The Ins and Outs of Employee Overtime in the California Construction Industry
Has your construction business been calculating overtime properly? Find out below…
BY DEFAULT, HOURLY EMPLOYEES WITH MULTIPLE HOURLY RATES EARN OVERTIME USING “WEIGHTED AVERAGE”.In California, the law does not necessarily prohibit an employee from working more than eight consecutive hours in a day, or more than forty hours in a workweek. However, hours worked more than either of these thresholds trigger an employee’s entitlement to overtime pay.
The standard overtime formula is:
[(Regular Rate of Pay x Overtime Rate of 1.5x or 2x) x Overtime Hours]
In the construction industry, different hourly rates of pay for different tasks are common. So, for purposes of determining an employee’s Regular Rate of Pay when two or more hourly rates are applicable during a workweek, a method called “Weighted Average” is used to reconcile the different hourly rates into a single rate. It is important to note that Weighted Average calculations must be determined for each workweek separately. To do this, the formula below is used:
Total hours worked for the workweek / Total compensation for the workweek = Weighted Average
For example, consider an employee who has an hourly rate of $15.00 for administrative tasks and an hourly rate of $20.00 for training new office staff. This employee works a total of 45 hours in a given workweek, which is comprised of thirty-five hours at $15.00 per hour and ten hours at $20.00 per hour, for a total of $725.00. This employee’s Weighted Average (i.e. Regular Rate of Pay for the workweek) is:
[($15.00 x 35 hours) + ($20.00 x 10 hours)] / 45 hours = $16.11
Accordingly, this employee’s Regular Rate of Pay for this workweek is $16.11 using the Weighted Average method. Now, assuming that this employee’s overtime did not trigger double-time, the Regular Rate of Pay of $16.11 would be multiplied by the standard overtime multiplier of 1.5x as follows:
($16.11 x 1.5) x 5 hours overtime = $120.83
Thus, this employee’s total overtime payment for the week is $120.83.
WAGE ORDER NO. 16 DOES NOT PERMIT EMPLOYERS TO ABANDON “WEIGHTED AVERAGE”.Wage Order 16 applies to many on-site occupations in the construction industry. The following provision has been incorrectly interpreted to exempt construction employees—and, by extension, their employers or representatives—from using Weighted Average for overtime calculations:
Nothing in this section requires an employer to combine more than one rate of overtime compensation in order to calculate the amount to be paid to an employee for any hour of overtime work.
However, this interpretation cannot be correct. The plain language above states that an employer does not have to combine “more than one rate of overtime compensation” – the phrase “rate of overtime compensation” is commonly associated with the multipliers of 1.5 or 2 from the overtime formula, which is in a separate portion of the formula than Weighted Average. Thus, Wage Order 16 does not exempt employers from using Weighted Average.