at two different rates? If so, how do we track the hours and how do we calculate their overtime? — Raphael, HR Manager in Bakersfield

The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.

The simple answer is yes, you may pay employees at two different rates when two different types of work are being performed.

For straight-time purposes, the employee is simply paid at the rate called for by the particular job being performed. The problem arises when overtime is worked. Federal and California law provide essentially the same method for computing overtime, which is the “weighted average” method. Both the Code of Federal Regulations (29 CFR Section 778.115) and the California Labor Commissioner’s Enforcement Policies and Interpretations Manual (Section 49.2.5) describe how the weighted average method is implemented.

First, add up the hours worked and total compensation earned at the two straight-time rates, and divide the hours into the total pay. The resulting amount is the hourly rate to be used to calculate the premium for the overtime hours worked. Take one-half that hourly rate times the overtime hours worked, and add that product to the compensation paid for all hours worked at straight time, and that is the total compensation for the week.

It is easier to understand when illustrated. For example, an employee works 20 hours at $10/hour and 30 hours at $15/hour for a total of 50 hours. The employee is entitled to 10 hours of overtime premium, in addition to any daily overtime requirement. To find the rate to pay the overtime premium for the 10 hours, add up the compensation at the straight-time rates:

20 hours x  $10            = $200
30 hours x $15             = $450
Totals 50 hours            = $650

Then divide the total straight-time compensation by the total hours worked:

$650 ÷ 50 = $13.00, which is the weighted average pay per hour.

The $13.00 is the regular rate for calculating the premium due on the overtime hours. Since the straight-time rate has already been paid on all hours worked, all that needs to be added is an additional half-time for the overtime premium, which is:

$13 ÷ 2 = $6.50

The actual amount owed to the employee for the week is calculated as follows:

               20 hours @ $10/hour             = $200
               30 hours @ $15/hour             = $450

10 hours overtime premium @ $6.50    = $  65

                       Total compensation       = $715

Under certain conditions, federal law also allows employees to use the “rate in effect” method (29 CFR Sections 778.415-421), which eliminates the need for a weighted average. In the example above, if the hours over 40 were worked at the $10 rate, overtime would be $15 per hour (overtime premium of $5 instead of $6.50) or, if the hours over 40 are worked at the $15 rate, the overtime would be $22.50 per hour (overtime premium of $7.50 instead of $6.50). However, the California labor commissioner does not currently permit the rate in effect method to be used in California.

Lloyd W. Aubry, Jr., Esq., former California labor commissioner, is of counsel at the San Francisco office of law firm Morrison & Foerster.