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  • Understanding day rates

Understanding
Day Rates

Generally, paying a “day rate” means the worker will be paid a flat daily amount each day they work, regardless of the number of hours worked. This pay model is popular amongst many industries not limited to entertainment, education, artistic, gig-work, or those who have historically engaged with independent contractors.

That said, it’s important to remember that day rate workers are eligible for overtime under federal and state laws. Additionally, the overtime rate may vary from week to week due to differences in the regular rate of pay, which is calculated using the actual hours worked for the week, and all eligible wages (day rate, non-discretionary bonuses, etc.)

Federal Example
California Example
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Federal Example:

Asset 1-Doctor - Orange

 

Let’s imagine a Worker earns $450 a day and has the following work week:

Day 1

9 hours

Day 2

11 hours

Day 3

7 hours

Day 4

9 hours

Day 5

10 hours
46 hours total (40 regular hours + 6 overtime hours)

Total amount owed (from day rate only): 

$450 x 5 days = $2,250

Does not include overtime

 

How is Overtime Pay Calculated?

(29 CFR §778.112)

Under federal law, workers are entitled to half-time pay at the regular rate of pay for all hours worked in excess of 40 in the week.

The regular rate of pay is determined by taking total gross wages/total hours worked.

$48.91 is the regular pay rate (per hour)

$2,250 (gross wages) / 46 (total weekly hours worked) = $48.91

The worker is entitled to half-time pay for all hours worked in excess of 40 in the week (6 hours)

$24.46 is the half-time pay rate.

$48.91 (regular pay rate) x 0.5 = $24.46

$146.76 is the overtime owed for this week

$24.46 (half-time pay rate) x 6 (overtime hours worked) = $146.76

 

Overtime Pay

Gross Wages / Total Weekly Hours
x
0.5 (Half-time Pay Rate)
x
Overtime Hours Worked

Thus, the total amount the worker is owed for this week is:

$2,250 + $146.76 ($24.46 x 6 OT hours) = $2,396.76

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California Example:

California calculates overtime on daily rates a bit differently, let's look at what overtime for a daily rate will look like there.

Asset 1-Doctor - Purple

 

Let’s imagine a Worker earns $450 a day and has the following work week:

Day 1

8 hours

Day 2

10 hours
(8+2 Hours Overtime)

Day 3

4 hours

 

Total amount owed (from day rate only): 

$450 x 3 days = $1,350

Does not include overtime

How is Overtime Pay Calculated?

Under California’s requirements for overtime, this worker is owed 2 additional hours of overtime pay at a rate of 1.5x the regular rate of pay.

$67.50 is the regular rate of pay (per hour)

$1,350 (gross wages) / 20 (total weekly hours worked) = $67.50

$101.25 is the overtime rate (per hour)

$67.50 (regular pay rate) x 1.5 (overtime hourly rate) = $101.25

$202.50 is the overtime pay owed for this week

$101.25 (overtime pay rate) x 2 (overtime hours worked) = $202.50

Overtime Pay

Overtime Hours
x
1.5 (Overtime Pay Rate)

Thus, the total amount the worker is owed for this week is:

$1350 + ($101.25 x 2 OT hours) = $1552.50

In contrast, if paid on an hourly basis of $450 / 8 hours = $56.25,
the total amount owed for this week would be $1293.75 and the overtime rate would remain consistent.

Things to Keep in Mind for Day Rates

Rate Fluctuation

With day rates, the regular rate of pay may fluctuate week to week depending on actual hours worked. From that, the overtime rate (and any double time) for further weeks may be higher or lower, respectively.

Budget

When determining if a day-rate pay model works best for your contingent workforce, there definitely are planning and budgeting considerations to be made. Because the ability to forecast anticipated spend can be challenging, many companies make the decision to offer a competitive hourly rate instead.

Scheduling

If a day-rate model is still desirable for your company, but there are concerns regarding the potential for unexpected overtime spend, a best practice would be to schedule your workforce to only work times they do not incur overtime.

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