Overtime Pay Contract by fom79730

VIEWS: 145 PAGES: 56

More Info
									Pt. 778                                                    29 CFR Ch. V (7– 1– 02 Edition)
                                                778.121 Commission      payments—delayed
                                                    credits and debits.
                                                778.122 Computation of overtime for com­
                                                    mission employees on established basic
                                                    rate.
          PART 778— OVERTIME
            COMPENSATION                             Subpart C— Payments That May Be
                                                     Excluded From the ‘‘Regular Rate’’
    Subpart A— General Considerations
                                                         THE STATUTORY PROVISIONS
Sec.
                                           778.200 Provisions governing inclusion, ex­
778.0 Introductory statement. 
                     clusion, and crediting of particular pay­
778.1 Purpose of interpretative bulletin. 
         ments.
778.2 Coverage and exemptions not dis­
    cussed.                                        EXTRA COMPENSATION PAID FOR OVERTIME
778.3 Interpretations made, continued, and
    superseded by this part.                    778.201 Overtime premiums—general.
778.4 Reliance on interpretations.              778.202 Premium pay for hours in excess of a
778.5 Relation to other laws generally.             daily or weekly standard.
778.6 Effect of Davis-Bacon Act.                778.203 Premium pay for work on Saturdays,
778.7 Effect of Service Contract Act of 1965.       Sundays, and other ‘‘special days’’.
                                                778.204 ‘‘Clock pattern’’ premium pay.
       Subpart B— The Overtime Pay              778.205 Premiums for weekend and holiday
              Requirements                          work—example.
                                                778.206 Premiums for work outside basic
               INTRODUCTORY                         workday or workweek—examples.
                                                778.207 Other types of contract premium
778.100 The maximum-hours provisions.
                                                    pay distinguished.
778.101 Maximum nonovertime hours.
778.102 Application of overtime provisions                        BONUSES
    generally.
778.103 The workweek as the basis for apply­    778.208 Inclusion and exclusion of bonuses in
    ing section 7(a).                               computing the ‘‘regular rate’’.
778.104 Each workweek stands alone.             778.209 Method of inclusion of bonus in reg­
778.105 Determining the workweek.                   ular rate.
778.106 Time of payment.                        778.210 Percentage of total earnings as
                                                    bonus.
 PRINCIPLES FOR COMPUTING OVERTIME PAY          778.211 Discretionary bonuses.
     BASED ON THE ‘‘REGULAR RATE’’              778.212 Gifts, Christmas and special occa­
778.107 General standard for overtime pay. 
        sion bonuses.
778.108 The ‘‘regular rate’’. 
                 778.213 Profit-sharing, thrift, and savings
778.109 The regular rate is an hourly rate. 
       plans.
778.110 Hourly rate employee. 
                 778.214 Benefit plans; including profit-shar­
778.111 Pieceworker. 
                              ing plans or trusts providing similar ben­
778.112 Day rates and job rates. 
                  efits.
778.113 Salaried employees—general. 
           778.215 Conditions for exclusion of benefit-
778.114 Fixed salary for fluctuating hours. 
       plan contributions under section 7(e)(4).
778.115 Employees working at two or more 

    rates.                                           PAYMENTS NOT FOR HOURS WORKED
778.116 Payments other than cash.              778.216 The provisions of section 7(e)(2) of
778.117 Commission payments—general.               the Act.
778.118 Commission paid on a workweek          778.217 Reimbursement for expenses.
    basis.                                     778.218 Pay for certain idle hours.
778.119 Deferred commission payments—          778.219 Pay for foregoing holidays and vaca­
    general rules.                                 tions.
778.120 Deferred commission payments not       778.220 ‘‘Show-up’’ or ‘‘reporting’’ pay.
    identifiable as earned in particular work- 778.221 ‘‘Call-back’’ pay.
    weeks.                                     778.222 Other payments similar to ‘‘call-
                                                   back’’ pay.
                                               778.223 Pay for non-productive hours distin­
                                                   guished.
                                               778.224 ‘‘Other similar payments’’.

                                                   TALENT FEES IN THE RADIO AND TELEVISION
                                                                  INDUSTRY
                                                778.225 Talent fees excludable under regula­
                                                    tions.

                                            382

Wage and Hour Division, Labor                                                          Pt. 778

          Subpart D— Special Problems            778.323 Effect if salary is for variable work-
                                                     week.
                 INTRODUCTORY                    778.324 Effect on hourly rate employees.
778.300   Scope of subpart.                      778.325 Effect on salary covering more than
                                                     40 hours’ pay.
CHANGE IN THE BEGINNING OF THE WORKWEEK          778.326 Reduction of regular overtime work-
                                                     week without reduction of take-home
778.301 Overlapping when change of work-             pay.
    week is made.                                778.327 Temporary or sporadic reduction in
778.302 Computation of overtime due for              schedule.
    overlapping workweeks.                       778.328 Plan for gradual permanent reduc­
      ADDITIONAL PAY FOR PAST PERIOD                 tion in schedule.
                                                 778.329 Alternating workweeks of different
778.303   Retroactive pay increases.                 fixed lengths.
HOW DEDUCTIONS AFFECT THE REGULAR RATE                        PRIZES AS BONUSES
778.304 Amounts      deducted    from cash       778.330 Prizes or contest awards generally.
    wages—general.                               778.331 Awards for performance on the job.
778.305 Computation where particular types       778.332 Awards for activities not normally
    of deductions are made.                          part of employee’s job.
778.306 Salary reductions in short work-         778.333 Suggestion system awards.
    weeks.
778.307 Disciplinary deductions.                    Subpart E— Exceptions From the Regular
     LUMP SUM ATTRIBUTED TO OVERTIME                            Rate Principles
778.308 The overtime rate is an hourly rate.            COMPUTING OVERTIME PAY ON AN
778.309 Fixed sum for constant amount of                    ‘‘ESTABLISHED’’ RATE
    overtime.                                    778.400 The provisions of section 7(g)(3) of
778.310 Fixed sum for varying amounts of             the Act.
    overtime.                                    778.401 Regulations issued under section
778.311 Flat rate for special job performed in       7(g)(3).
    overtime hours.
                                                 GUARANTEED COMPENSATION WHICH INCLUDES
           ‘‘TASK’’ BASIS OF PAYMENT                         OVERTIME PAY
778.312 Pay for task without regard to ac­       778.402 The statutory exception provided by
    tual hours.                                      section 7(f) of the Act.
778.313 Computing overtime pay under the         778.403 Constant pay for varying workweeks
    Act for employees compensated on task            including overtime is not permitted ex­
    basis.
                                                     cept as specified in section 7(f).
778.314 Special situations.
                                                 778.404 Purposes of exemption.
  EFFECT OF FAILURE TO COUNT OR PAY FOR          778.405 What types of employees are af­
         CERTAIN WORKING HOURS                       fected.
                                                 778.406 Nonovertime hours as well as over-
778.315 Payment for all hours worked in              time hours must be irregular if section
    overtime workweek is required.                   7(f) is to apply.
778.316 Agreements or practices in conflict      778.407 The nature of the section 7(f) con-
    with statutory requirements are ineffec­         tract.
    tive.                                        778.408 The specified regular rate.
778.317 Agreements not to pay for certain        778.409 Provision for overtime pay.
    nonovertime hours.                           778.410 The guaranty under section 7(f).
778.318 Productive and nonproductive hours       778.411 Sixty-hour limit on pay guaranteed
    of work.                                         by contract.
                                                 778.412 Relationship between amount guar­
  EFFECT OF PAYING FOR BUT NOT COUNTING
                                                     anteed and range of hours employee may
              CERTAIN HOURS
                                                     be expected to work.
778.319 Paying for but not counting hours        778.413 Guaranty must be based on rates
    worked.                                          specified in contract.
778.320 Hours that would not be hours            778.414 ‘‘Approval’’ of contracts under sec­
    worked if not paid for.                          tion 7(f).
REDUCTION IN WORKWEEK SCHEDULE WITH NO           COMPUTING OVERTIME PAY ON THE RATE AP­
             CHANGE IN PAY                        PLICABLE TO THE TYPE OF WORK PERFORMED
                                                  IN OVERTIME HOURS (SECS. 7(G)(1) AND (2))
778.321 Decrease in hours without decrease
    in pay—general.                              778.415 The statutory provisions.
778.322 Reducing the fixed workweek for          778.416 Purpose of provisions.
    which a salary is paid.                      778.417 General requirements of section 7(g).

                                             383

§ 778.0                                                     29 CFR Ch. V (7–1–02 Edition)
778.418 Pieceworkers.                             tions, to supervise the payment of un­
778.419 Hourly workers employed at two or         paid wages or unpaid overtime com­
    more jobs.                                    pensation owing to any employee. The
778.420 Combined hourly rates and piece
    rates.                                        law also provides for enforcement in
778.421 Offset hour for hour.                     the courts.

 Subpart F—Pay Plans Which Circumvent             § 778.1 Purpose of interpretative bul­
               the Act                                letin.
                                                     This part 778 constitutes the official
          DEVICES TO EVADE THE OVERTIME
                  REQUIREMENTS
                                                  interpretation of the Department of
                                                  Labor with respect to the meaning and
778.500    Artificial regular rates.              application of the maximum hours and
778.501    The ‘‘split-day’’ plan.
                                                  overtime pay requirements contained
                 PSEUDO-BONUSES                   in section 7 of the Act. It is the purpose
778.502 Artificially labeling part of the reg­
                                                  of this bulletin to make available in
    ular wages a ‘‘bonus’’.                       one place the interpretations of these
778.503 Pseudo ‘‘percentage bonuses’’.            provisions which will guide the Sec­
                                                  retary of Labor and the Administrator
            Subpart G—Miscellaneous               in the performance of their duties
                                                  under the Act unless and until they are
778.600 Veterans’ subsistence allowances.
778.601 Special overtime provisions avail-        otherwise directed by authoritative de­
    able for hospital and residential care es­    cisions of the courts or conclude, upon
    tablishments under section 7(j).              reexamination of an interpretation,
778.602 Special overtime provisions under         that it is incorrect. These official in­
    section 7(b).                                 terpretations are issued by the Admin­
778.603 Special overtime provisions for cer­      istrator on the advice of the Solicitor
    tain employees receiving remedial edu­
                                                  of Labor, as authorized by the Sec­
    cation under section 7(q).
                                                  retary (Reorg. Pl. 6 of 1950, 64 Stat.
  AUTHORITY: 52 Stat. 1060, as amended; 29        1263; Gen. Ord. 45A, May 24, 1950, 15 FR
U.S.C. 201 et seq.                                3290).
  SOURCE: 33 FR 986, Jan. 26, 1968, unless oth­
erwise noted.                                     § 778.2 Coverage and exemptions not
                                                      discussed.
            Subpart A—General                        This part 778 does not deal with the
              Considerations                      general coverage of the Act or various
                                                  specific exemptions provided in the
§ 778.0 Introductory statement.                   statute, under which certain employees
   The Fair Labor Standards Act, as               within the general coverage of the
amended, hereinafter referred to as the           wage and hours provisions are wholly
Act, is a Federal statute of general ap­          or partially excluded from the protec­
plication which establishes minimum               tion of the Act’s minimum-wage and
wage, overtime pay, child labor, and              overtime-pay requirements. Some of
equal pay requirements that apply as              these exemptions are self-executing;
provided in the Act. All employees                others call for definitions or other ac­
whose employment has the relation-                tion by the Administrator. Regulations
ship to interstate or foreign commerce            and interpretations relating to general
which the Act specifies are subject to            coverage and specific exemptions may
the prescribed labor standards unless             be found in other parts of this chapter.
specifically exempted from them. Em­
ployers having such employees are re­             § 778.3 Interpretations made, contin­
quired to comply with the Act’s provi­                ued, and superseded by this part.
sions in this regard unless relieved                 On and after publication of this part
therefrom by some exemption in the                in the FEDERAL REGISTER, the interpre­
Act. Such employers are also required             tations contained therein shall be in ef­
to comply with specified recordkeeping            fect and shall remain in effect until
requirements contained in part 516 of             they are modified, rescinded or with-
this chapter. The law authorizes the              drawn. This part supersedes and re-
Department of Labor to investigate for            places the interpretations previously
compliance and, in the event of viola-            published in the FEDERAL REGISTER

                                              384

Wage and Hour Division, Labor                                                     § 778.7

and Code of Federal Regulations as            § 778.6 Effect of Davis-Bacon Act.
part 778 of this chapter. Prior opinions,
                                                 Section 1 of the Davis-Bacon Act (46
rulings and interpretations and prior
                                              Stat. 1494, as amended; 40 U.S.C. 276a)
enforcement policies which are not in-
                                              provides for the inclusion of certain
consistent with the interpretations in
                                              fringe benefits in the prevailing wages
this part or with the Fair Labor Stand­
                                              that are predetermined by the Sec­
ards Act as amended are continued in
                                              retary of Labor, under that Act and re­
effect; all other opinions, rulings, in­
                                              lated statutes, as minimum wages for
terpretations, and enforcement policies
                                              laborers and mechanics employed by
on the subjects discussed in the inter­
pretations in this part are rescinded         contractors and subcontractors per-
and withdrawn. Questions on matters           forming construction activity on Fed­
not fully covered by this part may be         eral and federally assisted projects. La-
addressed to the Administrator of the         borers and mechanics performing work
Wage and Hour Division, U.S. Depart­          subject to such predetermined min­
ment of Labor, Washington, DC 20210,          imum wages may, if they work over-
or to any Regional Office of the Divi­        time, be subject to overtime compensa­
sion.                                         tion provisions of other laws which
                                              may apply concurrently to them, in­
[46 FR 7309, Jan. 23, 1981]                   cluding the Fair Labor Standards Act.
                                              In view of this fact, specific provision
§ 778.4 Reliance on interpretations.
                                              was made in the Davis-Bacon Act for
   The interpretations of the law con­        the treatment of such predetermined
tained in this part 778 are official inter­   fringe benefits in the computation of
pretations which may be relied upon as        overtime compensation under other ap­
provided in section 10 of the Portal-to-      plicable statutes including the Fair
Portal Act of 1947 (61 Stat. 84).             Labor Standards Act. The application
                                              of this provision is discussed in § 5.32 of
§ 778.5 Relation to other laws gen­           this title, which should be considered
    erally.
                                              together with the interpretations in
   Various Federal, State, and local          this part 778 in determining any over-
laws require the payment of minimum           time compensation payable under the
hourly, daily or weekly wages different       Fair Labor Standards Act to such la-
from the minimum set forth in the             borers and mechanics in any workweek
Fair Labor Standards Act, and the pay­        when they are subject to fringe benefit
ment of overtime compensation com­            wage determinations under the Davis-
puted on bases different from those set       Bacon and related acts.
forth in the Fair Labor Standards Act.
Where such legislation is applicable          § 778.7 Effect of Service Contract Act
and does not contravene the require­              of 1965.
ments of the Fair Labor Standards Act,           The McNamara-O’Hara Service Con-
nothing in the act, the regulations or        tract Act of 1965, which provides for
the interpretations announced by the          the predetermination and the specifica­
Administrator should be taken to over-        tion in service contracts entered into
ride or nullify the provisions of these       by the Federal Government or the Dis­
laws. Compliance with other applicable        trict of Columbia, of the minimum
legislation does not excuse noncompli­        wages and fringe benefits to be re­
ance with the Fair Labor Standards            ceived by employees of contractors and
Act. Where a higher minimum wage
                                              subcontractors employed in work on
than that set in the Fair Labor Stand­
                                              such contracts, contains the following
ards Act is applicable to an employee
                                              provision:
by virtue of such other legislation, the
regular rate of the employee, as the            SEC. 6. In determining any overtime pay to
term is used in the Fair Labor Stand­         which such service employees are entitled
ards Act, cannot be lower than such ap­       under any Federal law, the regular or basic
                                              hourly rate of pay of such an employee shall
plicable minimum, for the words ‘‘reg­
                                              not include any fringe benefit payments
ular rate at which he is employed’’ as        computed hereunder which are excluded
used in section 7 must be construed to        from the regular rate under the Fair Labor
mean the regular rate at which he is          Standards Act by provisions of section 7(e)*
lawfully employed.                            thereof. (*Subsection designation changed in

                                          385

§ 778.100                                                 29 CFR Ch. V (7– 1– 02 Edition)
text from section 7(d) to 7(e) to conform with      Subpart B— The Overtime Pay
the relettering enacted by the Fair Labor
Standards Amendments of 1966.)                             Requirements
Where the fringe benefits specified in                       INTRODUCTORY
such a service contract are furnished to
                                                 § 778.100 The   maximum-hours     provi­
an employee, the above provision per­                sions.
mits exclusion of such fringe benefits
from the employee’s regular rate of pay            Section 7(a) of the Act deals with
under the Fair Labor Standards Act               maximum hours and overtime com­
pursuant to the rules and principles set         pensation for employees who are with-
forth in subpart C of this part 778. How-        in the general coverage of the Act and
ever, the McNamara-O’Hara Act per­               are not specifically exempt from its
mits an employer to discharge his obli­          overtime pay requirements. It pre-
gation to provide the specified fringe           scribes the maximum weekly hours of
benefits by furnishing any equivalent            work permitted for the employment of
combinations of bona fide fringe bene­           such employees in any workweek with-
fits or by making equivalent or dif­             out extra compensation for overtime,
ferential payments in cash. Permis­              and a general overtime rate of pay not
sible methods of doing this are set              less than one and one-half times the
forth in part 4 of this title, subpart B.        employee’s regular rate which the em­
If the employer furnishes equivalent             ployee must receive for all hours
benefits or makes cash payments, or              worked in any workweek in excess of
both, to an employee as therein au­              the applicable maximum hours. The
thorized, the amounts thereof, to the            employment by an employer of an em­
extent that they operate to discharge            ployee in any work subject to the Act
the employer’s obligation under the              in any workweek brings these provi­
McNamara-O’Hara Act to furnish such              sions into operation. The employer is
specified fringe benefits, may be ex­            prohibited from employing the em­
cluded pursuant to such Act from the             ployee in excess of the prescribed max­
employee’s regular or basic rate of pay          imum hours in such workweek without
in computing any overtime pay due the            paying him the required extra com­
employee under the Fair Labor Stand­             pensation for the overtime hours
ards Act, pursuant to the rule provided          worked at a rate meeting the statutory
in § 4.55 of this title. This means that         requirement.
such equivalent fringe benefits or cash
payments which are authorized under              § 778.101 Maximum          nonovertime
                                                     hours.
the McNamara-O’Hara Act to be pro­
vided in lieu of the fringe benefits spec­         As a general standard, section 7(a) of
ified in determinations issued under             the Act provides 40 hours as the max­
such Act are excludable from the reg­            imum number that an employee sub­
ular rate in applying the overtime pro-          ject to its provisions may work for an
visions of the Fair Labor Standards              employer in any workweek without re­
Act if the fringe benefits specified             ceiving additional compensation at not
under the McNamara-O’Hara Act would              less than the statutory rate for over-
be so excludable if actually furnished.          time. Hours worked in excess of the
This is true regardless of whether the           statutory maximum in any workweek
equivalent benefits or payments them-            are overtime hours under the statute; a
selves meet the requirements of sec­             workweek no longer than the pre-
tion 7(e) of the Fair Labor Standards            scribed maximum is a nonovertime
Act and subpart C of this part 778.              workweek under the Act, to which the




                                             386

Wage and Hour Division, Labor                                            § 778.105

pay requirements of section 6 (min­        hours worked by the employee for such
imum wage and equal pay) but not           employers during the workweek must
those of section 7(a) are applicable.      be totaled in determining the number
[46 FR 7309, Jan. 23, 1981]                of hours to be compensated in accord­
                                           ance with section 7(a). The principles
§ 778.102 Application of overtime pro-     for determining what hours are hours
    visions generally.                     worked within the meaning of the Act
   Since there is no absolute limitation   are discussed in part 785 of this chap­
in the Act (apart from the child labor     ter.
provisions and regulations thereunder)
on the number of hours that an em­         § 778.104   Each workweek stands alone.
ployee may work in any workweek, he          The Act takes a single workweek as
may work as many hours a week as he        its standard and does not permit aver-
and his employer see fit, so long as the   aging of hours over 2 or more weeks.
required overtime compensation is paid     Thus, if an employee works 30 hours
him for hours worked in excess of the      one week and 50 hours the next, he
maximum workweek prescribed by sec­        must receive overtime compensation
tion 7(a). The Act does not generally      for the overtime hours worked beyond
require, however, that an employee be      the applicable maximum in the second
paid overtime compensation for hours       week, even though the average number
in excess of eight per day, or for work    of hours worked in the 2 weeks is 40.
on Saturdays, Sundays, holidays or         This is true regardless of whether the
regular days of rest. If no more than      employee works on a standard or
the maximum number of hours pre-
                                           swing-shift schedule and regardless of
scribed in the Act are actually worked
                                           whether he is paid on a daily, weekly,
in the workweek, overtime compensa­
                                           biweekly, monthly or other basis. The
tion pursuant to section 7(a) need not
                                           rule is also applicable to pieceworkers
be paid. Nothing in the Act, however,
will relieve an employer of any obliga­    and employees paid on a commission
tion he may have assumed by contract       basis. It is therefore necessary to de­
or of any obligation imposed by other      termine the hours worked and the com­
Federal or State law to limit overtime     pensation earned by pieceworkers and
hours of work or to pay premium rates      commission employees on a weekly
for work in excess of a daily standard     basis.
or for work on Saturdays, Sundays,
holidays, or other periods outside of or   § 778.105   Determining the workweek.
in excess of the normal or regular           An employee’s workweek is a fixed
workweek or workday. (The effect of        and regularly recurring period of 168
making such payments is discussed in       hours—seven consecutive 24-hour peri­
§§ 778.201 through 778.207 and 778.219.)   ods. It need not coincide with the cal­
[46 FR 7309, Jan. 23, 1981]                endar week but may begin on any day
                                           and at any hour of the day. For pur­
§ 778.103 The workweek as the basis        poses of computing pay due under the
    for applying section 7(a).             Fair Labor Standards Act, a single
  If in any workweek an employee is        workweek may be established for a
covered by the Act and is not exempt       plant or other establishment as a
from its overtime pay requirements,        whole or different workweeks may be
the employer must total all the hours      established for different employees or
worked by the employee for him in          groups of employees. Once the begin­
that workweek (even though two or          ning time of an employee’s workweek
more unrelated job assignments may         is established, it remains fixed regard-
have been performed), and pay over-        less of the schedule of hours worked by
time compensation for each hour            him. The beginning of the workweek
worked in excess of the maximum            may be changed if the change is in-
hours applicable under section 7(a) of     tended to be permanent and is not de-
the Act. In the case of an employee em­    signed to evade the overtime require­
ployed jointly by two or more employ­      ments of the Act. The proper method of
ers (see part 791 of this chapter), all    computing overtime pay in a period in

                                       387

§ 778.106                                              29 CFR Ch. V (7– 1– 02 Edition)

which a change in the time of com­         than one and one-half times such high­
mencement of the workweek is made,         er rate. Under certain conditions pre-
is discussed in §§ 778.301 and 778.302.    scribed in section 7 (f), (g), and (j), the
                                           Act provides limited exceptions to the
§ 778.106 Time of payment.                 application of the general standard of
   There is no requirement in the Act      section 7(a) for computing overtime
that overtime compensation be paid         pay based on the regular rate. With re­
weekly. The general rule is that over-     spect to these, see §§ 778.400 through
time compensation earned in a par­         778.421 and 778.601 and part 548 of this
ticular workweek must be paid on the       chapter. The Act also provides, in sec­
regular pay day for the period in which    tion 7(b), (i), (k) and (m) and in section
such workweek ends. When the correct       13, certain partial and total exemptions
amount of overtime compensation can-       from the application of section 7(a) to
not be determined until some time          certain employees and under certain
after the regular pay period, however,
                                           conditions. Regulations and interpreta­
the requirements of the Act will be sat­
                                           tions concerning these exemptions are
isfied if the employer pays the excess
overtime compensation as soon after        outside the scope of this part 778 and
the regular pay period as is prac­         reference should be made to other ap­
ticable. Payment may not be delayed        plicable parts of this chapter.
for a period longer than is reasonably     [46 FR 7309, Jan. 23, 1981]
necessary for the employer to compute
and arrange for payment of the amount      § 778.108   The ‘‘regular rate’’.
due and in no event may payment be
                                              The ‘‘regular rate’’ of pay under the
delayed beyond the next payday after
                                           Act cannot be left to a declaration by
such computation can be made. Where
retroactive wage increases are made,       the parties as to what is to be treated
retroactive overtime compensation is       as the regular rate for an employee; it
due at the time the increase is paid, as   must be drawn from what happens
discussed in § 778.303. For a discussion   under the employment contract (Bay
of overtime payments due because of        Ridge Operating Co. v. Aaron, 334 U.S.
increases by way of bonuses, see           446). The Supreme Court has described
§ 778.209.                                 it as the hourly rate actually paid the
                                           employee for the normal, nonovertime
 PRINCIPLES FOR COMPUTING OVERTIME         workweek for which he is employed—
 PAY BASED ON THE ‘‘REGULAR RATE’’         an     ‘‘actual    fact’’   (Walling    v.
                                           Youngerman-Reynolds Hardwood Co., 325
§ 778.107 General standard for over-
    time pay.                              U.S. 419). Section 7(e) of the Act re-
                                           quires inclusion in the ‘‘regular rate’’
  The general overtime pay standard in     of ‘‘all remuneration for employment
section 7(a) requires that overtime        paid to, or on behalf of, the employee’’
must be compensated at a rate not less     except payments specifically excluded
than one and one-half times the reg­       by paragraphs (1) through (7) of that
ular rate at which the employee is ac­
                                           subsection. (These seven types of pay­
tually employed. The regular rate of
                                           ments, which are set forth in § 778.200
pay at which the employee is employed
may in no event be less than the statu­    and discussed in §§ 778.201 through
tory minimum. (The statutory min­          778.224, are hereafter referred to as
imum is the specified minimum wage         ‘‘statutory exclusions.’’) As stated by
applicable under section 6 of the Act,     the Supreme Court in the Youngerman-
except in the case of workers specially    Reynolds case cited above: ‘‘Once the
provided for in section 14 and workers     parties have decided upon the amount
in Puerto Rico, the Virgin Islands, and    of wages and the mode of payment the
American Samoa who are covered by          determination of the regular rate be-
wage orders issued pursuant to section     comes a matter of mathematical com­
8 of the Act.) If the employee’s regular   putation, the result of which is unaf­
rate of pay is higher than the statutory   fected by any designation of a contrary
minimum, his overtime compensation         ‘regular rate’ in the wage contracts.’’
must be computed at a rate not less

                                       388

Wage and Hour Division, Labor                                                 § 778.111

§ 778.109 The regular rate is an hourly       $3.10, or 40 hours at $6.20 plus 6 hours at
    rate.                                     $9.30).
   The ‘‘regular rate’’ under the Act is a    [46 FR 7309, Jan. 23, 1981]
rate per hour. The Act does not require
employers to compensate employees on          § 778.111 Pieceworker.
an hourly rate basis; their earnings             (a) Piece rates and supplements gen­
may be determined on a piece-rate, sal­       erally. When an employee is employed
ary, commission, or other basis, but in       on a piece-rate basis, his regular hour­
such case the overtime compensation           ly rate of pay is computed by adding
due to employees must be computed on          together his total earnings for the
the basis of the hourly rate derived          workweek from piece rates and all
therefrom and, therefore, it is nec­          other sources (such as production bo­
essary to compute the regular hourly          nuses) and any sums paid for waiting
rate of such employees during each            time or other hours worked (except
workweek, with certain statutory ex­          statutory exclusions): This sum is then
ceptions discussed in §§ 778.400 through      divided by the number of hours worked
778.421. The regular hourly rate of pay       in the week for which such compensa­
of an employee is determined by divid­        tion was paid, to yield the piece-
ing his total remuneration for employ­        worker’s ‘‘regular rate’’ for that week.
ment (except statutory exclusions) in         For his overtime work the piece-work­
any workweek by the total number of           er is entitled to be paid, in addition to
hours actually worked by him in that          his total weekly earnings at this reg­
workweek for which such compensa­             ular rate for all hours worked, a sum
tion was paid. The following sections         equivalent to one-half this regular rate
give some examples of the proper              of pay multiplied by the number of
method of determining the regular rate        hours worked in excess of 40 in the
of pay in particular instances: (The          week. (For an alternative method of
maximum hours standard used in these          complying with the overtime require­
examples is 40 hours in a workweek).          ments of the Act as far as pieceworkers
                                              are concerned, see § 778.418.) Only addi­
§ 778.110 Hourly rate employee.               tional half-time pay is required in such
   (a) Earnings at hourly rate exclusively.   cases where the employee has already
If the employee is employed solely on         received straight-time compensation at
the basis of a single hourly rate, the        piece rates or by supplementary pay­
hourly rate is his ‘‘regular rate.’’ For      ments for all hours worked. Thus, if
his overtime work he must be paid, in         the employee has worked 50 hours and
addition to his straight time hourly          has earned $245.50 at piece rates for 46
earnings, a sum determined by multi-          hours of productive work and in addi­
plying one-half the hourly rate by the        tion has been compensated at $5.00 an
number of hours worked in excess of 40        hour for 4 hours of waiting time, his
in the week. Thus a $6 hourly rate will       total compensation, $265.50 must be di­
bring, for an employee who works 46           vided by his total hours of work, 50, to
hours, a total weekly wage of $294 (46        arrive at his regular hourly rate of
hours at $6 plus 6 at $3). In other words,    pay—$5.31. For the 10 hours of overtime
the employee is entitled to be paid an        the employee is entitled to additional
amount equal to $6 an hour for 40 hours       compensation of $26.55 (10 hours at
and $9 an hour for the 6 hours of over-       $2.655). For the week’s work he is thus
time, or a total of $294.                     entitled to a total of $292.05 (which is
   (b) Hourly rate and bonus. If the em­      equivalent to 40 hours at $5.31 plus 10
ployee receives, in addition to his earn­     overtime hours at $7.965).
ings at the hourly rate, a production            (b) Piece rates with minimum hourly
bonus of $9.20, the regular hourly rate       guarantee. In some cases an employee is
of pay is $6.20 an hour (46 hours at $6       hired on a piece-rate basis coupled with
yields $276; the addition of the $9.20        a minimum hourly guaranty. Where
bonus makes a total of $285.20; this          the total piece-rate earnings for the
total divided by 46 hours yields a rate       workweek fall short of the amount
of $6.20). The employee is then entitled      that would be earned for the total
to be paid a total wage of $303.80 for 46     hours of work at the guaranteed rate,
hours (46 hours at $6.20 plus 6 hours at      the employee is paid the difference. In

                                          389

§ 778.112                                                29 CFR Ch. V (7– 1– 02 Edition)

such weeks the employee is in fact paid      longer than a workweek, such as a
at an hourly rate and the minimum            month, it must be reduced to its work-
hourly guaranty which he was paid is         week equivalent. A monthly salary is
his regular rate in that week. In the        subject to translation to its equivalent
example just given, if the employee          weekly wage by multiplying by 12 (the
was guaranteed $5.50 an hour for pro­        number of months) and dividing by 52
ductive working time, he would be paid       (the number of weeks). A semimonthly
$253 (46×$5.50) for the 46 hours of pro­     salary is translated into its equivalent
ductive work (instead of the $245.50         weekly wage by multiplying by 24 and
earned at piece rates). In a week in         dividing by 52. Once the weekly wage is
which no waiting time was involved, he       arrived at, the regular hourly rate of
would be owed an additional $2.75 (half      pay will be calculated as indicated
time) for each of the 6 overtime hours       above. The regular rate of an employee
worked, to bring his total compensa­         who is paid a regular monthly salary of
tion up to $269.50 (46 hours at $5.50 plus   $1,040, or a regular semimonthly salary
6 hours at $2.75 or 40 hours at $5.50 plus   of $520 for 40 hours a week, is thus
6 hours at $8.25). If he is paid at a dif­   found to be $6 per hour. Under regula­
ferent rate for waiting time, his reg­       tions of the Administrator, pursuant to
ular rate is the weighted average of the     the authority given to him in section
2 hourly rates, as discussed in § 778.115.   7(g)(3) of the Act, the parties may pro-
[46 FR 7309, Jan. 23, 1981]
                                             vide that the regular rates shall be de­
                                             termined by dividing the monthly sal­
§ 778.112 Day rates and job rates.           ary by the number of working days in
                                             the month and then by the number of
   If the employee is paid a flat sum for
                                             hours of the normal or regular work-
a day’s work or for doing a particular
                                             day. Of course, the resultant rate in
job, without regard to the number of
                                             such a case must not be less than the
hours worked in the day or at the job,
                                             statutory minimum wage.
and if he receives no other form of
compensation for services, his regular       [46 FR 7310, Jan. 23, 1981]
rate is determined by totaling all the
sums received at such day rates or job       § 778.114 Fixed salary for fluctuating
rates in the workweek and dividing by             hours.
the total hours actually worked. He is          (a) An employee employed on a sal­
then entitled to extra half-time pay at      ary basis may have hours of work
this rate for all hours worked in excess     which fluctuate from week to week and
of 40 in the workweek.                       the salary may be paid him pursuant to
                                             an understanding with his employer
§ 778.113 Salaried employees—general.        that he will receive such fixed amount
   (a) Weekly salary. If the employee is     as straight time pay for whatever
employed solely on a weekly salary           hours he is called upon to work in a
basis, his regular hourly rate of pay, on    workweek, whether few or many.
which time and a half must be paid, is       Where there is a clear mutual under-
computed by dividing the salary by the       standing of the parties that the fixed
number of hours which the salary is in-      salary is compensation (apart from
tended to compensate. If an employee         overtime premiums) for the hours
is hired at a salary of $182.70 and if it    worked each workweek, whatever their
is understood that this salary is com­       number, rather than for working 40
pensation for a regular workweek of 35       hours or some other fixed weekly work
hours, the employee’s regular rate of        period, such a salary arrangement is
pay is $182.70 divided by 35 hours, or       permitted by the Act if the amount of
$5.22 an hour, and when he works over-       the salary is sufficient to provide com­
time he is entitled to receive $5.22 for     pensation to the employee at a rate not
each of the first 40 hours and $7.83 (one    less than the applicable minimum wage
and one-half times $5.22) for each hour      rate for every hour worked in those
thereafter. If an employee is hired at a     workweeks in which the number of
salary of $220.80 for a 40-hour week his     hours he works is greatest, and if he re­
regular rate is $5.52 an hour.               ceives extra compensation, in addition
   (b) Salary for periods other than work-   to such salary, for all overtime hours
week. Where the salary covers a period       worked at a rate not less than one-half

                                         390

Wage and Hour Division, Labor                                                   § 778.116

his regular rate of pay. Since the sal­      salary even though the workweek is
ary in such a situation is intended to       one in which a full schedule of hours is
compensate the employee at straight          not worked. Typically, such salaries
time rates for whatever hours are            are paid to employees who do not cus­
worked in the workweek, the regular          tomarily work a regular schedule of
rate of the employee will vary from          hours and are in amounts agreed on by
week to week and is determined by di­        the parties as adequate straight-time
viding the number of hours worked in         compensation for long workweeks as
the workweek into the amount of the          well as short ones, under the cir­
salary to obtain the applicable hourly       cumstances of the employment as a
rate for the week. Payment for over-         whole. Where all the legal prerequisites
time hours at one-half such rate in ad­      for use of the ‘‘fluctuating workweek’’
dition to the salary satisfies the over-     method of overtime payment are
time pay requirement because such            present, the Act, in requiring that ‘‘not
hours have already been compensated          less than’’ the prescribed premium of 50
at the straight time regular rate, under     percent for overtime hours worked be
the salary arrangement.                      paid, does not prohibit paying more. On
  (b) The application of the principles      the other hand, where all the facts in­
above stated may be illustrated by the       dicate that an employee is being paid
case of an employee whose hours of           for his overtime hours at a rate no
work do not customarily follow a reg­        greater than that which he receives for
ular schedule but vary from week to          nonovertime hours, compliance with
week, whose overtime work is never in        the Act cannot be rested on any appli­
excess of 50 hours in a workweek, and        cation of the fluctuating workweek
whose salary of $250 a week is paid with     overtime formula.
the understanding that it constitutes        [33 FR 986, Jan. 26, 1968, as amended at 46 FR
his compensation, except for overtime        7310, Jan. 23, 1981]
premiums, for whatever hours are
worked in the workweek. If during the        § 778.115 Employees working at two or
course of 4 weeks this employee works             more rates.
40, 44, 50, and 48 hours, his regular           Where an employee in a single work-
hourly rate of pay in each of these          week works at two or more different
weeks is approximately $6.25, $5.68, $5,     types of work for which different non-
and $5.21, respectively. Since the em­       overtime rates of pay (of not less than
ployee has already received straight-        the applicable minimum wage) have
time compensation on a salary basis          been established, his regular rate for
for all hours worked, only additional        that week is the weighted average of
half-time pay is due. For the first week     such rates. That is, his total earnings
the employee is entitled to be paid $250;    (except statutory exclusions) are com­
for the second week $261.36 ($250 plus 4     puted to include his compensation dur­
hours at $2.84, or 40 hours at $5.68 plus    ing the workweek from all such rates,
4 hours at $8.52); for the third week $275   and are then divided by the total num­
($250 plus 10 hours at $2.50, or 40 hours    ber of hours worked at all jobs. Certain
at $5 plus 10 hours at $7.50); for the       statutory exceptions permitting alter-
fourth week approximately $270.88 ($250      native methods of computing overtime
plus 8 hours at $2.61 or 40 hours at $5.21   pay in such cases are discussed in
plus 8 hours at $7.82).                      §§ 778.400 and 778.415 through 778.421.
  (c) The ‘‘fluctuating workweek’’
method of overtime payment may not           § 778.116 Payments other than cash.
be used unless the salary is sufficiently       Where payments are made to employ­
large to assure that no workweek will        ees in the form of goods or facilities
be worked in which the employee’s av­        which are regarded as part of wages,
erage hourly earnings from the salary        the reasonable cost to the employer or
fall below the minimum hourly wage           the fair value of such goods or of fur­
rate applicable under the Act, and un­       nishing such facilities must be in­
less the employee clearly understands        cluded in the regular rate. (See part 531
that the salary covers whatever hours        of this chapter for a discussion as to
the job may demand in a particular           the inclusion of goods and facilities in
workweek and the employer pays the           wages and the method of determining

                                         391

§ 778.117                                              29 CFR Ch. V (7– 1– 02 Edition)

reasonable cost.) Where, for example,         sometime after the regular pay day for
an employer furnishes lodging to his          the workweek, the employer may dis­
employees in addition to cash wages           regard the commission in computing
the reasonable cost or the fair value of      the regular hourly rate until the
the lodging (per week) must be added          amount     of    commission     can    be
to the cash wages before the regular          ascertained. Until that is done he may
rate is determined.                           pay compensation for overtime at a
                                              rate not less than one and one-half
[46 FR 7310, Jan. 23, 1981]
                                              times the hourly rate paid the em­
§ 778.117 Commission          payments—gen­   ployee, exclusive of the commission.
    eral.                                     When the commission can be computed
                                              and paid, additional overtime com­
  Commissions (whether based on a
                                              pensation due by reason of the inclu­
percentage of total sales or of sales in
                                              sion of the commission in the employ­
excess of a specified amount, or on
                                              ee’s regular rate must also be paid. To
some other formula) are payments for
                                              compute this additional overtime com­
hours worked and must be included in
                                              pensation, it is necessary, as a general
the regular rate. This is true regardless
                                              rule, that the commission be appor­
of whether the commission is the sole
                                              tioned back over the workweeks of the
source of the employee’s compensation
                                              period during which it was earned. The
or is paid in addition to a guaranteed
                                              employee must then receive additional
salary or hourly rate, or on some other
                                              overtime compensation for each week
basis, and regardless of the method,
                                              during the period in which he worked
frequency, or regularity of computing,
                                              in excess of the applicable maximum
allocating and paying the commission.
                                              hours standard. The additional com­
It does not matter whether the com­
                                              pensation for that workweek must be
mission earnings are computed daily,
                                              not less than one-half of the increase in
weekly,     biweekly,      semimonthly,
                                              the hourly rate of pay attributable to
monthly, or at some other interval.
                                              the    commission     for   that    week
The fact that the commission is paid
                                              multipled by the number of hours
on a basis other than weekly, and that
                                              worked in excess of the applicable max­
payment is delayed for a time past the
                                              imum hours standard in that work-
employee’s normal pay day or pay pe­
                                              week.
riod, does not excuse the employer
from including this payment in the em­        § 778.120 Deferred commission pay­
ployee’s regular rate.                            ments not identifiable as earned in
[36 FR 4981, Mar. 16, 1971]                       particular workweeks.
                                                If it is not possible or practicable to
§ 778.118 Commission paid on a work-          allocate the commission among the
    week basis.                               workweeks of the period in proportion
  When the commission is paid on a            to the amount of commission actually
weekly basis, it is added to the employ­      earned or reasonably presumed to be
ee’s other earnings for that workweek         earned each week, some other reason-
(except overtime premiums and other           able and equitable method must be
payments excluded as provided in sec­         adopted. The following methods may be
tion 7(e) of the Act), and the total is di­   used:
vided by the total number of hours              (a) Allocation of equal amounts to each
worked in the workweek to obtain the          week. Assume that the employee
employee’s regular hourly rate for the        earned an equal amount of commission
particular workweek. The employee             in each week of the commission com­
must then be paid extra compensation          putation period and compute any addi­
at one-half of that rate for each hour        tional overtime compensation due on
worked in excess of the applicable max­       this amount. This may be done as fol­
imum hours standard.                          lows:
                                                (1) For a commission computation
§ 778.119 Deferred commission          pay­   period of 1 month, multiply the com­
    ments—general rules.                      mission payment by 12 and divide by 52
  If the calculation and payment of the       to get the amount of commission allo­
commission cannot be completed until          cable to a single week. If there is a

                                          392

Wage and Hour Division, Labor                                                         § 778.121

semimonthly computation period, mul­               fourth week, computed in the same manner
tiply the commission payment by 24                 as weeks one and three. The additional over-
and divide by 52 to get each week’s                time pay due may also be computed by mul­
                                                   tiplying the amount of the weekly increase
commission. For a commission com­                  by the appropriate decimal on the coefficient
putation period of a specific number of            table, for each week in which overtime was
workweeks, such as every 4 weeks (as               worked.
distinguished from every month) divide
the total amount of commission by the                (b) Allocation of equal amounts to each
number of weeks for which it rep­                  hour worked. Sometimes, there are
resents additional compensation to get             facts which make it inappropriate to
the amount of commission allocable to              assume equal commission earnings for
each week.                                         each workweek. For example, the num­
  (2) Once the amount of commission                ber of hours worked each week may
allocable to a workweek has been                   vary significantly. In such cases, rath­
ascertained for each week in which                 er than following the method outlined
overtime was worked, the commission                in paragraph (a) of this section, it is
for that week is divided by the total              reasonable to assume that the em­
                                                   ployee earned an equal amount of com­
number of hours worked in that week,
                                                   mission in each hour that he worked
to get the increase in the hourly rate.
                                                   during the commission computation
Additional overtime due is computed
                                                   period. The amount of the commission
by multiplying one-half of this figure
                                                   payment should be divided by the num­
by the number of overtime hours
                                                   ber of hours worked in the period in
worked in the week. A shorter method
                                                   order to determine the amount of the
of obtaining the amount of additional
                                                   increase in the regular rate allocable
overtime compensation due is to mul­
                                                   to the commission payment. One-half
tiply the amount of commission allo­
                                                   of this figure should be multiplied by
cable to the week by the decimal
                                                   the number of statutory overtime
equivalent of the fraction
                                                   hours worked by the employee in the
          Overtime hours                           overtime workweeks of the commission
         ————————.                                 computation period, to get the amount
                                                   of additional overtime compensation
           Total hours × 2                         due for this period.
                                                     Example: An employee received commis­
A coefficient table (WH–134) has been
                                                   sions of $192 for a commission computation
prepared which contains the appro­                 period of 96 hours, including 16 overtime
priate decimals for computing the                  hours (i.e., two workweeks of 48 hours each).
extra half-time due.                               Dividing the $192 by 96 gives a $2 increase in
  Examples: (i) If there is a monthly commis­      the hourly rate. If the employee is entitled
sion payment of $416, the amount of commis­        to overtime after 40 hours in a workweek, he
sion allocable to a single week is $96             is due an additional $16 for the commission
($416×12=$4,992÷52=$96). In a week in which an     computation period, representing an addi­
employee who is due overtime compensation          tional $1 for each of the 16 overtime hours.
after 40 hours works 48 hours, dividing $96 by     [33 FR 986, Jan. 26, 1968, as amended at 46 FR
48 gives the increase to the regular rate of $2.   7310, Jan. 23, 1981]
Multiplying one-half of this figure by 8 over-
time hours gives the additional overtime pay       § 778.121 Commission      payments—de­
due of $8. The $96 may also be multiplied by            layed credits and debits.
0.083 (the appropriate decimal shown on the
coefficient table) to get the additional over-        If there are delays in crediting sales
time pay due of $8.                                or debiting returns or allowances
  (ii) An employee received $384 in commis­        which affect the computation of com­
sions for a 4-week period. Dividing this by 4      missions, the amounts paid to the em­
gives him a weekly increase of $96. Assume         ployee for the computation period will
that he is due overtime compensation after         be accepted as the total commission
40 hours and that in the 4-week period he          earnings of the employee during such
worked 44, 40, 44 and 48 hours. He would be
                                                   period, and the commission may be al­
due additional compensation of $4.36 for the
first and third week ($96÷44=$2.18÷2=$1.09×4       located over the period from the last
overtime hours=$4.36), no extra compensa­          commission computation date to the
tion for the second week during which no           present commission computation date,
overtime hours were worked, and $8 for the         even though there may be credits or

                                               393

§ 778.122                                                   29 CFR Ch. V (7– 1– 02 Edition)

debits resulting from work which actu­           lations which he shall issue, having due re­
ally occurred during a previous period.          gard among other relevant factors, to the ex-
The hourly increase resulting from the           tent to which the amounts paid to the em­
                                                 ployee are determined without regard to
commission may be computed as out-               hours of work, production, or efficiency; or
lined in the preceding paragraphs.               (c) the payments are talent fees (as such tal­
                                                 ent fees are defined and delimited by regula­
§ 778.122 Computation of overtime for            tions of the Secretary) paid to performers,
    commission employees on estab­               including announcers, on radio and tele­
    lished basic rate.                           vision programs; [discussed in §§ 778.208
   Overtime pay for employees paid               through 778.215 and 778.225].
wholly or partly on a commission basis             (4) Contributions irrevocably made by an
may be computed on an established                employer to a trustee or third person pursu­
                                                 ant to a bona fide plan for providing old-age,
basic rate, in lieu of the method de-            retirement, life, accident, or health insur­
scribed above. See § 778.400 and part 548        ance or similar benefits for employees; [dis­
of this chapter.                                 cussed in §§ 778.214 and 778.215].
                                                   (5) Extra compensation provided by a pre­
Subpart C— Payments That May                     mium rate paid for certain hours worked by
                                                 the employee in any day or workweek be-
   Be Excluded From the ‘‘Reg­                   cause such hours are hours worked in excess
   ular Rate’’                                   of eight in a day or in excess of the max­
                                                 imum workweek applicable to such employee
       THE STATUTORY PROVISIONS                  under subsection (a) or in excess of the em­
                                                 ployee’s normal working hours or regular
§ 778.200 Provisions governing inclu­            working hours, as the case may be; [dis­
     sion, exclusion, and crediting of           cussed in §§ 778.201 and 778.202].
     particular payments.                          (6) Extra compensation provided by a pre­
   (a) Section 7(e). This subsection of the      mium rate paid for work by the employee on
Act provides as follows:                         Saturdays, Sundays, holidays, or regular
                                                 days of rest, or on the sixth or seventh day
  As used in this section the ‘‘regular rate’’   of the workweek, where such premium rate
at which an employee is employed shall be        is not less than one and one-half times the
deemed to include all remuneration for em­       rate established in good faith for like work
ployment paid to, or on behalf of, the em­       performed in nonovertime hours on other
ployee, but shall not be deemed to include:      days; or [discussed in §§ 778.203, 778.205, and
  (1) Sums paid as gifts; payments in the na­    778.206].
ture of gifts made at Christmas time or on         (7) Extra compensation provided by a pre­
other special occasions, as a reward for serv­   mium rate paid to the employee, in pursu­
ice, the amounts of which are not measured       ance of an applicable employment contract
by or dependent on hours worked, produc­         or collective bargaining agreement, for work
tion, or efficiency; [discussed in § 778.212].   outside of the hours established in good faith
  (2) Payments made for occasional periods       by the contract or agreement as the basic,
when no work is performed due to vacation,       normal, or regular workday (not exceeding
holiday, illness, failure of the employer to     eight hours) or workweek (not exceeding the
provide sufficient work, or other similar        maximum workweek applicable to such em­
cause; reasonable payments for traveling ex­     ployee under subsection (a)), where such pre­
penses, or other expenses, incurred by an em­    mium rate is not less than one and one-half
ployee in the furtherance of his employer’s      times the rate established in good faith by
interests and properly reimbursable by the       the contract or agreement for like work per-
employer; and other similar payments to an       formed during such workday or workweek;
employee which are not made as compensa­         [discussed in §§ 778.201 and 778.206].
tion for his hours of employment; [discussed      (b) Section 7(h). This subsection of the
in §§ 778.216 through 778.224].                  Act provides as follows:
  (3) Sums paid in recognition of services
performed during a given period if either, (a)     Extra compensation paid as described in
both the fact that payment is to be made and     paragraphs (5), (6), and (7) of subsection (e)
the amount of the payment are determined         shall be creditable toward overtime com­
at the sole discretion of the employer at or     pensation payable pursuant to this section.
near the end of the period and not pursuant        (c) Only the statutory exclusions are
to any prior contract, agreement, or promise     authorized. It is important to deter-
causing the employee to expect such pay­
ments regularly; or (b) the payments are
                                                 mine the scope of these exclusions,
made pursuant to a bona fide profit-sharing      since all remuneration for employment
plan or trust or bona fide thrift or savings     paid to employees which does not fall
plan, meeting the requirements of the Sec­       within one of these seven exclusionary
retary of Labor set forth in appropriate regu-   clauses must be added into the total

                                             394

Wage and Hour Division, Labor                                                 § 778.202

compensation received by the em­              7(a) of the Act as the weekly max­
ployee before his regular hourly rate of      imum, the extra premium compensa­
pay is determined.                            tion paid for the excess hours is exclud­
                                              able from the regular rate under sec­
    EXTRA COMPENSATION PAID FOR               tion 7(e)(5) and may be credited toward
             OVERTIME                         statutory overtime payments pursuant
                                              to section 7(h) of the Act. In applying
§ 778.201 Overtime       premiums—gen­        these rules to situations where it is the
    eral.
                                              custom to pay employees for hours dur­
   (a) Certain premium payments made          ing which no work is performed due to
by employers for work in excess of or         vacation, holiday, illness, failure of the
outside of specified daily or weekly          employer to provide sufficient work, or
standard work periods or on certain           other similar cause, as these terms are
special days are regarded as overtime         explained in §§ 778.216 to 778.224, it is
premiums. In such case, the extra com­        permissible (but not required) to count
pensation provided by the premium             these hours as hours worked in deter-
rates need not be included in the em­         mining the amount of overtime pre­
ployee’s regular rate of pay for the pur­     mium pay, due for hours in excess of 8
pose of computing overtime compensa­          per day or the applicable maximum
tion due under section 7(a) of the Act.       hours standard, which may be excluded
Moreover, under section 7(h) this extra       from the regular rate and credited to-
compensation may be credited toward           ward the statutory overtime compensa­
the overtime payments required by the         tion.
Act.                                            (b) Hours in excess of normal or regular
   (b) The three types of extra premium       working hours. Similarly, where the
payments which may thus be treated            employee’s normal or regular daily or
as overtime premiums for purposes of          weekly working hours are greater or
the Act are outlined in section 7(e) (5),     less than 8 hours and 40 hours respec­
(6), and (7) of the Act as set forth in       tively and his contract provides for the
§ 778.200(a). These are discussed in de-      payment of premium rates for work in
tail in the sections following.               excess of such normal or regular hours
   (c) Section 7(h) of the Act specifi­       of work for the day or week (such as 7
cally states that the extra compensa­         in a day or 35 in a week) the extra com­
tion provided by these three types of         pensation provided by such premium
payments may be credited toward over-         rates, paid for excessive hours, is a true
time compensation due under section           overtime premium to be excluded from
7(a) for work in excess of the applicable     the regular rate and it may be credited
maximum hours standard. No other              toward overtime compensation due
types of remuneration for employment          under the Act.
may be so credited.                             (c) Premiums for excessive daily hours.
                                              If an employee whose maximum hours
§ 778.202 Premium pay for hours in ex­        standard is 40 hours is hired at the rate
    cess of a daily or weekly standard.       of $5.75 an hour and receives, as over-
  (a) Hours in excess of 8 per day or stat­   time compensation under his contract,
utory weekly standard. Many employ­           $6.25 per hour for each hour actually
ment contracts provide for the pay­           worked in excess of 8 per day (or in ex­
ment of overtime compensation for             cess of his normal or regular daily
hours worked in excess of 8 per day or        working hours), his employer may ex­
40 per week. Under some contracts such        clude the premium portion of the over-
overtime compensation is fixed at one         time rate from the employee’s regular
and one-half times the base rate; under       rate and credit the total of the extra
others the overtime rate may be great­        50-cent payments thus made for daily
er or less than one and one-half times        overtime hours against the overtime
the base rate. If the payment of such         compensation which is due under the
contract overtime compensation is in          statute for hours in excess of 40 in that
fact contingent upon the employee’s           workweek. If the same contract further
having worked in excess of 8 hours in a       provided for the payment of $6.75 for
day or in excess of the number of hours       hours in excess of 12 per day, the extra
in the workweek specified in section          $1 payments could likewise be credited

                                          395

§ 778.203                                                 29 CFR Ch. V (7– 1– 02 Edition)

toward overtime compensation due                 overtime      premium    under    section
under the Act. To qualify as overtime            7(e)(5).
premiums under section 7(e)(5), the                (a) ‘‘Special days’’ rate must be at
daily overtime premium payments                  least time and one- half to qualify as
must be made for hours in excess of 8            overtime premium: The premium rate
hours per day or the employee’s normal           must be at least ‘‘one and one-half
or regular working hours. If the normal          times the rate established in good faith
workday is artificially divided into a           for like work performed in non-
‘‘straight time’’ period to which one            overtime hours on other days.’’ Where
rate is assigned, followed by a so-called        an employee is hired on the basis of a
‘‘overtime’’ period for which a higher           salary for a fixed workweek or at a sin­
‘‘rate’’ is specified, the arrangement           gle hourly rate of pay, the rate paid for
will be regarded as a device to con­             work on ‘‘special days’’ must be at
travene the statutory purposes and the           least time and one-half his regular
premiums will be considered part of              hourly rate in order to qualify under
the regular rate. For a fuller discussion        section 7(e)(6). If the employee is a
of this problem, see § 778.501.                  pieceworker or if he works at more
   (d) Hours in excess of other statutory        than one job for which different hourly
standard. Where payment at premium               or piece rates have been established
rates for hours worked in excess of a            and these are bona fide rates applicable
specified daily or weekly standard is            to the work when performed during
made pursuant to the requirements of             nonovertime hours, the extra com­
another applicable statute, the extra            pensation provided by a premium rate
compensation provided by such pre­               of at least one and one-half times ei­
mium rates will be regarded as a true            ther (1) the bona fide rate applicable to
overtime premium.                                the type of job the employee performs
   (e) Premium pay for sixth or seventh          on the ‘‘special days’’, or (2) the aver-
                                                 age hourly earnings in the week in
day worked. Under section 7(e)(6) and
                                                 question, will qualify as an overtime
7(h), extra premium compensation paid
                                                 premium under this section. (For a
pursuant to contract or statute for
                                                 fuller discussion of computation on the
work on the sixth or seventh day
                                                 average rate, see § 778.111; on the rate
worked in the workweek is regarded in
                                                 applicable to the job, see §§ 778.415
the same light as premiums paid for
                                                 through 778.421; on the ‘‘established’’
work in excess of the applicable max­
                                                 rate, see § 778.400.)
imum hours standard or the employee’s
                                                   (b) Bona fide base rate required. The
normal or regular workweek.
                                                 statute authorizes such premiums paid
[33 FR 986, Jan. 26, 1968, as amended at 46 FR   for work on ‘‘special days’’ to be treat­
7311, Jan. 23, 1981)                             ed as overtime premiums only if they
                                                 are actually based on a ‘‘rate estab­
§ 778.203 Premium pay for work on                lished in good faith for like work per-
    Saturdays, Sundays, and other                formed in nonovertime hours on other
    ‘‘special days’’.                            days.’’ This phrase is used for the pur­
  Under section 7(e)(6) and 7(h) of the          pose of distinguishing the bona fide
Act, extra compensation provided by a            employment standards contemplated
Premium rate of at least time and one-           by section 7(e)(6) from fictitious
half which is paid for work on Satur­            schemes and artificial or evasive de-
days, Sundays, holidays, or regular              vices as discussed in Subpart F of this
days of rest or on the sixth or seventh          part. Clearly, a rate which yields the
day of the workweek (hereinafter re­             employee less than time and one-half
ferred to as ‘‘special days’’) may be            the minimum rate prescribed by the
treated as an overtime premium for the           Act would not be a rate established in
purposes of the Act. If the premium              good faith.
rate is less than time and one-half, the           (c) Work on the specified ‘‘special
extra compensation provided by such              days’’: To qualify as an overtime pre­
rate must be included in determining             mium under section 7(e)(6), the extra
the employee’s regular rate of pay and           compensation must be paid for work on
cannot be credited toward statutory              the specified days. The term ‘‘holiday’’
overtime due, unless it qualifies as an          is read in its ordinary usage to refer to

                                             396

Wage and Hour Division, Labor                                                  § 778.204

those days customarily observed in the         puting his regular rate of pay, as ex­
community in celebration of some his­          plained in § 778.222.
torical or religious occasion. A day of
rest arbitrarily granted to employees          § 778.204 ‘‘Clock   pattern’’   premium
because of lack of work is not a ‘‘holi­           pay.
day’’ within the meaning of this sec­             (a) Overtime premiums under section
tion, nor is it a ‘‘regular day of rest.’’     7(e)(7). Where a collective bargaining
The term ‘‘regular day of rest’’ means         agreement or other applicable employ­
a day on which the employee in accord­         ment contract in good faith establishes
ance with his regular prearranged
                                               certain hours of the day as the basic,
schedule is not expected to report for
                                               normal, or regular workday (not ex­
work. In some instances the ‘‘regular
                                               ceeding 8 hours) or workweek (not ex­
day of rest’’ occurs on the same day or
days each week for a particular em­            ceeding the maximum hours standard
ployee; in other cases, pursuant to a          applicable under section 7(a)) and pro­
swing shift schedule, the schedule day         vides for the payment of a premium
of rest rotates in a definite pattern,         rate for work outside such hours, the
such as 6 days work followed by 2 days         extra compensation provided by such
of rest. In either case the extra com­         premium rate will be treated as an
pensation provided by a premium rate           overtime premium if the premium rate
for work on such scheduled days of rest        is not less than one and one-half times
(if such rate is at least one and one-         the rate established in good faith by
half times the bona fide rate estab­           the contract or agreement for like
lished for like work during non-               work performed during the basic, nor­
overtime hours on other days) may be           mal or regular workday or workweek.
treated as an overtime premium and                (b) Premiums for hours outside estab­
thus need not be included in computing         lished working hours. To qualify as an
the employee’s regular rate of pay and         overtime premium under section 7(e)(7)
may be credited toward overtime pay­           the premium must be paid because the
ments due under the Act.                       work was performed during hours
   (d) Payment of premiums for work            ‘‘outside of the hours established * * *
performed on the ‘‘special day’’: To           as the basic * * * workday or work-
qualify as an overtime premium under
                                               week’’ and not for some other reason.
section 7(e)(6), the premium must be
                                               Thus, if the basic workday is estab­
paid because work is performed on the
days specified and not for some other          lished in good faith as the hours from
reason which would not qualify the             8 a.m. to 5 p.m. a premium of time and
premium as an overtime premium                 one-half paid for hours between 5 p.m.
under section 7(e)(5), (6), or (7). (For ex­   and 8 a.m. would qualify as an over-
amples distinguishing pay for work on          time premium. However, where the
a holiday from idle holiday pay, see           contract does not provide for the pay­
§ 778.219.) Thus a premium rate paid to        ment of a premium except for work be-
an employee only when he received less         tween midnight and 6 a.m. the pre­
than 24 hours’ notice that he is re­           mium would not qualify under this sec­
quired to report for work on his regular       tion since it is not a premium paid for
day of rest is not a premium paid for          work outside the established workday
work on one of the specified days; it is       but only for certain special hours out-
a premium imposed as a penalty upon            side the established workday, in most
the employer for failure to give ade­          instances because they are undesirable
quate notice to compensate the em­             hours. Similarly, where payments of
ployee for the inconvenience of dis­           premium rates for work are made after
arranging his private life. The extra          5 p.m. only if the employee has not had
compensation is not an overtime pre­           a meal period or rest period, they are
mium. It is part of his regular rate of        not regarded as overtime premiums;
pay unless such extra compensation is          they are premiums paid because of un­
paid the employee on infrequent and
                                               desirable working conditions.
sporadic occasions so as to qualify for
                                                  (c) Payment in pursuance of agreement.
exclusion under section 7(e)(2) in which
event it need not be included in com­          Premiums of the type which section

                                           397

§ 778.205                                                29 CFR Ch. V (7– 1– 02 Edition)

7(e)(7) authorizes to be treated as over-    regular rate the extra $20 paid for work
time premiums must be paid ‘‘in pursu­       on Sunday and the extra $20 paid for
ance of an applicable employment con-        holiday work and credit himself with
tract or collective bargaining agree­        such amount against the statutory
ment,’’ and the rates of pay and the         overtime premium required to be paid
daily and weekly work periods referred       for the 16 hours worked over 40.
to must be established in good faith by      [46 FR 7311, Jan. 23, 1981]
such contract or agreement. Although
as a general rule a collective bar-          § 778.206 Premiums for work outside
gaining agreement is a formal agree­              basic workday or workweek—exam­
ment which has been reduced to writ­              ples.
ing, an employment contract for pur­            The effect of section 7(e)(7) where
poses of section 7(e)(7) may be either       ‘‘clock pattern’’ premiums are paid
written or oral. Where there is a writ-      may be illustrated by reference to pro-
ten employment contract and the prac­        visions typical of the applicable collec­
tices of the parties differ from its pro-    tive bargaining agreements tradition-
visions, it must be determined whether       ally in effect between employers and
the practices of the parties have modi­      employees in the longshore and steve­
fied the contract. If the practices of the   doring industries. These agreements
parties have modified the written pro-       specify straight time rates applicable
visions of the contract, the provisions      during the hours established in good
of the contract as modified by the prac­     faith under the agreement as the basic,
tices of the parties will be controlling     normal, or regular workday and work-
in determining whether the require­          week. Under one such agreement, for
ments of section 7(e)(7) are satisfied.      example, such workday and workweek
The determination as to the existence        are established as the first 6 hours of
of the requisite provisions in an appli­     work, exclusive of mealtime, each day,
cable oral employment contract will          Monday through Friday, between the
necessarily be based on all the facts,       hours of 8 a.m. and 5 p.m. Under an-
including those showing the terms of         other typical agreement, such workday
the oral contract and the actual em­         and workweek are established as the
ployment and pay practices there-            hours between 8 a.m. and 12 noon and
under.                                       between 1 p.m. and 5 p.m., Monday
                                             through Friday. Work outside such
§ 778.205 Premiums for weekend and           workday and workweek is paid for at
    holiday work—example.                    premium rates not less than one and
   The application of section 7(e)(6) may    one-half times the bona fide straight-
be illustrated by the following exam­        time rates applicable to like work
ple: Suppose an agreement of employ­         when performed during the basic, nor­
ment calls for the payment of $7.50 an       mal, or regular workday or workweek.
hour for all hours worked on a holiday       The extra compensation provided by
or on Sunday in the operation of ma-         such premium rates will be excluded in
chines by operators whose maximum            computing the regular rate at which
hours standard is 40 hours and who are       the employees so paid are employed
paid a bona fide hourly rate of $5 for       and may be credited toward overtime
like work performed during non-              compensation due under the Act. For
overtime hours on other days. Suppose        example, if an employee is paid $5 an
further that the workweek of such an         hour under such an agreement for han­
employee begins at 12:01 a.m. Sunday,        dling general cargo during the basic,
and in a particular week he works a          normal, or regular workday and $7.50
schedule of 8 hours on Sunday and on         per hour for like work outside of such
each day from Monday through Satur­          workday, the extra $2.50 will be ex­
day, making a total of 56 hours worked       cluded from the regular rate and may
in the workweek. Tuesday is a holiday.       be credited to overtime pay due under
The payment of $320 to which the em­         the Act. Similarly, if the straight time
ployee is entitled under the employ­         rate established in good faith by the
ment agreement will satisfy the re­          contract should be higher because of
quirements of the Act since the em­          handling dangerous or obnoxious cargo,
ployer may properly exclude from the         recognition of skill differentials, or

                                         398

Wage and Hour Division, Labor                                               § 778.209

similar reasons, so as to be $7.50 an        hours’ pay for a particular job whether
hour during the hours established as         it is performed in 8 hours or in less
the basic or normal or regular workday       time, the extra premium of 2 hours’
or workweek, and a premium rate of           pay received by an employee who com­
$11.25 an hour is paid for the same work     pletes the job in 6 hours must be in­
performed during other hours of the          cluded in his regular rate. Similarly,
day or week, the extra $3.75 may be ex­      where an employer pays for 8 hours at
cluded from the regular rate of pay and      premium rates for a job performed dur­
may be credited toward overtime pay          ing the overtime hours whether it is
due under the Act. Similar principles        completed in 8 hours or less, no part of
are applicable where agreements fol­         the premium paid qualifies as overtime
lowing this general pattern exist in         premium under sections 7(e) (5), (6), or
other industries.                            (7). (For a further discussion of this
[46 FR 7311, Jan. 23, 1981]
                                             and related problems, see §§ 778.308 to
                                             778.314.)
§ 778.207 Other types of contract pre­
     mium pay distinguished.                                 BONUSES
   (a) Overtime premiums are those defined   § 778.208 Inclusion and exclusion of
by the statute. The various types of con-         bonuses in computing the ‘‘regular
tract premium rates which provide                 rate.’’
extra compensation qualifying as over-          Section 7(e) of the Act requires the
time premiums to be excluded from the        inclusion in the regular rate of all re­
regular rate (under section 7(e) (5), (6),   muneration for employment except
and (7) and credited toward statutory        seven specified types of payments.
overtime pay requirements (under sec­        Among these excludable payments are
tion 7(h)) have been described in            discretionary bonuses, gifts and pay­
§§ 778.201 through 778.206. The plain        ments in the nature of gifts on special
wording of the statute makes it clear        occasions, contributions by the em­
that extra compensation provided by          ployer to certain welfare plans and
premium rates other than those de-           payments made by the employer pursu­
scribed cannot be treated as overtime        ant to certain profit-sharing, thrift and
premiums. Wherever such other pre­           savings plans. These are discussed in
miums are paid, they must be included        §§ 778.211 through 778.214. Bonuses
in the employee’s regular rate before        which do not qualify for exclusion from
statutory overtime compensation is           the regular rate as one of these types
computed; no part of such premiums           must be totaled in with other earnings
may be credited toward statutory over-       to determine the regular rate on which
time pay.                                    overtime pay must be based. Bonus
   (b) Nonovertime premiums. The Act re-     payments are payments made in addi­
quires the inclusion in the regular rate     tion to the regular earnings of an em­
of such extra premiums as nightshift         ployee. For a discussion on the bonus
differentials (whether they take the         form as an evasive bookkeeping device,
form of a percent of the base rate or an     see §§ 778.502 and 778.503.
addition of so many cents per hour)
and premiums paid for hazardous, ardu­       § 778.209 Method of inclusion of bonus
ous or dirty work. It also requires in­           in regular rate.
clusion of any extra compensation               (a) General rules. Where a bonus pay­
which is paid as an incentive for the        ment is considered a part of the regular
rapid performance of work, and since         rate at which an employee is employed,
any extra compensation in order to           it must be included in computing his
qualify as an overtime premium must          regular hourly rate of pay and over-
be provided by a premium rate per            time compensation. No difficulty arises
hour, except in the special case of          in computing overtime compensation if
pieceworkers as discussed in § 778.418,      the bonus covers only one weekly pay
lump sum premiums which are paid             period. The amount of the bonus is
without regard to the number of hours        merely added to the other earnings of
worked are not overtime premiums and         the employee (except statutory exclu­
must be included in the regular rate.        sions) and the total divided by total
For example, where an employer pays 8        hours worked. Under many bonus

                                         399

§ 778.210                                               29 CFR Ch. V (7– 1– 02 Edition)

plans, however, calculations of the         plying the total number of statutory
bonus may necessarily be deferred over      overtime hours worked in each such
a period of time longer than a work-        workweek during the period by one-
week. In such a case the employer may       half this hourly increase.
disregard the bonus in computing the
regular hourly rate until such time as      § 778.210 Percentage of total earnings
the amount of the bonus can be                  as bonus.
ascertained. Until that is done he may         In some instances the contract or
pay compensation for overtime at one        plan for the payment of a bonus may
and one-half times the hourly rate paid     also provide for the simultaneous pay­
by the employee, exclusive of the           ment of overtime compensation due on
bonus. When the amount of the bonus         the bonus. For example, a contract
can be ascertained, it must be appor­       made prior to the performance of serv­
tioned back over the workweeks of the       ices may provide for the payment of
period during which it may be said to       additional compensation in the way of
have been earned. The employee must         a bonus at the rate of 10 percent of the
then receive an additional amount of        employee’s straight-time earnings, and
compensation for each workweek that         10 percent of his overtime earnings. In
he worked overtime during the period        such instances, of course, payments ac­
equal to one-half of the hourly rate of     cording to the contract will satisfy in
pay allocable to the bonus for that         full the overtime provisions of the Act
week multiplied by the number of stat­      and no recomputation will be required.
utory overtime hours worked during          This is not true, however, where this
the week.                                   form of payment is used as a device to
   (b) Allocation of bonus where bonus      evade the overtime requirements of the
earnings cannot be identified with par­     Act rather than to provide actual over-
ticular workweeks. If it is impossible to   time compensation, as described in
allocate the bonus among the work-          §§ 778.502 and 778.503.
weeks of the period in proportion to
the amount of the bonus actually            § 778.211   Discretionary bonuses.
earned each week, some other reason-
able and equitable method of alloca­          (a) Statutory provision. Section 7(e)
tion must be adopted. For example, it       (3)(a) of the Act provides that the reg­
may be reasonable and equitable to as­      ular rate shall not be deemed to in­
sume that the employee earned an            clude ‘‘sums paid in recognition of
equal amount of bonus each week of          services performed during a given pe­
the period to which the bonus relates,      riod if * * * (a) both the fact that pay­
and if the facts support this assump­       ment is to be made and the amount of
tion additional compensation for each       the payment are determined at the sole
overtime week of the period may be          discretion of the employer at or near
computed and paid in an amount equal        the end of the period and not pursuant
to one-half of the average hourly in-       to any prior contract, agreement, or
crease in pay resulting from bonus al­      promise causing the employee to ex­
located to the week, multiplied by the      pect such payments regularly * * *’’.
number of statutory overtime hours          Such sums may not, however, be cred­
worked in that week. Or, if there are       ited toward overtime compensation due
facts which make it inappropriate to        under the Act.
assume equal bonus earnings for each          (b) Discretionary character of excluded
workweek, it may be reasonable and          bonus. In order for a bonus to qualify
equitable to assume that the employee       for exclusion as a discretionary bonus
earned an equal amount of bonus each        under section 7(e)(3)(a) the employer
hour of the pay period and the result-      must retain discretion both as to the
ant hourly increase may be determined       fact of payment and as to the amount
by dividing the total bonus by the          until a time quite close to the end of
number of hours worked by the em­           the period for which the bonus is paid.
ployee during the period for which it is    The sum, if any, to be paid as a bonus
paid. The additional compensation due       is determined by the employer without
for the overtime workweeks in the pe­       prior promise or agreement. The em­
riod may then be computed by multi-         ployee has no contract right, express or

                                        400

Wage and Hour Division, Labor                                                 § 778.213

implied, to any amount. If the em­            include ‘‘sums paid as gifts; payments
ployer promises in advance to pay a           in the nature of gifts made at Christ-
bonus, he has abandoned his discretion        mas time or on other special occasions,
with regard to it. Thus, if an employer       as a reward for service, the amounts of
announces to his employees in January         which are not measured by or depend­
that he intends to pay them a bonus in        ent on hours worked, production, or ef­
June, he has thereby abandoned his            ficiency * * *’’. Such sums may not,
discretion regarding the fact of pay­         however, be credited toward overtime
ment by promising a bonus to his em­          compensation due under the Act.
ployees. Such a bonus would not be ex­          (b) Gift or similar payment. To qualify
cluded from the regular rate under sec­       for exclusion under section 7(e)(1) the
tion 7(e)(3)(a). Similarly, an employer       bonus must be actually a gift or in the
who promises to sales employees that          nature of a gift. If it is measured by
they will receive a monthly bonus com­        hours worked, production, or effi­
puted on the basis of allocating 1 cent       ciency, the payment is geared to wages
for each item sold whenever, is his dis­      and hours during the bonus period and
cretion, the financial condition of the       is no longer to be considered as in the
firm warrants such payments, has              nature of a gift. If the payment is so
abandoned discretion with regard to           substantial that it can be assumed that
the amount of the bonus though not            employees consider it a part of the
with regard to the fact of payment.           wages for which they work, the bonus
Such a bonus would not be excluded            cannot be considered to be in the na­
from the regular rate. On the other           ture of a gift. Obviously, if the bonus is
hand, if a bonus such as the one just         paid pursuant to contract (so that the
described were paid without prior con-        employee has a legal right to the pay­
tract, promise or announcement and            ment and could bring suit to enforce
the decision as to the fact and amount        it), it is not in the nature of a gift.
of payment lay in the employer’s sole
                                                (c) Application of exclusion. If the
discretion, the bonus would be properly
                                              bonus paid at Christmas or on other
excluded from the regular rate.
                                              special occasion is a gift or in the na­
  (c) Promised bonuses not excluded. The
                                              ture of a gift, it may be excluded from
bonus, to be excluded under section
7(e)(3)(a), must not be paid ‘‘pursuant       the regular rate under section 7(e)(1)
to any prior contract, agreement, or          even though it is paid with regularity
promise.’’ For example, any bonus             so that the employees are led to expect
which is promised to employees upon           it and even though the amounts paid to
hiring or which is the result of collec­      different employees or groups of em­
tive bargaining would not be excluded         ployees vary with the amount of the
from the regular rate under this provi­       salary or regular hourly rate of such
sion of the Act. Bonuses which are an­        employees or according to their length
nounced to employees to induce them           of service with the firm so long as the
to work more steadily or more rapidly         amounts are not measured by or di­
or more efficiently or to remain with         rectly dependent upon hours worked,
the firm are regarded as part of the          production, or efficiency. A Christmas
regular rate of pay. Attendance bo­           bonus paid (not pursuant to contract)
nuses, individual or group production         in the amount of two weeks’ salary to
bonuses, bonuses for quality and accu­        all employees and an equal additional
racy of work, bonuses contingent upon         amount for each 5 years of service with
the employee’s continuing in employ­          the firm, for example, would be exclud­
ment until the time the payment is to         able from the regular rate under this
be made and the like are in this cat­         category.
egory. They must be included in the
regular rate of pay.                          § 778.213 Profit-sharing,   thrift,   and
                                                  savings plans.
§ 778.212 Gifts, Christmas and special          Section 7(e)(3)(b) of the Act provides
     occasion bonuses.                        that the term ‘‘regular rate’’ shall not
   (a) Statutory provision. Section 7(e)(1)   be deemed to include ‘‘sums paid in
of the Act provides that the term             recognition of services performed dur­
‘‘regular rate’’ shall not be deemed to       ing a given period if * * * the payments

                                          401

§ 778.214                                              29 CFR Ch. V (7– 1– 02 Edition)

are made pursuant to a bona fide prof-        may be excluded from the regular rate
it-sharing plan or trust or bona fide         if they meet the tests set forth in
thrift or savings plan, meeting the re­       § 778.215. Advance approval by the De­
quirements of the Secretary of Labor          partment of Labor is not required.
set forth in appropriate regulations             (c) Tests must be applied to employer
* * *’’. Such sums may not, however,          contributions. It should be emphasized
be credited toward overtime compensa­         that it is the employer’s contribution
tion due under the Act. The regula­           made pursuant to the benefit plan that
tions issued under this section are           is excluded from or included in the reg­
parts 547 and 549 of this chapter. Pay­       ular rate according to whether or not
ments in addition to the regular wages        the requirements set forth in § 778.215
of the employee, made by the employer         are met. If the contribution is not
pursuant to a plan which meets the re­        made as provided in section 7(e)(4) or if
quirements of the regulations in part         the plan does not qualify as a bona fide
547 or 549 of this chapter, will be prop­     benefit plan under that section, the
erly excluded from the regular rate.          contribution is treated the same as any
                                              bonus payment which is part of the
§ 778.214 Benefit plans; including prof-      regular rate of pay, and at the time the
    it-sharing plans or trusts providing      contribution is made the amount
    similar benefits.                         thereof must be apportioned back over
   (a) Statutory provision. Section 7(e)(4)   the workweeks of the period during
of the Act provides that the term             which it may be said to have accrued.
‘‘regular rate’’ shall not be deemed to       Overtime compensation based upon the
include: ‘‘contributions irrevocably          resultant increases in the regular hour­
made by an employer to a trustee or           ly rate is due for each overtime hour
third person pursuant to a bona fide          worked during any workweek of the pe­
plan for providing old age, retirement,       riod. The subsequent distribution of ac­
life, accident, or health insurance or        crued funds to an employee on account
similar benefits for employees * * *.’’       of severance of employment (or for any
Such sums may not, however, be cred­          other reason) would not result in any
ited toward overtime compensation due         increase in his regular rate in the week
under the Act.                                in which the distribution is made.
   (b) Scope and application of exclusion        (d) Employer contributions when in­
generally. Plans for providing benefits       cluded in fringe benefit wage determina­
of the kinds described in section 7(e)(4)     tions under Davis-Bacon Act. As noted in
are referred to herein as ‘‘benefit           § 778.6 where certain fringe benefits are
plans’’. It is section 7(e)(4) which gov­     included in the wage predetermina­
erns the status for regular rate pur­         tions of the Secretary of Labor for la-
poses of any contributions made by an         borers and mechanics performing con-
employer pursuant to a plan for pro­          tract work subject to the Davis-Bacon
viding the described benefits. This is        Act and related statutes, the provi­
true irrespective of any other features       sions of Public Law 88–349 discussed in
the plan may have. Thus, it makes no          § 5.32 of this title should be considered
difference whether or not the benefit         together with the interpretations in
plan is one financed out of profits or        this part 778 in determining the exclud­
one which by matching employee con­           ability of such fringe benefits from the
tributions or otherwise encourages            regular rate of such employees. Accord­
thrift or savings. Where such a plan or       ingly, reference should be made to § 5.32
trust is combined in a single program         of this title as well as to § 778.215 for
(whether in one or more documents)            guidance with respect to exclusion
with a plan or trust for providing prof-      from the employee’s regular rate of
it-sharing payments to employees, the         contributions made by the employer to
profit-sharing payments may be ex­            any benefit plan if, in the workweek or
cluded from the regular rate if they          workweeks involved, the employee per-
meet the requirements of the Profit-          formed work as a laborer or mechanic
Sharing Regulations, part 549 of this         subject to a wage determination made
chapter, and the contributions made by        by the Secretary pursuant to part 1 of
the employer for providing the benefits       this title, and if fringe benefits of the
described in section 7(e)(4) of the Act       kind represented by such contributions

                                          402

Wage and Hour Division, Labor                                                     § 778.215

constitute a part of the prevailing                 (ii) There must be both a definite for­
wages required to be paid such em­               mula for determining the amount to be
ployee in accordance with such wage              contributed by the employer and a defi­
determination.                                   nite formula for determining the bene­
   (e) Employer contributions or equiva­         fits for each of the employees partici­
lents pursuant to fringe benefit deter­          pating in the plan; or
minations under Service Contract Act of             (iii) There must be both a formula for
1965. Contributions by contractors and           determining the amount to be contrib­
subcontractors to provide fringe bene­           uted by the employer and a provision
fits specified under the McNamara-               for determining the individual benefits
O’Hara Service Contract Act of 1965,             by a method which is consistent with
which are of the kind referred to in sec­        the purposes of the plan or trust under
tion 7(e)(4), are excludable from the            section 7(e)(4) of the Act.
regular rate under the conditions set               (iv) NOTE: The requirements in para-
forth in § 778.215. Where the fringe ben­        graphs (a)(3) (ii) and (iii) of this section
efit contributions specified under such          for a formula for determining the
Act are so excludable, equivalent bene­          amount to be contributed by the em­
fits or payments provided by the em­             ployer may be met by a formula which
ployer in satisfaction of his obligation         requires a specific and substantial min­
to provide the specified benefits are            imum contribution and which provides
also excludable from the regular rate if         that the employer may add somewhat
authorized under part 4 of this title,           to that amount within specified limits;
subpart B, pursuant to the McNamara-             provided, however, that there is a rea­
O’Hara Act, and their exclusion there-           sonable relationship between the speci­
from is not dependent on whether such            fied minimum and maximum contribu­
equivalents, if separately considered,           tions. Thus, formulas providing for a
would meet the requirements of                   minimum contribution of 10 percent of
§ 778.215. See § 778.7.                          profits and giving the employer discre­
                                                 tion to add to that amount up to 20
[33 FR 986, Jan. 26, 1968, as amended at 36 FR   percent of profits, or for a minimum
4699, Mar. 11, 1971]
                                                 contribution of 5 percent of compensa­
                                                 tion and discretion to increase up to a
§ 778.215 Conditions for exclusion of
    benefit-plan contributions under             maximum of 15 percent of compensa­
    section 7(e)(4).                             tion, would meet the requirement.
                                                 However, a plan which provides for in-
  (a) General rules. In order for an em­         significant minimum contributions and
ployer’s contribution to qualify for ex­         permits a variation so great that, for
clusion from the regular rate under              all practical purposes, the formula be-
section 7(e)(4) of the Act the following         comes meaningless as a measure of
conditions must be met:                          contributions, would not meet the re­
  (1) The contributions must be made             quirements.
pursuant to a specific plan or program              (4) The employer’s contributions
adopted by the employer, or by con-              must be paid irrevocably to a trustee
tract as a result of collective bar-             or third person pursuant to an insur­
gaining, and communicated to the em­             ance agreement, trust or other funded
ployees. This may be either a company-           arrangement. The trustee must assume
financed plan or an employer-employee            the usual fiduciary responsibilities im­
contributory plan.                               posed upon trustees by applicable law.
  (2) The primary purpose of the plan            The trust or fund must be set up in
must be to provide systematically for            such a way that in no event will the
the payment of benefits to employees             employer be able to recapture any of
on account of death, disability, ad­             the contributions paid in nor in any
vanced age, retirement, illness, med­            way divert the funds to his own use or
ical expenses, hospitalization, and the          benefit. (It should also be noted that in
like.                                            the case of joint employer-employee
  (3) In a plan or trust, either:                contributory plans, where the em­
  (i) The benefits must be specified or          ployee contributions are not paid over
definitely determinable on an actuarial          to a third person or to a trustee unaf­
basis; or                                        filiated with the employer, violations

                                             403

§ 778.216                                               29 CFR Ch. V (7– 1– 02 Edition)

of the Act may result if the employee       benefits described in section 7(e)(4) of
contributions cut into the required         the Act.
minimum or overtime rates. See part           (b) Plans under section 401(a) of the In­
531 of this chapter.) Although an em­       ternal Revenue Code. Where the benfit
ployer’s contributions made to a trust­     plan or trust has been approved by the
ee or third person pursuant to a benefit    Bureau of Internal Revenue as satis­
plan must be irrevocably made, this         fying the requirements of section 401(a)
does not prevent return to the em­          of the Internal Revenue Code in the ab­
ployer of sums which he had paid in ex­     sence of evidence to the contrary, the
cess of the contributions actually          plan or trust will be considered to meet
called for by the plan, as where such       the conditions specified in paragraphs
excess payments result from error or        (a)(1), (4), and (5) of this section.
from the necessity of marking pay­
                                            [33 FR 986, Jan. 26, 1968, as amended at 46 FR
ments to cover the estimated cost of        7312, Jan. 23, 1981]
contributions at a time when the exact
amount of the necessary contributions          PAYMENTS NOT FOR HOURS WORKED
under the plan is not yet ascertained.
For example, a benefit plan may pro-        § 778.216 The provisions         of   section
vide for definite insurance benefits for        7(e)(2) of the Act.
employees in the event of the hap­            Section 7(e)(2) of the Act provides
pening of a specified contingency such      that the term ‘‘regular rate’’ shall not
as death, sickness, accident, etc., and     be deemed to include ‘‘payments made
may provide that the cost of such defi­     for occasional periods when no work is
nite benefits, either in full or any bal­   performed due to vacation, holiday, ill­
ance in excess of specified employee        ness, failure of the employer to provide
contributions, will be borne by the em­     sufficient work, or other similar cause;
ployer. In such a case the return by the    reasonable payments for traveling ex­
insurance company to the employer of        penses, or other expenses, incurred by
sums paid by him in excess of the           an employee in the furtherance of his
amount required to provide the bene­        employer’s interests and properly reim­
fits which, under the plan, are to be       bursable by the employer; and other
provided through contributions by the       similar payments to an employee
employer, will not be deemed a recap­       which are not made as compensation
ture or diversion by the employer of        for his hours of employment * * *.’’
contributions made pursuant to the          However, since such payments are not
plan.                                       made as compensation for the employ­
  (5) The plan must not give an em­         ee’s hours worked in any workweek, no
ployee the right to assign his benefits     part of such payments can be credited
under the plan nor the option to re­        toward overtime compensation due
ceive any part of the employer’s con­       under the Act.
tributions in cash instead of the bene­
fits under the plan: Provided, however,     § 778.217   Reimbursement for expenses.
That if a plan otherwise qualified as a       (a) General rule. Where an employee
bona fide benefit plan under section        incurs expenses on his employer’s be-
7(e)(4) of the Act, it will still be re­    half or where he is required to expend
garded as a bona fide plan even though      sums solely by reason of action taken
it provides, as an incidental part there-   for the convenience of his employer,
of, for the payment to an employee in       section 7(e)(2) is applicable to reim­
cash of all or a part of the amount         bursement for such expenses. Pay­
standing to his credit (i) at the time of   ments made by the employer to cover
the severance of the employment rela­       such expenses are not included in the
tion due to causes other than retire­       employee’s regular rate (if the amount
ment, disability, or death, or (ii) upon    of the reimbursement reasonably ap­
proper termination of the plan, or (iii)    proximates the expenses incurred).
during the course of his employment         Such payment is not compensation for
under circumstances specified in the        services rendered by the employees
plan and not inconsistent with the gen­     during any hours worked in the work-
eral purposes of the plan to provide the    week.

                                        404

Wage and Hour Division, Labor                                               § 778.218

  (b) Illustrations. Payment by way of      employee for expenses normally in­
reimbursement for the following types       curred by the employee for his own
of expenses will not be regarded as part    benefit, he is, of course, increasing the
of the employee’s regular rate:             employee’s regular rate thereby. An
  (1) The actual amount expended by         employee normally incurs expenses in
an employee in purchasing supplies,         traveling to and from work, buying
tools, materials, or equipment on be-       lunch, paying rent, and the like. If the
half of his employer.                       employer reimburses him for these nor­
  (2) The actual or reasonably approxi­     mal everyday expenses, the payment is
mate amount expended by an employee         not excluded from the regular rate as
in purchasing, laundering or repairing      ‘‘reimbursement for expenses.’’ Wheth­
uniforms or special clothing which his      er the employer ‘‘reimburses’’ the em­
employer requires him to wear.              ployee for such expenses or furnishes
  (3) The actual or reasonably approxi­     the facilities (such as free lunches or
mate amount expended by an em­              free housing), the amount paid to the
ployee, who is traveling ‘‘over the         employee (or the reasonable cost to the
road’’ on his employer’s business, for      employer or fair value where facilities
transportation (whether by private car      are furnished) enters into the regular
or common carrier) and living expenses      rate of pay as discussed in § 778.116. See
away from home, other travel ex­            also § 531.37(b) of this chapter.
penses, such as taxicab fares, incurred
while traveling on the employer’s busi­     § 778.218 Pay for certain idle hours.
ness.                                          (a) General rules. Payments which are
  (4) ‘‘Supper money’’, a reasonable        made for occasional periods when the
amount given to an employee, who or­        employee is not at work due to vaca­
dinarily works the day shift and can        tion, holiday, illness, failure of the em­
ordinarily return home for supper, to       ployer to provide sufficient work, or
cover the cost of supper when he is re-     other similar cause, where the pay­
quested by his employer to continue         ments are in amounts approximately
work during the evening hours.              equivalent to the employee’s normal
  (5) The actual or reasonably approxi­     earnings for a similar period of time,
mate amount expended by an employee         are not made as compensation for his
as temporary excess home-to-work            hours of employment. Therefore, such
travel expenses incurred (i) because the    payments may be excluded from the
employer has moved the plant to an-         regular rate of pay under section 7(e)(2)
other town before the employee has          of the Act and, for the same reason, no
had an opportunity to find living quar­     part of such payments may be credited
ters at the new location or (ii) because    toward overtime compensation due
the employee, on a particular occasion,     under the Act.
is required to report for work at a            (b) Limitations on exclusion. This pro-
place other than his regular workplace.     vision of section 7(e)(2) deals with the
The foregoing list is intended to be il­    type of absences which are infrequent
lustrative rather than exhaustive.          or sporadic or unpredictable. It has no
  (c) Payments excluding expenses. It       relation to regular ‘‘absences’’ such as
should be noted that only the actual or     lunch periods nor to regularly sched­
reasonably approximate amount of the        uled days of rest. Sundays may not be
expense is excludable from the regular      workdays in a particular plant, but
rate. If the amount paid as ‘‘reim­         this does not make them either ‘‘holi­
bursement’’      is    disproportionately   days’’ or ‘‘vacations,’’ or days on which
large, the excess amount will be in­        the employee is absent because of the
cluded in the regular rate.                 failure of the employer to provide suffi­
  (d) Payments for expenses personal to     cient work. The term holiday is read in
the employee. The expenses for which        its ordinary usage to refer to those
reimbursement is made must in order         days customarily observed in the com­
to merit exclusion from the regular         munity in celebration of some histor­
rate under this section, be expenses in­    ical or religious occasion; it does not
curred by the employee on the employ­       refer to days of rest given to employees
er’s behalf or for his benefit or conven­   in lieu of or as an addition to com­
ience. If the employer reimburses the       pensation for working on other days.

                                        405

§ 778.219                                             29 CFR Ch. V (7– 1– 02 Edition)

   (c) Failure to provide work. The term     pensation for hours of work if he is
‘‘failure of the employer to provide suf­    otherwise compensated at his cus­
ficient work’’ is intended to refer to oc­   tomary rate (or at a higher rate) for
casional, sporadically recurring situa­      his work on such days. Since it is not
tions where the employee would nor­          compensation for work it may not be
mally be working but for such a factor       credited toward overtime compensa­
as machinery breakdown, failure of ex­       tion due under the Act. Two examples
pected supplies to arrive, weather con­      in which the maximum hours standard
ditions affecting the ability of the em­     is 40 hours may serve to illustrate this
ployee to perform the work and simi­         principle:
larly unpredictable obstacles beyond           (1) An employee whose rate of pay is
the control of the employer. The term        $5 an hour and who usually works a 6-
does not include reduction in work           day 48-hour week is entitled, under his
schedule (as discussed in §§ 778.321         employment contract, to a week’s paid
through 778.329), ordinary temporary         vacation in the amount of his usual
layoff situations, or any type of rou­       straight-time earnings—$240. He fore-
tine, recurrent absence of the em­           goes his vacation and works 50 hours in
ployee.                                      the week in question. He is owed $250
   (d) Other similar cause. The term         as his total straight-time earnings for
‘‘other similar cause’’ refers to pay­       the week, and $240 in addition as his
ments made for periods of absence due        vacation pay. Under the statute he is
to factors like holidays, vacations,         owed an additional $25 as overtime pre­
sickness, and failure of the employer to     mium (additional half-time) for the 10
provide work. Examples of ‘‘similar          hours in excess of 40. His regular rate
causes’’ are absences due to jury serv­      of $5 per hour has not been increased
ice, reporting to a draft board, attend­     by virtue of the payment of $240 vaca­
ing a funeral of a family member, in-        tion pay, but no part of the $240 may be
ability to reach the workplace because       offset against the statutory overtime
of weather conditions. Only absences of      compensation which is due. (Nothing in
a nonroutine character which are infre­      this example is intended to imply that
quent or sporadic or unpredictable are       the employee has a statutory right to
included in the ‘‘other similar cause’’      $240 or any other sum as vacation pay.
category.                                    This is a matter of private contract be-
                                             tween the parties who may agree that
§ 778.219 Pay for foregoing holidays         vacation pay will be measured by
     and vacations.                          straight-time earnings for any agreed
   (a) Sums payable whether employee         number of hours or days, or by total
works or not. As explained in § 778.218,     normal or expected take-home pay for
certain payments made to an employee         the period or that no vacation pay at
for periods during which he performs         all will be paid. The example merely il­
no work because of a holiday or vaca­        lustrates the proper method of com­
tion are not required to be included in      puting overtime for an employee whose
the regular rate because they are not        employment contract provides $240 va­
regarded as compensation for working.        cation pay.)
Suppose an employee who is entitled to         (2) An employee who is entitled under
such a paid idle holiday or paid vaca­       his employment contract to 8 hours’
tion foregoes his holiday or vacation        pay at his rate of $5 an hour for the
and performs work for the employer on        Christmas holiday, foregoes his holiday
the holiday or during the vacation pe­       and works 9 hours on that day. During
riod. If, under the terms of his employ­     the entire week he works a total of 50
ment, he is entitled to a certain sum as     hours. He is paid under his contract,
holiday or vacation pay, whether he          $250 as straight-time compensation for
works or not, and receives pay at his        50 hours plus $40 as idle holiday pay. He
customary rate (or higher) in addition       is owed, under the statute, an addi­
for each hour that he works on the hol­      tional $25 as overtime premium (addi­
iday or vacation day, the certain sum        tional half-time) for the 10 hours in ex­
allocable to holiday or vacation pay is      cess of 40. His regular rate of $5 per
still to be excluded from the regular        hour has not been increased by virtue
rate. It is still not regarded as com-       of the holiday pay but no part of the

                                         406

Wage and Hour Division, Labor                                                   § 778.220

$40 holiday pay may be credited toward       tinguishing this situation from that in
statutory overtime compensation due.         the example in paragraph (a)(2) of this
   (b) Premiums for holiday work distin­     section, it should be noted that the
guished. The example in paragraph            contract provisions in the two situa­
(a)(2) of this section should be distin­     tions are different and result in the
guished from a situation in which an         payment of different amounts. In ex-
employee is entitled to idle holiday         ample (2) the employee received a total
pay under the employment agreement           of $85 attributable to the holiday: 8
only when he is actually idle on the         hours’ idle holiday pay at $5 an hour,
holiday, and who, if he foregoes his hol­    due him whether he worked or not, and
iday also, under his contract, foregoes      $45 pay at the nonholiday rate for 9
his idle holiday pay.                        hours’ work on the holiday. In the situ­
   (1) The typical situation is one in       ation discussed in this paragraph the
which an employee is entitled by con-        employee received $90 pay for working
tract to 8 hours’ pay at his rate of $5 an   on the holiday—double time for 9 hours
hour for certain named holidays when         of work. Thus, clearly, all of the pay in
no work is performed. If, however, he is     this situation is paid for and directly
required to work on such days, he does       related to the number of hours worked
not receive his idle holiday pay. In-        on the holiday.
stead he receives a premium rate of          [33 FR 986, Jan. 26, 1968, as amended at 46 FR
$7.50 (time and one-half) for each hour      7312, Jan. 23, 1981]
worked on the holiday. If he worked 9
hours on the holiday and a total of 50       § 778.220 ‘‘Show-up’’    or    ‘‘reporting’’
hours for the week, he would be owed,             pay.
under his contract, $67.50 (9×$7.50) for        (a) Applicable principles. Under some
the holiday work and $205 for the other      employment agreements, an employee
41 hours worked in the week, a total of      may be paid a minimum of a specified
$272.50. Under the statute (which does       number of hours’ pay at the applicable
not require premium pay for a holiday)       straight time or overtime rate on infre­
he is owed $275 for a workweek of 50         quent and sporadic occasions when,
hours at a rate of $5 an hour. Since the     after reporting to work at his sched­
holiday premium is one and one-half          uled starting time on a regular work
times the established rate for nonholi­      day or on another day on which he has
day work, it does not increase the reg­      been scheduled to work, he is not pro­
ular rate because it qualifies as an         vided with the expected amount of
overtime      premium     under   section    work. The amounts that may be paid
7(e)(6), and the employer may credit it      under such an agreement over and
toward statutory overtime compensa­          above what the employee would receive
tion due and need pay the employee           if paid at his customary rate only for
only the additional sum of $2.50 to          the number of hours worked are paid to
meet the statutory requirements. (For        compensate the employee for the time
a discussion of holiday premiums see         wasted by him in reporting for work
§ 778.203.)                                  and to prevent undue loss of pay result­
   (2) If all other conditions remained      ing from the employer’s failure to pro-
the same but the contract called for         vide expected work during regular
the payment of $10 (double time) for         hours. One of the primary purposes of
each hour worked on the holiday, the         such an arrangement is to discourage
employee would receive, under his con-       employers from calling their employ­
tract $90 (9×$10) for the holiday work in    ees in to work for only a fraction of a
addition to $205 for the other 41 hours      day when they might get full-time
worked, a total of $295. Since this holi­    work elsewhere. Pay arrangements of
day premium is also an overtime pre­         this kind are commonly referred to as
mium under section 7(e)(6), it is exclud­    ‘‘show-up’’ or ‘‘reporting’’ pay. Under
able from the regular rate and the em­       the principles and subject to the condi­
ployer may credit it toward statutory        tions set forth in subpart B of this part
overtime compensation due. Because           and §§ 778.201 through 778.207, that por­
the total thus paid exceeds the statu­       tion of such payment which represents
tory requirements, no additional com­        compensation at the applicable rates
pensation is due under the Act. In dis­      for the straight time or overtime hours

                                         407

§ 778.221                                            29 CFR Ch. V (7– 1– 02 Edition)

actually worked, if any, during such        ceives on infrequent and sporadic occa­
period may be credited as straight time     sions when, after his scheduled hours of
or overtime compensation, as the case       work have ended and without pre-
may be, in computing overtime com­          arrangement, he responds to a call
pensation due under the Act. The            from his employer to perform extra
amount by which the specified number        work.
of hours’ pay exceeds such compensa­          (b) Application illustrated. The appli­
tion for the hours actually worked is       cation of these principles to call-back
considered as a payment that is not         payments may be illustrated as fol­
made for hours worked. As such, it          lows: An employment agreement pro­
may be excluded from the computation        vides a minimum of 3 hours’ pay at
of the employee’s regular rate and can-     time and one-half for any employee
not be credited toward statutory over-
                                            called back to work outside his sched­
time compensation due him.
                                            uled hours. The employees covered by
   (b) Application illustrated. To illus­
                                            the agreement, who are entitled to
trate, assume that an employee enti­
tled to overtime pay after 40 hours a       overtime pay after 40 hours a week,
week whose workweek begins on Mon­          normally work 8 hours each day, Mon­
day and who is paid $5 an hour reports      day through Friday, inclusive, in a
for work on Monday according to             workweek beginning on Monday, and
schedule and is sent home after being       are paid overtime compensation at
given only 2 hours of work. He then         time and one-half for all hours worked
works 8 hours each day on Tuesday           in excess of 8 in any day or 40 in any
through Saturday, inclusive, making a       workweek. Assume that an employee
total of 42 hours for the week. The em­     covered by this agreement and paid at
ployment agreement covering the em­         the rate of $5 an hour works 1 hour
ployees in the plant, who normally          overtime or a total of 9 hours on Mon­
work 8 hours a day, Monday through          day, and works 8 hours each on Tues­
Friday, provides that an employee re-       day through Friday, inclusive. After he
porting for scheduled work on any day       has gone home on Friday evening he is
will receive a minimum of 4 hours’          called back to perform an emergency
work or pay. The employee thus re­          job. His hours worked on the call total
ceives not only the $10 earned in the 2     2 hours and he receives 3 hours’ pay at
hours of work on Monday but an extra        time and one-half, or $22.50, under the
2 hours’ ‘‘show-up’’ pay, or $10 by rea­    call-back provision, in addition to $200
son of this agreement. However, since       for working his regular schedule and
this $10 in ‘‘show-up’’ pay is not re­      $7.50 for overtime worked on Monday
garded as compensation for hours            evening. In computing overtime com­
worked, the employee’s regular rate re-     pensation due this employee under the
mains $5 and the overtime require­          Act, the 43 actual hours (not 44) are
ments of the Act are satisfied if he re­    counted as working time during the
ceives, in addition to the $210 straight-   week. In addition to $215 pay at the $5
time pay for 42 hours and the $10           rate for all these hours, he has received
‘‘show-up’’ payment, the sum of $5 as       under the agreement a premium of
extra compensation for the 2 hours of       $2.50 for the 1 overtime hour on Mon­
overtime work on Saturday.                  day and of $5 for the 2 hours of over-
[46 FR 7312, Jan. 23, 1981]                 time work on the call, plus an extra
                                            sum of $7.50 paid by reason of the pro-
§ 778.221 ‘‘Call-back’’ pay.                vision for minimum call-back pay. For
   (a) General. In the interest of sim­     purposes of the Act, the extra pre­
plicity and uniformity, the principles      miums paid for actual hours of over-
discussed in § 778.220 are applied also     time work on Monday and on the Fri­
with respect to typical minimum ‘‘call-     day call (a total of $7.50) may be ex­
back’’ or ‘‘call-out’’ payments made        cluded as true overtime premiums in
pursuant to employment agreements.          computing his regular rate for the
Typically, such minimum payments            week and may be credited toward com­
consist of a specified number of hours’     pensation due under the Act, but the
pay at the applicable straight time or      extra $7.50 received under the call-back
overtime rates which an employee re-        provision is not regarded as paid for

                                        408

Wage and Hour Division, Labor                                                    § 778.223

hours worked; therefore, it may be ex­           includes time given by the employee to
cluded from the regular rate, but it             the employer even though part of the
cannot be credited toward overtime               time may be spent in idleness. Some of
compensation due under the Act. The              the hours spent by employees, under
regular rate of the employee, therefore,         certain circumstances, in such activi­
remains $5, and he has received an               ties as waiting for work, remaining ‘‘on
overtime premium of $2.50 an hour for            call’’, traveling on the employer’s busi­
3 overtime hours of work. This satisfies         ness or to and from workplaces, and in
the requirements of section 7 of the             meal periods and rest periods are re­
Act. The same would be true, of course,          garded as working time and some are
if in the foregoing example, the em­             not. The governing principles are dis­
ployee was called back outside his               cussed in part 785 of this chapter (in­
scheduled hours for the 2-hour emer­             terpretative     bulletin    on    ‘‘hours
gency job on another night of the week           worked’’) and part 790 of this chapter
or on Saturday or Sunday, instead of             (statement of effect of Portal-to-Portal
on Friday night.                                 Act of 1947). To the extent that these
[33 FR 986, Jan. 26, 1968, as amended at 46 FR   hours are regarded as working time,
7313, Jan. 23, 1981]                             payment made as compensation for
                                                 these hours obviously cannot be char­
§ 778.222 Other payments similar to              acterized as ‘‘payments not for hours
    ‘‘call-back’’ pay.                           worked.’’ Such compensation is treated
   The principles discussed in §§ 778.220        in the same manner as compensation
and 778.221 are also applied with re­            for any other working time and is, of
spect to certain types of extra pay­             course, included in the regular rate of
ments which are similar to call-back             pay. Where payment is ostensibly made
pay, such as: (a) Extra payments made            as compensation for such of these
to employees, on infrequent and spo­             hours as are not regarded as working
radic occasions, for failure to give the         time under the Act, the payment is
employee sufficient notice to report for         nevertheless included in the regular
work on regular days of rest or during           rate of pay unless it qualifies for exclu­
hours outside of his regular work                sion from the regular rate as one of a
schedule; and (b) extra payments made,           type of ‘‘payments made for occasional
on infrequent and sporadic occasions,            periods when no work is performed due
solely because the employee has been             to * * * failure of the employer to pro-
called back to work before the expira­           vide sufficient work, or other similar
tion of a specified number of hours be-          cause’’ as discussed in § 778.218 or is ex­
tween shifts or tours of duty, some-             cludable on some other basis under sec­
times referred to as a ‘‘rest period.’’          tion 7(e)(2). For example, an employ­
The extra payment, over and above the            ment contract may provide that em­
employee’s earnings for the hours actu­          ployees who are assigned to take calls
ally worked at his applicable rate               for specific periods will receive a pay­
(straight time or overtime, as the case          ment of $5 for each 8–hour period dur­
may be), is considered as a payment              ing which they are ‘‘on call’’ in addi­
that is not made for hours worked.               tion to pay at their regular (or over-
                                                 time) rate for hours actually spent in
§ 778.223 Pay for non-productive hours           making calls. If the employees who are
    distinguished.                               thus on call are not confined to their
   Under the Act an employee must be             homes or to any particular place, but
compensated for all hours worked. As a           may come and go as they please, pro­
general rule the term ‘‘hours worked’’           vided that they leave word where they
will include: (a) All time during which          may be reached, the hours spent ‘‘on
an employee is required to be on duty            call’’ are not considered as hours
or to be on the employer’s premises or           worked. Although the payment re­
at a prescribed workplace and (b) all            ceived by such employees for such ‘‘on
time during which an employee is suf­            call’’ time is, therefore, not allocable
fered or permitted to work whether or            to any specific hours of work, it is
not he is required to do so. Thus, work­         clearly paid as compensation for per-
ing time is not limited to the hours             forming a duty involved in the employ­
spent in active productive labor, but            ee’s job and is not of a type excludable

                                             409

§ 778.224                                                29 CFR Ch. V (7– 1– 02 Edition)

under section 7(e)(2). The payment           delimited by regulations of the Sec­
must therefore be included in the em­        retary) paid to performers, including
ployee’s regular rate in the same man­       announcers, on radio and television
ner as any payment for services, such        programs.’’ Regulations defining ‘‘tal­
as an attendance bonus, which is not         ent fees’’ have been issued as part 550
related to any specific hours of work.       of this chapter. Payments which accord
[46 FR 7313, Jan. 23, 1981]                  with this definition are excluded from
                                             the regular rate.
§ 778.224 ‘‘Other similar payments’’.
   (a) General. The preceding sections          Subpart D— Special Problems
have enumerated and discussed the
basic types of payments for which ex­                       INTRODUCTORY
clusion from the regular rate is specifi­    § 778.300   Scope of subpart.
cally provided under section 7(e)(2) be-
cause they are not made as compensa­           This subpart applies the principles of
tion for hours of work. Section 7(e) (2)     computing overtime to some of the
also authorizes exclusion from the reg­      problems that arise frequently.
ular rate of ‘‘other similar payments to
an employee which are not made as               CHANGE IN THE BEGINNING OF THE
compensation for his hours of employ­                     WORKWEEK
ment.’’ Since a variety of miscella­         § 778.301 Overlapping when change of
neous payments are paid by an em­                workweek is made.
ployer to an employee under peculiar
circumstances, it was not considered            As stated in § 778.105, the beginning of
feasible to attempt to list them. They       the workweek may be changed for an
must, however, be ‘‘similar’’ in char­       employee or for a group of employees if
acter to the payments specifically de-       the change is intended to be permanent
scribed in section 7(e)(2). It is clear      and is not designed to evade the over-
that the clause was not intended to          time requirements of the Act. A change
permit the exclusion from the regular        in the workweek necessarily results in
rate of payments such as bonuses or          a situation in which one or more hours
the furnishing of facilities like board      or days fall in both the ‘‘old’’ work-
and lodging which, though not directly       week as previously constituted and the
attributable to any particular hours of      ‘‘new’’ workweek. Thus, if the work-
work are, nevertheless, clearly under-       week in the plant commenced at 7 a.m.
stood to be compensation for services.       on Monday and it is now proposed to
   (b) Examples of other excludable pay­     begin the workweek at 7 a.m. on Sun-
ments. A few examples may serve to il­       day, the hours worked from 7 a.m. Sun-
lustrate some of the types of payments       day to 7 a.m. Monday will constitute
intended to be excluded as ‘‘other simi­     both the last hours of the old work-
lar payments’’:                              week and the first hours of the newly
   (1) Sums paid to an employee for the      established workweek.
rental of his truck or car.                  § 778.302 Computation of overtime due
   (2) Loans or advances made by the             for overlapping workweeks.
employer to the employee.
   (3) The cost to the employer of con­         (a) General rule. When the beginning
veniences furnished to the employee          of the workweek is changed, if the
such as parking space, restrooms, lock­      hours which fall within both ‘‘old’’ and
ers, on-the-job medical care and rec­        ‘‘new’’ workweeks as explained in
reational facilities.                        § 778.301 are hours in which the em­
                                             ployee does no work, his statutory
     TALENT FEES IN THE RADIO AND            compensation for each workweek is, of
         TELEVISION INDUSTRY                 course, determinable in precisely the
                                             same manner as it would be if no over-
§ 778.225 Talent fees excludable under       lap existed. If, on the other hand, some
    regulations.                             of the employee’s working time falls
   Section 7(e)(3) provides for the exclu­   within hours which are included in
sion from the regular rate of ‘‘talent       both workweeks, the Department of
fees (as such talent fees are defined and    Labor, as an enforcement policy, will

                                         410

Wage and Hour Division, Labor                                                    § 778.304

assume that the overtime requirements               ADDITIONAL PAY FOR PAST PERIOD
of section 7 of the Act have been satis­
fied if computation is made as follows:          § 778.303   Retroactive pay increases.
   (1) Assume first that the overlapping           Where a retroactive pay increase is
hours are to be counted as hours                 awarded to employees as a result of
worked only in the ‘‘old’’ workweek              collective bargaining or otherwise, it
and not in the new; compute straight             operates to increase the regular rate of
time and overtime compensation due               pay of the employees for the period of
for each of the 2 workweeks on this              its retroactivity. Thus, if an employee
basis and total the two sums.                    is awarded a retroactive increase of 10
   (2) Assume now that the overlapping           cents per hour, he is owed, under the
hours are to be counted as hours                 Act, a retroactive increase of 15 cents
worked only in the new workweek and              for each overtime hour he has worked
not in the old, and complete the total           during the period, no matter what the
computation accordingly.                         agreement of the parties may be. A ret­
   (3) Pay the employee an amount not            roactive pay increase in the form of a
less than the greater of the amounts             lump sum for a particular period must
computed by methods (1) and (2).                 be prorated back over the hours of the
   (b) Application of rule illustrated. Sup-     period to which it is allocable to deter-
pose that, in the example given in               mine the resultant increases in the reg­
§ 778.301, the employee, who receives $5         ular rate, in precisely the same manner
an hour and is subject to overtime pay           as a lump sum bonus. For a discussion
after 40 hours a week, worked 5 hours            of the method of allocating bonuses
on Sunday, March 7, 1965. Suppose also           based on employment in a prior period
that his last ‘‘old’’ workweek com­              to the workweeks covered by the bonus
menced at 7 a.m. on Monday, March 1,             payment, see § 778.209.
and he worked 40 hours March 1                   HOW DEDUCTIONS AFFECT THE REGULAR
through March 5 so that for the work-                          RATE
week ending March 7 he would be owed
straight time and overtime compensa­             § 778.304 Amounts deducted from cash
tion for 45 hours. The proposal is to                wages—general.
commence the ‘‘new’’ workweek at 7
                                                   (a) The word ‘‘deduction’’ is often
a.m. on March 7. If in the ‘‘new’’ work-
                                                 loosely used to cover reductions in pay
week of Sunday, March 7, through Sat­
                                                 resulting from several causes:
urday, March 13, the employee worked
                                                   (1) Deductions to cover the cost to
a total of 40 hours, including the 5
                                                 the employer of furnishing ‘‘board,
hours worked on Sunday, it is obvious
                                                 lodging or other facilities,’’ within the
that the allocation of the Sunday
                                                 meaning of section 3(m) of the Act.
hours to the old workweek will result
                                                   (2) Deductions for other items such
in higher total compensation to the
                                                 as tools and uniforms which are not re­
employee for the 13-day period. He
                                                 garded as ‘‘facilities.’’
should, therefore, be paid $237.50
                                                   (3) Deductions authorized by the em­
(40×$5+5×$7.50) for the period of March 1
                                                 ployee (such as union dues) or required
through March 7, and $175 (35×$5) for
                                                 by law (such as taxes and garnish­
the period of March 8 through March
                                                 ments).
13.
                                                   (4) Reductions in a fixed salary paid
   (c) Nonstatutory obligations unaffected.      for a fixed workweek in weeks in which
The fact that this method of compensa­           the employee fails to work the full
tion is permissible under the Fair               schedule.
Labor Standards Act when the begin­                (5) Deductions for disciplinary rea­
ning of the workweek is changed will             sons.
not alter any obligation the employer              (b) In general, where such deductions
may have under his employment con-               are made, the employee’s ‘‘regular
tract to pay a greater amount of over-           rate’’ is the same as it would have been
time compensation for the period in              if the occasion for the deduction had
question.                                        not arisen. Also, as explained in part
[33 FR 986, Jan. 26, 1968, as amended at 46 FR   531 of this chapter, the requirements of
7314, Jan. 23, 1981]                             the Act place certain limitations on

                                             411

§ 778.305                                                    29 CFR Ch. V (7– 1– 02 Edition)

the making of some of the above deduc­           that the salary covers a fixed work-
tions.                                           week.
[33 FR 986, Jan. 26, 1968, as amended at 46 FR   [33 FR 986, Jan. 26, 1968, as amended at 46 FR
7314, Jan. 23, 1981]                             7314, Jan. 23, 1981]

§ 778.305 Computation  where    par­             § 778.307 Disciplinary deductions.
    ticular types of deductions are                 Where deductions as described in
    made.                                        § 778.304(a)(5) are made for disciplinary
  The regular rate of pay of an em­              reasons, the regular rate of an em­
ployee whose earnings are subject to             ployee is computed before deductions
deductions of the types described in             are made, as in the case of deductions
paragraphs (a)(1), (2), and (3) of § 778.304     of the types in paragraphs (a) (1), (2),
is determined by dividing his total              and (3) of § 778.304. Thus where discipli­
compensation (except statutory exclu­            nary deductions are made from a piece-
sions) before deductions by the total            worker’s earnings, the earnings at
hours worked in the workweek. (See               piece rates must be totaled and divided
also §§ 531.36—531.40 of this chapter.)          by the total hours worked to determine
                                                 the regular rate before the deduction is
§ 778.306 Salary reductions in short             applied. In no event may such deduc­
    workweeks.                                   tions (or deductions of the type de-
                                                 scribed in § 778.304(a)(2)) reduce the
   (a) The reductions in pay described in        earnings to an average below the appli­
§ 778.304(a)(4) are not, properly speak­         cable minimum wage or cut into any
ing, ‘‘deductions’’ at all. If an employee       part of the overtime compensation due
is compensated at a fixed salary for a           the employee. For a full discussion of
fixed workweek and if this salary is re­         the limits placed on such deductions,
duced by the amount of the average               see part 531 of this chapter. The prin­
hourly earnings for each hour lost by            ciples set forth therein with relation to
the employee in a short workweek, the            deductions have no application, how-
employee is, for all practical purposes,         ever, to situations involving refusal or
employed at an hourly rate of pay.               failure to pay the full amount of wages
This hourly rate is the quotient of the          due. See part 531 of this chapter; also
fixed salary divided by the fixed num­           § 778.306. It should be noted that al­
ber of hours it is intended to com­              though an employer may penalize an
pensate. If an employee is hired at a            employee for lateness subject to the
fixed salary of $200 for a 40-hour week,         limitations stated above by deducting
his hourly rate is $5. When he works             a half hour’s straight time pay from
only 36 hours he is therefore entitled to        his wages, for example, for each half
$180. The employer makes a ‘‘deduc­              hour, or fraction thereof of his late­
tion’’ of $20 from his salary to achieve         ness, the employer must still count as
this result. The regular hourly rate is          hours worked all the time actually
not altered.                                     worked by the employee in deter-
   (b) When an employee is paid a fixed          mining the amount of overtime com­
salary for a workweek of variable                pensation due for the workweek.
hours (or a guarantee of pay under the           [46 FR 7314, Jan. 23, 1981]
provisions of section 7(f) of the Act, as
discussed in §§ 778.402 through 778.414),           LUMP SUM ATTRIBUTED TO OVERTIME
the understanding is that the salary or
guarantee is due the employee in short           § 778.308 The overtime rate is an hour­
workweeks as well as in longer ones                   ly rate.
and ‘‘deductions’’ of this type are not             (a) Section 7(a) of the Act requires
made. Therefore, in cases where the un­          the payment of overtime compensation
derstanding of the parties is not clear­         for hours worked in excess of the appli­
ly shown as to whether a fixed salary is         cable maximum hours standard at a
intended to cover a fixed or a variable          rate not less than one and one-half
workweek the practice of making ‘‘de­            times the regular rate. The overtime
ductions’’ from the salary for hours not         rate, like the regular rate, is a rate per
worked in short weeks will be consid­            hour. Where employees are paid on
ered strong, if not conclusive, evidence         some basis other than an hourly rate,

                                             412

Wage and Hour Division, Labor                                                    § 778.311

the regular hourly rate is derived, as           premium even though the amount of
previously explained, by dividing the            money may be equal to or greater than
total compensation (except statutory             the sum owed on a per hour basis. For
exclusions) by the total hours of work           example, an agreement that provides
for which the payment is made. To                for the payment of a flat sum of $75 to
qualify as an overtime premium under             employees who work on Sunday does
section 7(e)(5), (6), or (7), the extra          not provide a premium which will qual­
compensation for overtime hours must             ify as an overtime premium, even
be paid pursuant to a premium rate               though the employee’s straight time
which is likewise a rate per hour (sub­          rate is $5 an hour and the employee al­
ject to certain statutory exceptions             ways works less than 10 hours on Sun-
discussed in §§ 778.400 through 778.421).        day. Likewise, where an agreement
  (b) To qualify under section 7(e)(5),          provides for the payment for work on
the overtime rate must be greater than           Sunday of either the flat sum of $75 or
the regular rate, either a fixed amount          time and one-half the employee’s reg­
per hour or a multiple of the non-               ular rate for all hours worked on Sun-
overtime rate, such as one and one-              day, whichever is greater, the $75 guar­
third, one and one-half or two times             anteed payment is not an overtime pre­
that rate. To qualify under section 7(e)         mium. The reason for this is clear. If
(6) or (7), the overtime rate may not be         the rule were otherwise, an employer
less than one and one-half times the             desiring to pay an employee a fixed sal­
bonafide rate established in good faith          ary regardless of the number of hours
for like work performed during non-              worked in excess of the applicable max­
overtime hours. Thus, it may not be              imum hours standard could merely
less than time and one-half but it may           label as overtime pay a fixed portion of
be more. It may be a standard multiple           such salary sufficient to take care of
greater than one and one-half (for ex-           compensation for the maximum num­
ample, double time); or it may be a              ber of hours that would be worked. The
fixed sum of money per hour which is,            Congressional purpose to effectuate a
as an arithmetical fact, at least one            maximum hours standard by placing a
and one-half times the nonovertime               penalty upon the performance of exces­
rate for example, if the nonovertime             sive overtime work would thus be de­
rate is $5 per hour, the overtime rate           feated. For this reason, where extra
may not be less than $7.50 but may be            compensation is paid in the form of a
set at a higher arbitrary figure such as         lump sum for work performed in over-
$8 per hour.                                     time hours, it must be included in the
                                                 regular rate and may not be credited
[33 FR 986, Jan. 26, 1968, as amended at 46 FR
                                                 against statutory overtime compensa­
7314, Jan. 23, 1981]
                                                 tion due.
§ 778.309 Fixed    sum    for  constant          [46 FR 7314, Jan. 23, 1981]
     amount of overtime.
   Where an employee works a regular             § 778.311 Flat rate for special job per-
fixed number of hours in excess of the                formed in overtime hours.
statutory maximum each workweek, it                 (a) Flat rate is not an overtime pre­
is, of course, proper to pay him, in ad­         mium. The same reasoning applies
dition to his compensation for non-              where employees are paid a flat rate
overtime hours, a fixed sum in any               for a special job performed during over-
such week for his overtime work, de­             time hours, without regard to the time
termined by multiplying his overtime             actually consumed in performance.
rate by the number of overtime hours             (This situation should be distinguished
regularly worked.                                from ‘‘show-up’’ and ‘‘call-back’’ pay
                                                 situations     discussed  in    §§ 778.220
§ 778.310 Fixed   sum    for   varying           through 778.222 and from payment at a
    amounts of overtime.                         rate not less than one and one-half
   A premium in the form of a lump               times the applicable rate to piece-
sum which is paid for work performed             workers for work performed during
during overtime hours without regard             overtime hours, as discussed in
to the number of overtime hours                  §§ 778.415 through 778.421). The total
worked does not qualify as an overtime           amount paid must be included in the

                                             413

§ 778.312                                                                                 29 CFR Ch. V (7– 1– 02 Edition)

regular rate; no part of the amount                                            payment for the special work per-
may be credited toward statutory over-                                         formed on Tuesday qualifies for exclu­
time compensation due.                                                         sion. The remaining $275 must thus be
  (b) Application of rule illustrated. It                                      divided by 48 hours to determine the
may be helpful to give a specific exam­                                        regular rate—$5.73 per hour. The em­
ple illustrating the result of paying an                                       ployee is owed an additional one-half
employee on the basis under discus­                                            this rate under the Act for each of 8
sion.                                                                          overtime hours worked—$22.92. The
  (1) An employment agreement calls                                            extra compensation in the amount of
for the payment of $5 per hour for work                                        $17.50 payable pursuant to contract
during the hours established in good                                           premium rates which qualify as over-
faith as the basic workday or work-                                            time premiums may be credited toward
week; it provides for the payment of                                           the $22.92 owed as statutory overtime
$7.50 per hour for work during hours                                           premiums. No part of the $45 payment
outside the basic workday or work-                                             may be so credited. The employer must
week. It further provides that employ­                                         pay the employee an additional $5.42 as
ees doing a special task outside the                                           statutory overtime pay—a total of
basic workday or workweek shall re­                                            $297.92 for the week.
ceive 6 hours’ pay at the rate of $7.50                                        [33 FR 986, Jan. 26, 1968, as amended at 46 FR
per hour (a total payment of $45) re­                                          7315, Jan. 23, 1981]
gardless of the time actually consumed
in performance. The applicable max­                                                   ‘‘TASK’’ BASIS OF PAYMENT
imum hours standard is 40 hours in a
workweek.                                                                      § 778.312 Pay for task without regard
  (2) Suppose an employee under such                                                to actual hours.
an agreement works the following                                                  (a) Under some employment agree­
schedule:                                                                      ments employees are paid according to
                                                                               a job or task rate without regard to the
                           M      T    W       T       F       S       S
                                                                               number of hours consumed in com­
Hours within                                                                   pleting the task. Such agreements take
  basic workday             8     8        7       8       8       0       0   various forms but the two most usual
Pay under con-
  tract ................   $40   $40    $35    $40     $40         0       0   forms are the following:
Hours outside                                                                     (1) It is determined (sometimes on
  basic workday             2     21       1       0       0       4   0       the basis of a time study) that an em­
Pay under con-
  tract ................   $15   $45   $7.50       0       0   $30         0   ployee (or group) should complete a
  1 Hours
                                                                               particular task in 8 hours. Upon the
              spent in the performance of special work.
                                                                               completion of the task the employee is
  (3) To determine the regular rate, the                                       credited with 8 ‘‘hours’’ of work though
total compensation (except statutory                                           in fact he may have worked more or
exclusions) must be divided by the                                             less than 8 hours to complete the task.
total number of hours worked. The                                              At the end of the week an employee en-
only sums to be excluded in this situa­                                        titled to statutory overtime compensa­
tion are the extra premiums provided                                           tion for work in excess of 40 hours is
by a premium rate (a rate per hour) for                                        paid at an established hourly rate for
work outside the basic workday and                                             the first 40 of the ‘‘hours’’ so credited
workweek, which qualify for exclusion                                          and at one and one-half times such rate
under section 7(e)(7) of the Act, as dis­                                      for the ‘‘hours’’ so credited in excess of
cussed in § 778.204. The $15 paid on Mon­                                      40. The number of ‘‘hours’’ credited to
day, the $7.50 paid on Wednesday and                                           the employee bears no necessary rela­
the $30 paid on Saturday are paid pur­                                         tionship to the number of hours actu­
suant to rates which qualify as pre­                                           ally worked. It may be greater or less.
mium rates under section 7(e)(7) of the                                        "Overtime" may be payable in some
Act. The total extra compensation                                              cases after 20 hours of work; in others
(over the straight time pay for these                                          only after 50 hours or any other num­
hours) provided by these premium                                               ber of hours.
rates is $17.50. The sum of $17.50 should                                         (2) A similar task is set up and 8
be subtracted from the total of $292.50                                        hours’ pay at the established rate is
due the employee under the employ­                                             credited for the completion of the task
ment agreement. No part of the $45                                             in 8 hours or less. If the employee fails

                                                                           414

Wage and Hour Division, Labor                                                         § 778.313
to complete the task in 8 hours he is        section 7(e) (5), (6), or (7) of the Act.
paid at the established rate for each of     They must therefore be included in the
the first 8 hours he actually worked.        regular rate and no part of them may
For work in excess of 8 hours or after       be credited against statutory overtime
the task is completed (whichever oc-         compensation due. Under plans of the
curs first) he is paid one and one-half      second type, however, where the pay of
times the established rate for each          an employee on a given day is actually
such hour worked. He is owed overtime        controlled by the established hourly
compensation under the Act for hours         rate (because he fails to complete the
worked in the workweek in excess of 40       task in the 8-hour period) and he is
but is paid his weekly overtime com-         paid at one and one-half times the es-
pensation at the premium rate for the        tablished rate for hours in excess of 8
hours in excess of 40 actual or ''task''     hours actually worked, the premium
hours (or combination thereof) for           rate paid on that day will qualify as an
which he received pay at the estab-          overtime premium under section
lished rate. ''Overtime'' pay under this     7(e)(5).
plan may be due after 20 hours of work,
25 or any other number up to 40.             §778.313 Computing overtime pay
   (b) These employees are in actual              under the Act for employees com-
fact compensated on a daily rate of pay           pensated on task basis.
basis. In plans of the first type, the es-      (a) An example of the operation of a
tablished hourly rate never controls         plan of the second type discussed in
the compensation which any employee          §778.312 may serve to illustrate the ef-
actually receives. Therefore, the estab-     fects on statutory overtime computa-
lished rate cannot be his regular rate.      tions of payment on a task basis. As-
In plans of the second type the rate is      sume the following facts: The employ-
operative only for the slower employ-        ment agreement establishes a basic
ees who exceed the time allotted to          hourly rate of $5 per hour, provides for
complete the task; for them it operates      the payment of $7.50 per hour for over-
in a manner similar to a minimum             time work (in excess of the basic work-
hourly guarantee for piece workers, as       day or workweek) and defines the basic
discussed in § 778.111. On such days as it   workday as 8 hours, and the basic
is operative it is a genuine rate; at        workweek as 40 hours, Monday through
other times it is not.                       Friday. It further provides that the as-
   (c) Since the premium rates (at one       sembling of a machine constitutes a
and one-half times the established           day's work. An employee who com-
hourly rate) are payable under both          pletes the assembling job in less than 8
plans for hours worked within the basic      hours will be paid 8 hours' pay at the
or normal workday (if one is estab-          established rate of $5 per hour and will
lished) and without regard to whether        receive pay at the ''overtime'' rate for
the hours are or are not in excess of 8      hours worked after the completion of
per day or 40 per week, they cannot          the task. An employee works the fol-
qualify as overtime premiums under           lowing hours in a particular week:
                                                 M       T     W      T       F        s     s
Hours spent on task                                  6     7     7       9    8 1/2      6       0
Day's pay under contract                         $40     $40   $40     $40     $40     $60       0
Additional hours                                   2       0     2       0      1/2      0       0
Additional pay under contract                    $15       0   $15   $7.50   $7.50       0       0




  (b) In the example in paragraph (a) of     for the extra hour on Thursday and
this section the employee has actually       Friday made because of work actually
worked a total of 48 hours and is owed       in excess of 8 hours. The payment of
under the contract a total of $305 for       the other premium rates under the con-
the week. The only sums which can be         tract is either without regard to
excluded as overtime premiums from           whether or not the hours they com-
this total before the regular rate is de-    pensated were in excess of a bona fide
termined are the extra $2.50 payments
                                         415
§ 778.314                                             29 CFR Ch. V (7– 1– 02 Edition)

daily or weekly standard or without re­      § 778.316 Agreements or practices in
gard to the number of overtime hours             conflict with statutory require­
worked. Thus only the sum of $5 is ex­           ments are ineffective.
cluded from the total. The remaining           While it is permissible for an em­
$300 is divided by 48 hours to determine     ployer and an employee to agree upon
the regular rate—$6.25 per hour. One-        different base rates of pay for different
half this rate is due under the Act as       types of work, it is settled under the
extra compensation for each of the 8
                                             Act that where a rate has been agreed
overtime hours—$25. The $5 payment
                                             upon as applicable to a particular type
under the contract for actual excess
                                             of work the parties cannot lawfully
hours may be credited and the bal-
                                             agree that the rate for that work shall
ance—$20—is owed in addition to the
                                             be lower merely because the work is
$305 due under the contract.
                                             performed during the statutory over-
[46 FR 7315, Jan. 23, 1981]                  time hours, or during a week in which
                                             statutory overtime is worked. Since a
§ 778.314 Special situations.                lower rate cannot lawfully be set for
   There may be special situations in        overtime hours it is obvious that the
which the facts demonstrate that the         parties cannot lawfully agree that the
hours for which contract overtime            working time will not be paid for at
compensation is paid to employees            all. An agreement that only the first 8
working on a ‘‘task’’ or ‘‘stint’’ basis     hours of work on any days or only the
actually qualify as overtime hours           hours worked between certain fixed
under section 7(e)(5), (6), or (7). Where    hours of the day or only the first 40
this is true, payment of one and one-        hours of any week will be counted as
half times an agreed hourly rate for         working time will clearly fail of its
‘‘task’’ or ‘‘stint’’ work may be equiva­    evasive purpose. An announcement by
lent to payment pursuant to agreement        the employer that no overtime work
of one and one-half time a piece rate.       will be permitted, or that overtime
The alternative methods of overtime          work will not be compensated unless
pay computation permitted by section         authorized in advance, will not impair
7(g)(1) or (2), as explained in §§ 778.415   the employee’s right to compensation
through 778.421 may be applicable in         for work which he is actually suffered
such a case.                                 or permitted to perform.
 EFFECT OF FAILURE TO COUNT OR PAY           § 778.317 Agreements not to pay for
    FOR CERTAIN WORKING HOURS                    certain nonovertime hours.
§ 778.315 Payment      for all    hours         An agreement not to compensate em­
     worked in overtime workweek is re­      ployees for certain nonovertime hours
     quired.                                 stands on no better footing since it
   In determining the number of hours        would have the same effect of dimin­
for which overtime compensation is           ishing the employee’s total overtime
due, all hours worked (see § 778.223) by     compensation. An agreement, for ex-
an employee for an employer in a par­        ample, to pay an employee whose max­
ticular workweek must be counted.            imum hours standard for the particular
Overtime compensation, at a rate not         workweek is 40 hours, $5 an hour for
less than one and one-half times the         the first 35 hours, nothing for the hours
regular rate of pay, must be paid for        between 35 and 40 and $7.50 an hour for
each hour worked in the workweek in          the hours in excess of 40 would not
excess of the applicable maximum             meet the overtime requirements of the
hours standard. This extra compensa­         Act. Under the principles set forth in
tion for the excess hours of overtime        § 778.315, the employee would have to be
work under the Act cannot be said to         paid $25 for the 5 hours worked between
have been paid to an employee unless         35 and 40 before any sums ostensibly
all the straight time compensation due       paid for overtime could be credited to-
him for the nonovertime hours under          ward overtime compensation due under
his contract (express or implied) or         the Act. Unless the employee is first
under any applicable statute has been        paid $5 for each nonovertime hour
paid.                                        worked, the $7.50 per hour payment

                                         416

Wage and Hour Division, Labor                                             § 778.320

purportedly for overtime hours is not       for or will be neither paid for nor
in fact an overtime payment.                counted, it is permissible for the par-
[46 FR 7315, Jan. 23, 1981]
                                            ties to agree that the pay the employ­
                                            ees will earn at piece rates is intended
§ 778.318 Productive and nonproduc­         to compensate them for all hours
     tive hours of work.                    worked, the productive as well as the
   (a) Failure to pay for nonproductive     nonproductive hours. If this is the
time worked. Some agreements provide        agreement of the parties, the regular
for payment only for the hours spent in     rate of the pieceworker will be the rate
productive work; the work hours spent       determined by dividing the total piece-
in waiting time, time spent in travel       work earnings by the total hours
on the employer’s behalf or similar         worked (both productive and non-
nonproductive time are not made com­        productive) in the workweek. Extra
pensable and in some cases are neither      compensation (one-half the rate as so
counted nor compensated. Payment            determined) would, of course, be due
pursuant to such an agreement will not      for each hour worked in excess of the
comply with the Act; such nonproduc­        applicable maximum hours standard.
tive working hours must be counted
and paid for.                                   EFFECT OF PAYING FOR BUT NOT
   (b) Compensation payable for non-              COUNTING CERTAIN HOURS
productive hours worked. The parties
                                            § 778.319 Paying for but not counting
may agree to compensate nonproduc­              hours worked.
tive hours worked at a rate (at least
the minimum) which is lower than the          In some contracts provision is made
rate applicable to productive work. In      for payment for certain hours, which
such a case, the regular rate is the        constitute working time under the Act,
weighted average of the two rates, as       coupled with a provision that these
discussed in § 778.115 and the employee     hours will not be counted as working
whose maximum hours standard is 40          time. Such a provision is a nullity. If
hours is owed compensation at his reg­      the hours in question are hours
ular rate for all of the first 40 hours     worked, they must be counted as such
and at a rate not less than one and one-    in determining whether more than the
half times this rate for all hours in ex­   applicable maximum hours have been
cess of 40. (See § 778.415 for the alter-   worked in the workweek. If more hours
native method of computing overtime         have been worked, the employee must
pay on the applicable rate.) In the ab­     be paid overtime compensation at not
sence of any agreement setting a dif­       less than one and one-half times his
ferent rate for nonproductive hours,        regular rate for all overtime hours. A
the employee would be owed compensa­        provision that certain hours will be
tion at the regular hourly rate set for     compensated only at straight time
productive work for all hours up to 40      rates is likewise invalid. If the hours
and at a rate at least one and one-half     are actually hours worked in excess of
times that rate for hours in excess of      the applicable maximum hours stand­
40.                                         ard, extra half-time compensation will
   (c) Compensation attributable to both    be due regardless of any agreement to
productive and nonproductive hours. The     the contrary.
situation described in paragraph (a) of
this section is to be distinguished from    § 778.320 Hours that would not       be
one in which such nonproductive hours           hours worked if not paid for.
are properly counted as working time          In some cases an agreement provides
but no special hourly rate is assigned      for compensation for hours spent in
to such hours because it is understood      certain types of activities which would
by the parties that the other com­          not be regarded as working time under
pensation received by the employee is       the Act if no compensation were pro­
intended to cover pay for such hours.       vided. Preliminary and postliminary
For example, while it is not proper for     activities and time spent in eating
an employer to agree with his piece-        meals between working hours fall in
workers that the hours spent in down-       this category. The agreement of the
time (waiting for work) will not be paid    parties to provide compensation for

                                        417

§ 778.321                                                 29 CFR Ch. V (7– 1– 02 Edition)

such hours may or may not convert             cannot, of course, qualify as overtime
them into hours worked, depending on          premiums creditable toward overtime
whether or not it appears from all the        compensation under section 7(h) of the
pertinent facts that the parties have         Act.
agreed to treat such time as hours            [46 FR 7315, Jan. 23, 1981]
worked. Except for certain activity
governed by the Portal-to-Portal Act             REDUCTION IN WORKWEEK SCHEDULE
(see paragraph (b) of this section), the             WITH NO CHANGE IN PAY
agreement of the parties will be re­
spected, if reasonable.                       § 778.321 Decrease in hours without
  (a) Parties have agreed to treat time as         decreasing pay—general.
hours worked. Where the parties have             Since the regular rate of pay is the
reasonably agreed to include as hours         average hourly rate at which an em­
worked time devoted to activities of          ployee is actually employed, and since
the type described above, payments for        this rate is determined by dividing his
such hours will not have the mathe­           total remuneration for employment
matical effect of increasing or decreas­      (except statutory exclusions) for a
ing the regular rate of an employee if        given workweek by the total hours
the hours are compensated at the same         worked in that workweek for which
rate as other working hours. The re­          such remuneration was paid, it nec­
quirements of section 7(a) of the Act         essarily follows that if the schedule of
will be considered to be met where            hours is reduced while the pay remains
overtime compensation at one and one-         the same, the regular rate has been in-
half times such rate is paid for the          creased.
hours so compensated in the workweek
which are in excess of the statutory          § 778.322 Reducing the fixed work-
maximum.                                           week for which a salary is paid.
  (b) Parties have agreed not to treat time      If an employee whose maximum
as hours worked. Under the principles         hours standard is 40 hours was hired at
set forth in § 778.319, where the pay­        a salary of $200 for a fixed workweek of
ments are made for time spent in an           40 hours, his regular rate at the time of
activity which, if compensable under          hiring was $5 per hour. If his workweek
contract, custom, or practice, is re­         is later reduced to a fixed workweek of
quired to be counted as hours worked          35 hours while his salary remains the
under the Act by virtue of Section 4 of       same, it is the fact that it now takes
the Portal-to-Portal Act of 1947 (see         him only 35 hours to earn $200, so that
parts 785 and 790 of this chapter), no        he earns his salary at the average rate
agreement by the parties to exclude           of $5.71 per hour. His regular rate thus
such compensable time from hours              becomes $5.71 per hour; it is no longer
worked would be valid. On the other           $5 an hour. Overtime pay is due under
hand, in the case of time spent in ac­        the Act only for hours worked in excess
tivity which would not be hours               of 40, not 35, but if the understanding of
worked under the Act if not com­              the parties is that the salary of $200
pensated and would not become hours           now covers 35 hours of work and no
worked under the Portal-to-Portal Act         more, the employee would be owed $5.71
even if made compensable by contract,         per hour under his employment con-
custom, or practice, the parties may          tract for each hour worked between 35
reasonably agree that the time will not       and 40. He would be owed not less than
be counted as hours worked. Activities        one and one-half times $5.71 ($8.57) per
of this type include eating meals be-         hour, under the statute, for each hour
tween working hours. Where it appears         worked in excess of 40 in the work-
from all the pertinent facts that the         week. In weeks in which no overtime is
parties have agreed to exclude such ac­       worked only the provisions of section 6
tivities from hours worked, payments          of the Act, requiring the payment of
for such time will be regarded as quali­      not less than the applicable minimum
fying for exclusion from the regular          wage for each hour worked, apply so
rate under the provisions of section          that the employee’s right to receive
7(e)(2), as explained in §§ 778.216 to        $5.71 per hour is enforceable only under
778.224. The payments for such hours          his contract. However, in overtime

                                          418

Wage and Hour Division, Labor                                                     § 778.325

weeks the Administrator has the duty         of deductions on the regular rate, see
to insure the payment of at least one        §§ 778.304 to 778.307.)
and one-half times the employee’s reg­       [46 FR 7316, Jan. 23, 1981; 46 FR 33516, June 30,
ular rate of pay for hours worked in ex­     1981]
cess of 40 and this overtime compensa­
tion cannot be said to have been paid        § 778.324 Effect on hourly rate employ­
until all straight time compensation             ees.
due the employee under the statute or           A similar situation is presented
his employment contract has been             where employees have been hired at an
paid. Thus if the employee works 41          hourly rate of pay and have custom­
hours in a particular week, he is owed       arily worked a fixed workweek. If the
his salary for 35 hours—$200, 5 hours’       workweek is reduced from 40 to 35
pay at $5.71 per hour for the 5 hours be-    hours without reduction in total pay,
tween 35 and 40—$28.55, and 1 hour’s         the average hourly rate is thereby in-
                                             creased as in § 778.322. If the reduction
pay at $8.57 for the 1 hour in excess of
                                             in work schedule is accompanied by a
40—$8.57, or a total of $237.12 for the
                                             new agreement altering the mode of
week.                                        compensation from an hourly rate
[46 FR 7316, Jan. 23, 1981]                  basis to a fixed salary for a variable
                                             workweek up to 40 hours, the results
§ 778.323 Effect if salary is for variable   described in § 778.323 follow.
    workweek.
                                             § 778.325 Effect on salary covering
  The discussion in the prior section            more than 40 hours’ pay.
sets forth one result of reducing the
                                                The same reasoning applies to salary
workweek from 40 to 35 hours. It is not
                                             covering straight time pay for a longer
either the necessary result or the only      workweek. If an employee whose max­
possible result. As in all cases of em­      imum hours standard is 40 hours was
ployees hired on a salary basis, the reg­    hired at a fixed salary of $275 for 55
ular rate depends in part on the agree­      hours of work, he was entitled to a
ment of the parties as to what the sal­      statutory overtime premium for the 15
ary is intended to compensate. In re­        hours in excess of 40 at the rate of $2.50
ducing the customary workweek sched­         per hour (half-time) in addition to his
ule to 35 hours the parties may agree        salary, and to statutory overtime pay
to change the basis of the employment        of $7.50 per hour (time and one-half) for
arrangement by providing that the sal­       any hours worked in excess of 55. If the
ary which formerly covered a fixed           scheduled workweek is later reduced to
workweek of 40 hours now covers a            50 hours, with the understanding be-
variable workweek up to 40 hours. If         tween the parties that the salary will
this is the new agreement, the em­           be paid as the employee’s nonovertime
ployee receives $200 for workweeks of        compensation for each workweek of 55
varying lengths, such as 35, 36, 38, or 40   hours or less, his regular rate in any
hours. His rate thus varies from week        overtime week of 55 hours or less is de­
to week, but in weeks of 40 hours or         termined by dividing the salary by the
over, it is $5 per hour (since the agree­    number of hours worked to earn it in
ment of the parties is that the salary       that particular week, and additional
                                             half-time, based on that rate, is due for
covers up to 40 hours and no more) and
                                             each hour in excess of 40. In weeks of 55
his overtime rate, for hours in excess of
                                             hours or more, his regular rate remains
40, thus remains $7.50 per hour. Such a      $5 per hour and he is due, in addition to
salary arrangement presumably con-           his salary, extra compensation of $2.50
templates that the salary will be paid       for each hour over 40 but not over 55
in full for any workweek of 40 hours or      and full time and one-half, or $7.50, for
less. The employee would thus be enti­       each hour worked in excess of 55. If,
tled to his full salary if he worked only    however, the understanding of the par-
25 or 30 hours. No deductions for hours      ties is that the salary now covers a
not worked in short workweeks would          fixed workweek of 50 hours, his regular
be made. (For a discussion of the effect     rate is $5.50 per hour in all weeks. This
                                             assumes that when an employee works

                                         419

§ 778.326                                               29 CFR Ch. V (7– 1– 02 Edition)

less than 50 hours in a particular week,    under such a plan until the workweek
deductions are made at a rate of $5.50      exceeded 50 hours.
per hour for the hours not worked.          [46 FR 7316, Jan. 23, 1981]
[46 FR 7316, Jan. 23, 1981]
                                            § 778.327 Temporary or sporadic re­
§ 778.326 Reduction of regular over-             duction in schedule.
    time workweek without reduction            (a) The problem of reduction in the
    of take-home pay.                       workweek is somewhat different where
   The reasoning applied in the fore-       a temporary reduction is involved. Re­
                                            ductions for the period of a dead or
going sections does not, of course,
                                            slow season follow the rules announced
apply to a situation in which the
                                            above. However, reduction on a more
former earnings at both straight time
                                            temporary or sporadic basis presents a
and overtime are paid to the employee       different problem. It is obvious that as
for the reduced workweek. Suppose an        a matter of simple arithmetic an em­
employee was hired at an hourly rate        ployer might adopt a series of different
of $5 an hour and regularly worked 50       rates for the same work, varying in­
hours, earning $275 as his total straight   versely with the number of overtime
time and overtime compensation, and         hours worked in such a way that the
the parties now agree to reduce the         employee would earn no more than his
workweek to 45 hours without any re­        straight time rate no matter how many
duction in take-home pay. The parties       hours he worked. If he set the rate at $6
in such a situation may agree to an in-     per hour for all workweeks in which
crease in the hourly rate from $5 per       the employee worked 40 hours or less,
hour to $6 so that for a workweek of 45     approximately $5.93 per hour for work-
hours (the reduced schedule) the em­        weeks of 41 hours, approximately $5.86
ployee’s straight time and overtime         for workweeks of 42 hours, approxi­
earnings will be $285. The parties can-     mately $5.45 for workweeks of 50 hours,
not, however, agree that the employee       and so on, the employee would always
is to receive exactly $285 as total com­    receive (for straight time and overtime
pensation (including overtime pay) for      at these ‘‘rates’’) $6 an hour regardless
a workweek varying, for example, up to      of the number of overtime hours
50 hours, unless he does so pursuant to     worked. This is an obvious book-
contracts specifically permitted in sec­    keeping device designed to avoid the
tion 7(f) of the Act, as discussed in       payment of overtime compensation and
                                            is not in accord with the law. See
§§ 778.402 through 778.414. An employer
                                            Walling v. Green Head Bit & Supply Co.,
cannot otherwise discharge his statu­
                                            138 F. 2d 453. The regular rate of pay of
tory obligation to pay overtime com­
                                            this employee for overtime purposes is,
pensation to an employee who does not
                                            obviously, the rate he earns in the nor­
work the same fixed hours each week         mal nonovertime week—in this case, $6
by paying a fixed amount purporting to      per hour.
cover both straight time and overtime          (b) The situation is different in de­
compensation for an ‘‘agreed’’ number       gree but not in principle where employ­
of hours. To permit such a practice         ees who have been at a bona fide $6 rate
without proper statutory safeguards         usually working 50 hours and taking
would result in sanctioning the cir­        home $330 as total straight time and
cumvention of the provisions of the         overtime pay for the week are, during
Act which require that an employee          occasional weeks, cut back to 42 hours.
who works more than 40 hours in any         If the employer raises their rate to
workweek be compensated, in accord­         $7.65 for such weeks so that their total
ance with express congressional intent,     compensation is $328.95 for a 42-hour
at a rate not less than one and one-half    week the question may properly be
times his regular rate of pay for the       asked, when they return to the 50–hour
burden of working long hours. In ar­        week, whether the $6 rate is really
rangements of this type, no additional      their regular rate. Are they putting in
financial pressure would fall upon the      8 additional hours of work for that
employer and no additional compensa­        extra $1.05 or is their ‘‘regular’’ rate
tion would be due to the employee           really now $7.65 an hour since this is

                                        420

Wage and Hour Division, Labor                                                      § 778.330

what they earn in the short workweek?               through Friday and 5 hours on alter­
It seems clear that where different                 nate Saturdays. The parties agree that
rates are paid from week to week for                extra compensation is to be paid for all
the same work and where the dif­                    hours worked in excess of the schedule
ference is justified by no factor other             in either week at the base rate for
than the number of hours worked by                  hours between 35 and 40 in the short
the individual employee—the longer he               week and at time and one-half such
works the lower the rate—the device is              rate for hours in excess of 40 in all
evasive and the rate actually paid in
                                                    weeks. Such an arrangement results in
the shorter or nonovertime week is his
                                                    the employee’s working at two dif­
regular rate for overtime purposes in
all weeks.                                          ferent rates of pay—one thirty-fifth of
                                                    the salary in short workweeks and one­
[46 FR 7317, Jan. 23, 1981; 46 FR 33516, June 30,   fourtieth of the salary in the longer
1981]
                                                    weeks. If the provisions of such a con-
§ 778.328 Plan for gradual permanent                tract are followed, if the nonovertime
     reduction in schedule.                         hours are compensated in full at the
   In some cases, pursuant to a definite            applicable regular rate in each week
plan for the permanent reduction of                 and overtime compensation is properly
the normal scheduled workweek from                  computed for hours in excess of 40 at
say, 48 hours to 40 hours, an agreement             time and one-half the rate applicable
is entered into with a view to lessening            in the particular workweek, the over-
the shock caused by the expected re­                time requirements of the Fair Labor
duction in take-home wages. The                     Standards Act will be met. While this
agreement may provide for a rising                  situation bears some resemblance to
scale of rates as the workweek is                   the one discussed in § 778.327 there is
gradually reduced. The varying rates                this significant difference; the arrange­
established by such agreement will be               ment is permanent, the length of the
recognized as bona fide in the weeks in             respective workweeks and the rates for
which they are respectively operative               such weeks are fixed on a permanent-
provided that (a) the plan is bona fide             schedule basis far in advance and are
and there is no effort made to evade                therefore not subject to the control of
the overtime requirements of the Act;               the employer and do not vary with the
(b) there is a clear downward trend in              fluctuations in business. In an arrange­
the duration of the workweek through-               ment of this kind, if the employer re­
out the period of the plan even though              quired the employee to work on Satur­
fluctuations from week-to-week may                  day in a week in which he was sched­
not be constantly downward; and (c)                 uled for work only on the Monday
the various rates are operative for sub­
                                                    through Friday schedule, he would be
stantial periods under the plan and do
                                                    paid at his regular rate for all the Sat­
not vary from week-to-week in accord­
                                                    urday hours in addition to his salary.
ance with the number of hours which
any particular employee or group hap-                         PRIZES AS BONUSES
pens to work.
                                                    § 778.330 Prizes or contest awards gen­
§ 778.329 Alternating workweeks of                      erally.
     different fixed lengths.
   In some cases an employee is hired                 All compensation (except statutory
on a salary basis with the under-                   exclusions) paid by or on behalf of an
standing that his weekly salary is in-              employer to an employee as remunera­
tended to cover the fixed schedule of               tion for employment must be included
hours (and no more) and that this fixed             in the regular rate, whether paid in the
schedule provides for alternating work-             form of cash or otherwise. Prizes are
weeks of different fixed lengths. For               therefore included in the regular rate if
example, many offices operate with                  they are paid to an employee as remu­
half staff on Saturdays and, in con-                neration for employment. If therefore
sequence, employees are hired at a                  it is asserted that a particular prize is
fixed salary covering a fixed working               not to be included in the regular rate,
schedule of 7 hours a day Monday                    it must be shown either that the prize

                                                421

§ 778.331                                               29 CFR Ch. V (7– 1– 02 Edition)

was not paid to the employee for em­        may not normally encompass this type
ployment, or that it is not a thing of      of work, it is work of a kind normally
value which is part of wages.               performed by salesmen for their em­
                                            ployers, and the time spent by the em­
§ 778.331 Awards for performance on         ployee in competing for such a prize
     the job.                               (whether successfully or not) is work­
   Where a prize is awarded for the qual­   ing time and must be counted as such
ity, quantity or efficiency of work done    in determining overtime compensation
by the employee during his customary        due under the Act. On the other hand a
working hours at his normal assigned        prize or bonus paid to an employee
tasks (whether on the employer’s            when a sale is made by the company’s
premises or elsewhere) it is obviously      sales representative to a person whom
paid as additional remuneration for         he recommended as a good sales pros­
employment. Thus prizes paid for co­        pect would not be regarded as com­
operation, courtesy, efficiency, highest    pensation for services if in fact the
production, best attendance, best qual­     prize-winner performed no work in se­
ity of work, greatest number of over-       curing the name of the sales prospect
time hours worked, etc., are part of the    and spent no time on the matter for
regular rate of pay. If the prize is paid   the company in any way.
in cash, the amount paid must be allo­
cated (for the method of allocation see     § 778.333   Suggestion system awards.
§ 778.209) over the period during which
                                               The question has been raised whether
it was earned to determine the result-
                                            awards made to employees for sugges­
ant increase in the average hourly rate
                                            tions submitted under a suggestion
for each week of the period. If the prize
                                            system plan are to be regarded as part
is merchandise, the cost to the em­
                                            of the regular rate. There is no hard
ployer is the sum which must be allo­
                                            and fast rule on this point as the term
cated. Where the prize is either cash or
                                            ‘‘suggestion system’’ has been used to
merchandise, with the choice left the
employee, the amount to be allocated        describe a variety of widely differing
is the amount (or the cost) of the ac­      plans. It may be generally stated, how-
tual prize he accepts.                      ever, that prizes paid pursuant to a
                                            bona fide suggestion system plan may
§ 778.332 Awards for activities not nor­    be excluded from the regular rate at
     mally part of employee’s job.          least in situations where it is the fact
   (a) Where the prize is awarded for ac­   that:
tivities outside the customary working         (a) The amount of the prize has no re­
hours of the employee, beyond the           lation to the earnings of the employee
scope of his customary duties or away       at his job but is rather geared to the
from the employer’s premises, the           value to the company of the suggestion
question of whether the compensation        which is submitted; and
is remuneration for employment will            (b) The prize represents a bona fide
depend on such factors as the amount        award for a suggestion which is the re­
of time, if any, spent by the employee      sult of additional effort or ingenuity
in competing, the relationship between      unrelated to and outside the scope of
the contest activities and the usual        the usual and customary duties of any
work of the employee, whether the           employee of the class eligible to par­
competition involves work usually per-      ticipate and the prize is not used as a
formed by other employees for employ­       substitute for wages; and
ers, whether an employee is specifi­           (c) No employee is required or spe­
cally urged to participate or led to be­    cifically urged to participate in the
lieve that he will not merit promotion      suggestion system plan or led to be­
or advancement unless he participates.      lieve that he will not merit promotion
   (b) By way of example, a prize paid      or advancement (or retention of his ex­
for work performed in obtaining new         isting job) unless he submits sugges­
business for an employer would be re­       tions; and
garded as remuneration for employ­             (d) The invitation to employees to
ment. Although the duties of the em­        submit suggestions is general in nature
ployees who participate in the contest      and no specific assignment is outlined

                                        422

Wage and Hour Division, Labor                                                       § 778.403

to employees (either as individuals or           § 778.401 Regulations issued under
as a group) to work on or develop; and               section 7(g)(3).
  (e) There is no time limit during                 Regulations issued pursuant to sec­
which suggestions must be submitted;             tion 7(g) (3) of the Act are published as
and                                              Part 548 of this chapter. Payments
  (f) The employer has, prior to the             made in conformance with these regu­
submission of the suggestion by an em­           lations satisfy the overtime pay re­
ployee, no notice or knowledge of the            quirements of the Act.
fact that an employee is working on
the preparation of a suggestion under               GUARANTEED COMPENSATION WHICH
circumstances indicating that the com­                  INCLUDES OVERTIME PAY
pany approved the task and the sched­
                                                 § 778.402 The statutory exception pro­
ule of work undertaken by the em­                    vided by section 7(f) of the Act.
ployee.
                                                    Section 7(f) of the Act provides the
                                                 following exception from the provi­
 Subpart E— Exceptions From the                  sions of section 7(a):
     Regular Rate Principles
                                                   (f) No employer shall be deemed to have
    COMPUTING OVERTIME PAY ON AN                 violated subsection (a) by employing any
                                                 employee for a workweek in excess of the
        ‘‘ESTABLISHED’’ RATE                     maximum workweek applicable to such em­
                                                 ployee under subsection (a) if such employee
§ 778.400 The provisions          of   section   is employed pursuant to a bona fide indi­
    7(g)(3) of the Act.                          vidual contract, or pursuant to an agreement
  Section 7(g)(3) of the Act provides the        made as a result of collective bargaining by
following exception from the provi­              representatives of employees, if the duties of
                                                 such employee necessitate irregular hours of
sions of section 7(a):
                                                 work, and the contract or agreement (1)
  (g) No employer shall be deemed to have        specifies a regular rate of pay of not less
violated subsection (a) by employing any         than the minimum hourly rate provided in
employee for a workweek in excess of the         subsection (a) or (b) of section 6 (whichever
maximum workweek applicable to such em­          may be applicable) and compensation at not
ployee under such subsection if, pursuant to     less than one and one-half times such rate
an agreement or understanding arrived at         for all hours worked in excess of such max­
between the employer and the employee be-        imum workweek, and (2) provides a weekly
fore performance of the work, the amount         guaranty of pay for not more than 60 hours
paid to the employee for the number of hours     based on the rates so specified.
worked by him in such workweek in excess
of the maximum workweek applicable to            § 778.403 Constant pay for varying
such employee under such subsection:                 workweeks including overtime is
                                                     not permitted except as specified in
                                                     section 7(f).
     *       *       *        *         *           Section 7(f) is the only provision of
  (3) is computed at a rate not less than one    the Act which allows an employer to
and one-half times the rate established by       pay the same total compensation each
such agreement or understanding as the           week to an employee who works over-
basic rate to be used in computing overtime      time and whose hours of work vary
compensation thereunder: Provided, That the
                                                 from week to week. (See in this con­
rate so established shall be authorized by
regulation by the Secretary of Labor as          nection the discussion in §§ 778.207,
being substantially equivalent to the aver-      778.321–778.329, and 778.308–778.315.) Un­
age hourly earnings of the employee, exclu­      less the pay arrangements in a par­
sive of overtime premiums, in the particular     ticular situation meet the require­
work over a representative period of time;       ments of section 7(f) as set forth, all
and if (1) the employee’s average hourly         the compensation received by the em­
earnings for the workweek exclusive of pay­      ployee under a guaranteed pay plan is
ments described in paragraphs (1) through (7)    included in his regular rate and no part
of subsection (e) are not less than the min­
imum hourly rate required by applicable
                                                 of such guaranteed pay may be credited
law, and (ii) extra overtime compensation is     toward overtime compensation due
properly computed and paid on other forms        under the Act. Section 7(f) is an exemp­
of additional pay required to be included in     tion from the overtime provisions of
computing the regular rate.                      the Act. No employer will be exempt

                                             423

§ 778.404                                                29 CFR Ch. V (7– 1– 02 Edition)

from the duty of computing overtime            this protection without, on the other
compensation for an employee under             hand, nullifying the overtime require­
section 7(a) unless the employee is paid       ments of the Act. The provisions of sec­
pursuant to a plan which actually              tion 7(f) set forth the conditions under
meets all the requirements of the ex­          which, in the view of Congress, this
emption. These requirements will be            may be done. Plans which do not meet
discussed separately in the ensuing sec­       these conditions were not thought to
tions.                                         provide sufficient advantage to the em­
                                               ployee to justify Congress in relieving
§ 778.404 Purposes of exemption.               employers of the overtime liability sec­
   The exception to the requirements of        tion 7(a).
section 7(a) provided by section 7(f) of
the Act is designed to provide a means         § 778.405 What types of employees are
whereby the employer of an employee                affected.
whose duties necessitate irregular                The type of employment agreement
hours of work and whose total wages if         permitted under section 7(f) can be
computed solely on an hourly rate              made only with (or by his representa­
basis would of necessity vary widely           tives on behalf of) an employee whose
from week to week, may guarantee the           ‘‘duties * * * necessitate irregular
payment, week-in, week-out, of at least        hours of work.’’ It is clear that no con-
a fixed amount based on his regular            tract made with an employee who
hourly rate. Section 7(f) was proposed         works a regularly scheduled workweek
and enacted in 1949 with the stated pur­       or whose schedule involves alternating
pose of giving express statutory valid­        fixed workweeks will qualify under this
ity, subject to prescribed limitations,        subsection. Even if an employee does in
to a judicial ‘‘gloss on the Act’’ by          fact work a variable workweek, the
which an exception to the usual rule as        question must still be asked whether
to the actual regular rate had been rec­       his duties necessitate irregular hours
ognized by a closely divided Supreme           of work. The subsection is not designed
Court as permissible with respect to           to apply in a situation where the hours
employment in such situations under            of work vary from week to week at the
so-called     ‘‘Belo’’   contracts.     See    discretion of the employer or the em­
McComb v. Utica Knitting Co., 164 F. 2d        ployee, nor to a situation where the
670, rehearing denied 164 F. 2d 678 (C.A.      employee works an irregular number of
2); Walling v. A. H. Belo Co., 316 U.S. 624;   hours according to a predetermined
Walling v. Halliburton Oil Well Cement­        schedule. The nature of the employee’s
ing Co., 331 U.S. 17; 95 Cong. Rec. 11893,     duties must be such that neither he nor
12365, 14938, A2396, A5233, A5476. Such a      his employer can either control or an­
contract affords to the employee the           ticipate with any degree of certainty
security of a regular weekly income            the number of hours he must work
and benefits the employer by enabling          from week to week. Furthermore, for
him to anticipate and control in ad­           the reasons set forth in § 778.406, his du­
vance at least some part of his labor          ties must necessitate significant vari­
costs. A guaranteed wage plan also pro­        ations in weekly hours of work both
vides a means of limiting overtime             below and above the statutory weekly
computation costs so that wide leeway          limit on nonovertime hours. Some ex­
is provided for working employees              amples of the types of employees whose
overtime without increasing the cost           duties may necessitate irregular hours
to the employer, which he would other-         of work would be outside buyers, on-
wise incur under the Act for working           call servicemen, insurance adjusters,
employees in excess of the statutory           newspaper     reporters    and     photog­
maximum hours standard. Recognizing            raphers, propmen, script girls and oth­
both the inherent advantages and dis­          ers engaged in similar work in the mo­
advantages of guaranteed wage plans,           tion picture industry, firefighters,
when viewed in this light, Congress            troubleshooters and the like. There are
sought to strike a balance between             some employees in these groups whose
them which would, on the one hand,             hours of work are conditioned by fac­
provide a feasible method of guaran­           tors beyond the control of their em­
teeing pay to employees who needed             ployer or themselves. However, the

                                           424

Wage and Hour Division, Labor                                               § 778.406

mere fact that an employee is engaged       of the ‘‘Belo’’ wage plan militating
in one of the jobs just listed, for exam­   against a holding that the contracts
ple, does not mean that his duties ne­      were invalid under the Act is, of
cessitate irregular hours. It is always a   course, already provided to employees
question of fact whether the particular     who regularly work at least the max­
employee’s duties do or do not neces­       imum number of hours permitted with-
sitate irregular hours. Many employees      out overtime pay under section 7(a).
not listed here may qualify. Although       Their situation is not comparable in
office employees would not ordinarily       this respect to employees whose duties
qualify, some office employees whose        cause their weekly hours to fluctuate
duties compel them to work variable         in such a way that some workweeks
hours could also be in this category.       are short and others long and they can-
For example, the confidential sec­          not, without some guarantee, know in
retary of a top executive whose hours       advance whether in a particular work-
of work are irregular and unpredictable     week they will be entitled to pay for
might also be compelled by the nature       the regular number of hours of non-
of her duties to work variable and un­      overtime work contemplated by sec­
predictable hours. This would not ordi­     tion 7(a). It is such employees whose
narily be true of a stenographer or file    duties necessitate ‘‘irregular hours’’
clerk, nor would an employee who only       within the meaning of section 7(f) and
rarely or in emergencies is called upon     whose ‘‘security of a regular weekly in-
to work outside a regular schedule          come’’ can be assured by a guarantee
qualify for this exemption.                 under that section which will serve to
                                            increase their hourly earnings in short
§ 778.406 Nonovertime hours as well as      workweeks under the statutory max­
    overtime hours must be irregular if     imum hours. It is this benefit to the
    section 7(f) is to apply.               employee that the Supreme Court
  Any employment in which the em­           viewed, in effect, as a quid pro quo
ployee’s hours fluctuate only in the        which could serve to balance a relax­
overtime range above the maximum            ation of the statutory requirement, ap­
workweek prescribed by the statute          plicable in other cases, that any over-
lacks the irregularity of hours for         time work should cost the employer 50
which the Supreme Court found the so-       percent more per hour. In the enact­
called ‘‘Belo’’ contracts appropriate       ment of section 7(f), as in the enact­
and so fails to meet the requirements       ment of section 7(b) (1) and (2), the ben­
of section 7(f) which were designed to      efits that might inure to employees
validate, subject to express statutory      from a balancing of long workweeks
limitations, contracts of a like kind in    against short workweeks under pre-
situations of the type considered by        scribed safeguards would seem to be
the Court (see § 778.404). Nothing in the   the reason most likely to have influ­
legislative history of section 7(f) sug­    enced the legislators to provide express
gests any intent to suspend the normal      exemptions from the strict application
application of the general overtime         of section 7(a). Consequently, where
provisions of section 7(a) in situations    the fluctuations in an employee’s hours
where the weekly hours of an employee       of work resulting from his duties in­
fluctuate only when overtime work in        volve only overtime hours worked in
excess of the prescribed maximum            excess of the statutory maximum
weekly hours is performed. Section 7(a)     hours, the hours are not ‘‘irregular’’
was specifically designed to deal with      within the purport of section 7(f) and a
such a situation by making such reg­        payment plan lacking this factor does
ular resort to overtime more costly to      not qualify for the exemption. (See
the employer and thus providing an in­      Goldberg v. Winn-Dixie Stores (S.D.
ducement to spread the work rather          Fla.), 15 WH Cases 641; Wirtz v. Midland
than to impose additional overtime          Finance Co. (N.D. Ga.), 16 WH Cases 141;
work on employees regularly employed        Trager v. J. E. Plastics Mfg. Co.
for a workweek of the maximum statu­        (S.D.N.Y.), 13 WH Cases 621; McComb v.
tory length. The ‘‘security of a regular    Utica Knitting Co., 164 F. 2d 670; Fore-
weekly income’’ which the Supreme           most Dairies v. Wirtz, 381 F. 2d 653 (C.A.
Court viewed as an important feature        5).)

                                        425

§ 778.407                                             29 CFR Ch. V (7– 1– 02 Edition)

§ 778.407 The nature of the section 7(f)    Well Cementing Company, 331 U.S.17).
     contract.                              The fact that section 7(f) requires that
   Payment must be made ‘‘pursuant to       a contract, to qualify an employee for
a bona fide individual contract or pur­     exemption under section 7(f), must
suant to an agreement made as a result      specify a ‘‘regular rate,’’ indicates that
of collective bargaining by representa­     this criterion of these two cases is still
tives of employees.’’ It cannot be a one-   important.
sided affair determinable only by ex­         (b) The regular rate of pay specified
amination of the employer’s books.          in the contract may not be less than
The employee must not only be aware         the applicable minimum rate. There is
of but must have agreed to the method       no requirement, however, that the reg­
of compensation in advance of per-          ular rate specified be equal to the reg­
forming the work. Collective bar-           ular rate at which the employee was
gaining agreements in general are for­      formerly employed before the contract
mal agreements which have been re­          was entered into. The specified regular
duced to writing, but an individual em­     rate may be any amount (at least the
ployment contract may be either oral        applicable minimum wage) which the
or written. While there is no require­      parties agree to and which can reason-
ment in section 7(f) that the agreement     ably be expected to be operative in con-
or contract be in writing, it is cer­       trolling the employee’s compensation.
tainly desirable to reduce the agree­         (c) The rate specified in the contract
ment to writing, since a contract of        must also be a ‘‘regular’’ rate which is
this character is rather complicated        operative in determining the total
and proof both of its existence and of      amount of the employee’s compensa­
its compliance with the various re­         tion. Suppose, for example, that the
quirements of the section may be dif­       compensation of an employee is nor­
ficult if it is not in written form. Fur­   mally made up in part by regular bo­
thermore, the contract must be ‘‘bona       nuses, commissions, or the like. In the
fide.’’ This implies that both the mak­     past he has been employed at an hourly
ing of the contract and the settlement      rate of $5 per hour in addition to which
of its terms were done in good faith.       he has received a cost-of-living bonus
                                            of $7 a week and a 2-percent commis­
§ 778.408 The specified regular rate.       sion on sales which averaged $70 per
   (a) To qualify under section 7(f), the   week. It is now proposed to employ him
contract must specify ‘‘a regular rate      under a guaranteed pay contract which
of pay of not less than the minimum         specifies a rate of $5 per hour and guar­
hourly rate provided in subsection (a)      antees $200 per week, but he will con­
or (b) of section 6 (whichever may be       tinue to receive his cost-of-living
applicable).’’ The word ‘‘regular’’ de-     bonus and commissions in addition to
scribing the rate in this provision is      the guaranteed pay. Bonuses and com­
not to be treated as surplusage. To un­     missions of this type are, of course, in­
derstand the nature of this require­        cluded in the ‘‘regular rate’’ as defined
ment it is important to consider the        in section 7(e). It is also apparent that
past history of this type of agreement      the $5 rate specified in the contract is
in the courts. In both of the two cases     not a ‘‘regular rate’’ under the require­
before it, the Supreme Court found          ments of section 7(f) since it never con­
that the relationship between the hour­     trols or determines the total com­
ly rate specified in the contract and       pensation he receives. For this reason,
the amount guaranteed was such that         it is not possible to enter into a guar­
the employee in a substantial portion       anteed pay agreement of the type per­
of the workweeks of the period exam­        mitted under section 7(f) with an em­
ined by the court worked sufficient         ployee whose regular weekly earnings
hours to earn in excess of the guaran­      are made up in part by the payment of
teed amount and in those workweeks          regular bonuses and commissions of
was paid at the specified hourly rate       this type. This is so because even in
for the first 40 hours and at time and      weeks in which the employee works
one-half such rate for hours in excess      sufficient hours to exceed, at his hour­
of 40 (Walling v. A. H. Belo Company, 316   ly rate, the sum guaranteed, his total
U.S. 624, and Walling v. Halliburton Oil    compensation is controlled by the

                                        426

Wage and Hour Division, Labor                                                     § 778.41 1
bonus and the amount of commissions             §778.410 The guaranty under section
earned as well as by the hourly rate.                7(f).
   (d) In order to qualify as a regular            (a) The statute provides that the
rate'' under section 7(f) the rate speci-
                                                guaranty must be a weekly guaranty.
fied in the contract together with the          A guaranty of monthly, semimonthly,
guarantee must be the actual measure            or biweekly pay (which would allow
of the regular wages which the em-              averaging wages over more than one
ployee receives. However, the payment           workweek) does not qualify under this
of extra compensation, over and above
                                                paragraph. Obviously guarantees for
the guaranteed amount, by way of
extra premiums for work on holidays,            periods less than a workweek do not
or for extraordinarily excessive work           qualify. Whatever sum is guaranteed
(such as for work in excess of 16 con-          must be paid in full in all workweeks,
secutive hours in a day, or for work in         however short in which the employee
excess of 6 consecutive days of work),          performs any amount of work for the
year-end bonuses and similar payments           employer. The amount of the guaranty
which are not regularly paid as part of         may not be subject to proration or de-
the employee's usual wages, will not            duction in short weeks.
invalidate a contract which otherwise              (b) The contract must provide a guar-
qualifies under section 7(f).                   anty of pay. The amount must be speci-
                                                fied. A mere guaranty to provide work
[33 FR 986 Jan. 26, 1968, as amended at 46 FR   for a particular number of hours does
7317, Jan. 23, 1981
                                                not qualify under this section.
§778.409 Provision for overtime pay.               (c) The pay guaranteed must be ''for
                                                not more than 60 hours based on the
  The section 7(f) contract must pro-           rate so specified.''
vide for compensation at not less than
one and one-half times the specified            §778.411 Sixty-hour limit on pay guar-
regular rate for all hours worked in ex-            anteed by contract.
cess of the applicable maximum hours
standard for the particular workweek.              The amount of weekly pay guaran-
All excessive hours, not merely those           teed may not exceed compensation due
covered by the guarantee, must be               at the specified regular rate for the ap-
compensated at one and one-half times           plicable maximum hours standard and
(or a higher multiple) of the specified         at the specified overtime rate for the
regular rate. A contract which guaran-          additional hours, not to exceed a total
teed a weekly salary of $169, specified a       of 60 hours. Thus, if the maximum
rate of $3.60 per hour, and provided that       hours standard is 40 hours and the spec-
not less than one and one-half times            ified regular rate is $5 an hour the
such rate would be paid only for all            weekly guaranty cannot be greater
hours up to and including 46 2/3 hours          than $350. This does not mean that an
would not qualify under this section.           employee employed pursuant to a guar-
The contract must provide for payment           anteed pay contract under this section
at time and one-half (or more) for all          may not work more than 60 hours in
hours in excess of the applicable max-
imum hours standard in any work-                any week; it means merely that pay in
week. A contract may provide a spe-             an amount sufficient to compensate for
cific overtime rate greater than one            a greater number of hours cannot be
and one-half times the specified rate,          covered by the guaranteed pay. If he
for example, double time. If it does pro-       works in excess of 60 hours he must be
vide a specific overtime rate it must           paid, for each hour worked in excess of
provide that such rate will be paid for         60, overtime compensation as provided
all hours worked in excess of the appli-        in the contract, in addition to the
cable maximum hours standard.                   guaranteed amount.
                                                  [46 FR 7317, Jan. 23, 1981]
[46 FR 7317, Jan. 23, 1981]




                                            427
§ 778.412                                                 29 CFR Ch. V (7– 1– 02 Edition)

§ 778.412 Relationship          between       tract rate reasonably expected by the
    amount guaranteed and range of            parties to be operative in a significant
    hours employee may be expected to         number of workweeks is actually so op­
    work.                                     erative or whether adjustments in the
   While the guaranteed pay may not           contract are necessary to ensure such
cover more than 60 hours, the contract        an operative rate.
may guarantee pay for a lesser number
of hours. In order for a contract to          § 778.413 Guaranty must be based on
                                                  rates specified in contract.
qualify as a bona fide contract for an
employee whose duties necessitate ir­            The guaranty of pay must be ‘‘based
regular hours of work, the number of          on the rate so specified,’’ in the con-
hours for which pay is guaranteed must        tract. If the contract specifies a reg­
bear a reasonable relation to the num­        ular rate of $5 and an overtime rate of
ber of hours the employee may be ex­          $7.50 and guarantees pay for 50 hours
pected to work. A guaranty of pay for         and the maximum hours standard is 40
60 hours to an employee whose duties          hours, the amount of the guaranty
necessitate irregular hours of work           must be $275, if it is to be based on the
which can reasonably be expected to           rates so specified. A guaranty of $290 in
range no higher than 50 hours would           such a situation would not, obviously,
not qualify as a bona fide contract           be based on the rates specified in the
under this section. The rate specified        contract. Moreover, a contract which
in such a contract would be wholly fic­       provides a variety of different rates for
titious and therefore would not be a          shift differentials, arduous or haz­
‘‘regular rate’’ as discussed above.          ardous work, stand-by time, piece-rate
When the parties enter into a guaran­         incentive bonuses, commissions or the
teed pay contract, therefore, they            like in addition to a specified regular
should determine, as far as possible,         rate and a specified overtime rate with
the range of hours the employee is            a guaranty of pay of, say, $290 from all
likely to work. In deciding the amount        sources would not qualify under this
of the guaranty they should not choose        section, since the guaranty of pay in
a guaranty of pay to cover the max­           such a case is not based on the regular
imum number of hours which the em­            and overtime rates specified in the con-
ployee will be likely to work at any          tract.
time but should rather select a figure        [46 FR 7318, Jan. 23, 1981]
low enough so that it may reasonably
be expected that the rate will be opera­      § 778.414 ‘‘Approval’’   of   contracts
tive in a significant number of work-              under section 7(f).
weeks. In both Walling v. A. H. Belo Co.,        (a) There is no requirement that a
316 U.S. 624 and Walling v. Halliburton       contract, to qualify under section 7(f),
Oil Well Cementing Co., 331 U.S. 17 the       must be approved by the Secretary of
court found that the employees did ac­        Labor or the Administrator. The ques­
tually exceed the number of hours (60         tion of whether a contract which pur­
and 84 respectively) for which pay was        ports to qualify an employee for ex­
guaranteed on fairly frequent occasions       emption under section 7(f) meets the
so that the hourly rate stipulated in         requirements is a matter for deter­
the contract in each case was often op­       mination by the courts. This deter­
erative and did actually control the          mination will in all cases depend not
compensation received by the employ­          merely on the wording of the contract
ees. In cases where the guaranteed            but upon the actual practice of the par-
number of hours has not been exceeded         ties thereunder. It will turn on the
in a significant number of workweeks,         question of whether the duties of the
this fact will be weighed in the light of     employee in fact necessitate irregular
all the other facts and circumstances         hours, whether the rate specified in the
pertinent to the agreement before             contract is a ‘‘regular rate’’—that is,
reaching a conclusion as to its effect        whether it was designed to be actually
on the validity of the pay arrangement.       operative in determining the employ­
By a periodic review of the actual oper­      ee’s compensation—whether the con-
ation of the contract the employer can        tract was entered into in good faith,
determine whether a stipulated con-           whether the guaranty of pay is in fact

                                            428

Wage and Hour Division, Labor                                                        § 778.416

based on the regular and overtime                 COMPUTING OVERTIME PAY ON THE RATE
rates specified in the contract. While             APPLICABLE TO THE TYPE OF WORK
the Administrator does have the au­                PERFORMED IN OVERTIME HOURS
thority to issue an advisory opinion as            (SECS. 7(G) (1) AND (2))
to whether or not a pay arrangement
accords with the requirements of sec­             § 778.415   The statutory provisions.
tion 7(f) he can do so only if he has               Sections 7(g) (1) and (2) of the Act
knowledge of these facts.                         provide:
  (b) As a guide to employers, it may               (g) No employer shall be deemed to have
be helpful to describe a fact situation           violated subsection (a) by employing any
in which the making of a guaranteed               employee for a workweek in excess of the
salary contract would be appropriate              maximum workweek applicable to such em­
and to set forth the terms of a contract          ployee under such subsection if, pursuant to
                                                  an agreement or understanding arrived at
which would comply, in the cir­                   between the employer and the employee be-
cumstances described, with the provi­             fore performance of the work, the amount
sions of section 7(f).                            paid to the employee for the number of hours
                                                  worked by him in such workweek in excess
  Example: An employee is employed as an          of the maximum workweek applicable to
insurance claims adjuster; because of the         such employee under such subsection:
fact that he must visit claimants and wit­          (1) In the case of an employee employed at
nesses at their convenience, it is impossible     piece rates, is computed at piece rates not
for him or his employer to control the hours      less than one and one-half times the bona
which he must work to perform his duties.         fide piece rates applicable to the same work
During the past 6 months his weekly hours of      when performed during nonovertime hours;
work have varied from a low of 30 hours to a      or
high of 58 hours. His average workweek for          (2) In the case of an employee performing
the period was 48 hours. In about 80 percent      two or more kinds of work for which dif­
of the workweeks he worked less than 52           ferent hourly or piece rates have been estab­
hours. It is expected that his hours of work      lished, is computed at rates not less than one
will continue to follow this pattern. The par-    and one-half times such bona fide rates ap­
ties agree upon a regular rate of $5 per hour.    plicable to the same work when performed
In order to provide for the employee the se­      during nonovertime hours;
curity of a regular weekly income the par-
ties further agree to enter into a contract            *        *       *       *        *
which provides a weekly guaranty of pay. If
the applicable maximum hours standard is 40       and if (i) the employee’s average hour­
hours, guaranty of pay for a workweek some-       ly earnings for the workweek exclusive
where between 48 hours (his average week)         of payments described in paragraphs (1)
and 52 would be reasonable. In the cir­           through (7) of subsection (e) are not
cumstances described the following contract       less than the minimum hourly rate re­
would be appropriate.                             quired by applicable law, and (ii) extra
  The X Company hereby agrees to employ           overtime compensation is properly
John Doe as a claims adjuster at a regular        computed and paid on other forms of
hourly rate of pay of $5 per hour for the first   additional pay required to be included
40 hours in any workweek and at the rate of
                                                  in computing the regular rate.
$7.50 per hour for all hours in excess of 40 in
any workweek, with a guarantee that John
                                                  § 778.416   Purpose of provisions.
Doe will receive, in any week in which he
performs any work for the company, the sum          The purpose of the provisions set
of $275 as total compensation, for all work       forth in § 778.415 is to provide an excep­
performed up to and including 50 hours in         tion from the requirement of com­
such workweek.                                    puting overtime pay at not less than
  (c) The situation described in para-            one and one-half times the regular rate
graph (b) of this section is merely an            for hours worked in excess of the appli­
                                                  cable maximum hours standard for a
example and nothing herein is intended
                                                  particular workweek and to allow,
to imply that contracts which differ
                                                  under specified conditions, a simpler
from the example will not meet the re­
                                                  method of computing overtime pay for
quirements of section 7(f).
                                                  employees paid on the basis of a piece
[33 FR 986, Jan. 26, 1968, as amended at 46 FR    rate, or at a variety of hourly rates or
7318, Jan. 23, 1981]                              piece rates, or a combination thereof.

                                              429

§ 778.417                                             29 CFR Ch. V (7– 1– 02 Edition)

This provision is not designed to ex­       eral conditions discussed in § 778.417 are
clude any group of employees from the       met and:
overtime benefits of the Act. The in-         (1) The piece rate is a bona fide rate;
tent of the provision is merely to sim­       (2) The overtime hours for which the
plify the method of computation while       overtime rate is paid qualify as over-
insuring the receipt by the affected        time hours under section 7(e) (5), (6), or
employees of substantially the same         (7);
amount of overtime compensation.              (3) The number of overtime hours for
                                            which such overtime piece rate is paid
§ 778.417 General requirements of sec­      equals or exceeds the number of hours
     tion 7(g).                             worked in excess of the applicable max­
   The following general requirements       imum hours standard for the particular
must be met in every case before the        workweek; and
overtime        computation    authorized     (4) The compensation paid for the
under section 7(g)(1) or (2) may be uti­    overtime hours is at least equal to pay
lized.                                      at one and one-half times the applica­
   (a) First, in order to insure that the   ble minimum rate for the total number
method of computing overtime pay            of hours worked in excess of the appli­
permitted in this section will not in       cable maximum hours standard.
any circumstances be seized upon as a         (b) The piece rate will be regarded as
device for avoiding payment of the          bona fide if it is the rate actually paid
minimum wage due for each hour, the         for work performed during the non-
requirement must be met that employ­        overtime hours and if it is sufficient to
ee’s average hourly earnings for the        yield at least the minimum wage per
workweek (exclusive of overtime pay         hour.
and of all other pay which is excluded        (c) If a pieceworker works at two or
from the regular rate) are not less than    more kinds of work for which different
the minimum. This requirement in­           straight time piece rates have been es­
sures that the employer cannot pay          tablished, and if by agreement he is
subminimum nonovertime rates with a         paid at a rate not less than one and
view to offsetting part of the com­         one-half whichever straight time piece
pensation earned during the overtime        rate is applicable to the work per-
hours against the minimum wage due          formed during the overtime hours, such
for the workweek.                           piece rate or rates must meet all the
   (b) Second, in order to insure that      tests set forth in this section and the
the method of computing overtime pay        general tests set forth in § 778.417 in
permitted in this section will not be       order to satisfy the overtime require­
used to circumvent or avoid the pay­        ments of the Act under section 7(g) (2).
ment of proper overtime compensation
due on other sums paid to employees,        § 778.419 Hourly workers employed at
such as bonuses which are part of the            two or more jobs.
regular rate, the section requires that        (a) Under section 7(g)(2) an employee
extra overtime compensation must be         who performs two or more different
properly computed and paid on other         kinds of work, for which different
forms of additional pay required to be      straight time hourly rates are estab­
included in computing the regular rate.     lished, may agree with his employer in
                                            advance of the performance of the work
§ 778.418 Pieceworkers.                     that he will be paid during overtime
   (a) Under section 7(g)(1), an employee   hours at a rate not less than one and
who is paid on the basis of a piece rate    one-half times the hourly nonovertime
for the work performed during non-          rate established for the type of work he
overtime hours may agree with his em­       is performing during such overtime
ployer in advance of the performance        hours. No additional overtime pay will
of the work that he shall be paid at a      be due under the act provided that the
rate not less than one and one-half         general requirements set forth in
times this piece rate for each piece pro­   § 778.417 are met and;
duced during the overtime hours. No            (1) The hourly rate upon which the
additional overtime pay will be due         overtime rate is based in a bona fide
under the Act provided that the gen-        rate;

                                        430

Wage and Hour Division, Labor                                                 § 778.500

  (2) The overtime hours for which the       amount of compensation which would
overtime rate is paid qualify as over-       be due at the applicable rates for work
time hours under section 7(e) (5), (6), or   performed during the hours after the
(7); and                                     applicable maximum in any workweek.
  (3) The number of overtime hours for
which the overtime rate is paid equals
or exceeds the number of hours worked
                                                 Subpart F— Pay Plans Which
in excess of the applicable maximum                 Circumvent the Act
hours standard.
                                                DEVICES TO EVADE THE OVERTIME
  (b) An hourly rate will be regarded as
                                                        REQUIREMENTS
a bona fide rate for a particular kind of
work it is equal to or greater than the      § 778.500   Artificial regular rates.
applicable minimum rate therefor and
if it is the rate actually paid for such       (a) Since the term regular rate is de-
work when performed during non-              fined to include all remuneration for
overtime hours.                              employment (except statutory exclu­
                                             sions) whether derived from hourly
§ 778.420 Combined hourly rates and          rates, piece rates, production bonuses
     piece rates.                            or other sources, the overtime provi­
   Where an employee works at a com­         sions of the act cannot be avoided by
bination of hourly and piece rates, the      setting an artificially low hourly rate
payment of a rate not less than one          upon which overtime pay is to be based
and one-half times the hourly or piece       and making up the additional com­
rate applicable to the type of work          pensation due to employees by other
being performed during the overtime          means. The established hourly rate is
hours will meet the overtime require­        the ‘‘regular rate’’ to an employee only
ments of the Act if the provisions con­
                                             if the hourly earnings are the sole
cerning piece rates (as discussed in
                                             source of his compensation. Payment
§ 778.418) and those concerning hourly
                                             for overtime on the basis of an artifi­
rates (as discussed in § 778.419) are re­
spectively met.                              cial ‘‘regular’’ rate will not result in
                                             compliance with the overtime provi­
§ 778.421 Offset hour for hour.              sions of the Act.
   Where overtime rates are paid pursu­        (b) It may be helpful to describe a few
ant to statute or contract for hours in      schemes that have been attempted and
excess of 8 in a day, or in excess of the    to indicate the pitfalls inherent in the
applicable maximum hours standard,           adoption of such schemes. The device
or in excess of the employees’ normal        of the varying rate which decreases as
working hours or regular working             the length of the workweek increases
hours (as under section 7(e)(5) or for       has already been discussed in §§ 778.321
work on ‘‘special days’’ (as under sec­      through 778.329. It might be well, how-
tion 7(e)(6), or pursuant to an applica­     ever, to re-emphasize that the hourly
ble employment agreement for work            rate paid for the identical work during
outside of the hours established in good     the hours in excess of the applicable
faith by the agreement as the basic,         maximum hours standard cannot be
normal, or regular workday (not ex­          lower than the rate paid for the non-
ceeding 8 hours) or workweek (not ex­        overtime hours nor can the hourly rate
ceeding the applicable maximum hours         vary from week to week inversely with
standard) (under section 7(e) (7), the re­   the length of the workweek. It has
quirements of section 7(g) (1) and           been pointed out that, except in lim­
7(g)(2) will be met if the number of
                                             ited situations under contracts which
such hours during which overtime
                                             qualify under section 7(f), it is not pos­
rates were paid equals or exceeds the
                                             sible for an employer lawfully to agree
number of hours worked in excess of
the applicable maximum hours stand­          with his employees that they will re­
ard for the particular workweek. It is       ceive the same total sum, comprising
not necessary to determine whether           both straight time and overtime com­
the total amount of compensation paid        pensation, in all weeks without regard
for such hours equals or exceeds the         to the number of overtime hours (if

                                         431

§ 778.501                                              29 CFR Ch. V (7– 1– 02 Edition)

any) worked in any workweek. The re­         was a plan known as the ‘‘Poxon’’ or
sult cannot be achieved by the pay­          ‘‘split-day’’ plan. Under this plan the
ment of a fixed salary or by the pay­        normal or regular workday is artifi­
ment of a lump sum for overtime or by        cially divided into two portions one of
any other method or device.                  which is arbitrarily labeled the
  (c) Where the employee is hired at a       ‘‘straight time’’ portion of the day and
low hourly rate supplemented by facili­      the other the ‘‘overtime’’ portion.
ties furnished by the employer, bonuses      Under such a plan, an employee who
(other than those excluded under sec­        would ordinarily command an hourly
tion 7(e)), commissions, pay ostensibly      rate of pay well in excess of the min­
(but not actually) made for idle hours,      imum for his work is assigned a low
or the like, his regular rate is not the     hourly rate (often the minimum) for
hourly rate but is the rate determined       the first hour (or the first 2 or 4 hours)
by dividing his total compensation           of each day. This rate is designated as
from all these sources in any workweek       the regular rate: ‘‘time and one-half’’
by the number of hours worked in the         based on such rate is paid for each ad­
week. Payment of overtime compensa­          ditional hour worked during the work-
tion based on the hourly rate alone in       day. Thus, for example, an employee is
such a situation would not meet the          arbitrarily assigned an hourly rate of
overtime requirements of the Act.            $5 per hour under a contract which pro­
  (d) One scheme to evade the full pen­      vides for the payment of so-called
alty of the Act was that of setting an       ‘‘overtime’’ for all hours in excess of 4
arbitrary low hourly rate upon which         per day. Thus, for the normal or reg­
overtime compensation at time and            ular 8-hour day the employee would re­
one-half would be computed for all           ceive $20 for the first 4 hours and $30
hours worked in excess of the applica­       for the remaining 4 hours; and a total
ble maximum hours standard; coupled          of $50 for 8 hours. (This is exactly what
with this arrangement was a guarantee        he would receive at the straight time
that if the employee’s straight time         rate of $6.25 per hour.) On the sixth 8-
and overtime compensation, based on          hour day the employee likewise re­
this rate, fell short, in any week, of the   ceives $50 and the employer claims to
compensation that would be due on a          owe no additional overtime pay under
piece-rate basis of x cents per piece,       the statute since he has already com­
the employee would be paid on the            pensated the employee at ‘‘overtime’’
piece-rate basis instead. The hourly         rates for 20 hours of the workweek.
rate was set so low that it never (or           (b) Such a division of the normal 8-
seldom) was operative. This scheme           hour workday into 4 straight time
was found by the Supreme Court to be         hours and 4 overtime hours is purely
violative of the overtime provisions of      fictitious. The employee is not paid at
the Act in the case of Walling v.            the rate of $5 an hour and the alleged
Youngerman-Reynolds Hardwood Co., 325        overtime rate of $7.50 per hour is not
U.S. 427. The regular rate of the em­        paid for overtime work. It is not geared
ployee involved was found to be the          either to hours ‘‘in excess of the em­
quotient of total piece-rate earnings        ployee’s normal working hours or reg­
paid in any week divided by the total        ular working hours’’ (section 7(e)(5) or
hours worked in such week.                   for work ‘‘outside of the hours estab­
  (e) The scheme is no better if the em­     lished in good faith * * * as the basic,
ployer agrees to pay straight time and       normal, or regular workday’’ (section
overtime compensation on the arbi­           7(e) (7)) and it cannot therefore qualify
trary hourly rates and to make up the        as an overtime rate. The regular rate
difference between this total sum and        of pay of the employee in this situation
the piece-rate total in the form of a        is $6.25 per hour and he is owed addi­
bonus to each employee. (For further         tional overtime compensation, based
discussion of the refinements of this        on this rate, for all hours in excess of
plan, see §§ 778.502 and 778.503.)           the applicable maximum hours stand­
                                             ard. This rule was settled by the Su­
§ 778.501 The ‘‘split-day’’ plan.            preme Court in the case of Walling v.
   (a) Another device designed to evade      Helmerich & Payne, 323 U.S. 37, and its
the overtime requirements of the Act         validity has been reemphasized by the

                                         432

Wage and Hour Division, Labor                                                          § 778.502

definition of the term ‘‘regular rate’’ in          overtime has been worked so no over-
section 7(e) of the Act as amended.                 time compensation is due.
[46 FR 7318, Jan. 23, 1981; 46 FR 33516, June 30,
                                                      (2) In the second week he works 45
1981]                                               hours and receives $300. The books
                                                    show he has received $192 for the first
              PSEUDO-BONUSES                        40 hours and $36 (5 hours×$7.20 an hour)
                                                    for the 5 hours over 40, or a total of $228
§ 778.502 Artificially labeling part of             as wages, and the balance as a bonus of
    the regular wages a ‘‘bonus’’.                  $72. Overtime compensation is then
   (a) The term ‘‘bonus’’ is properly ap­           computed by the employer by dividing
plied to a sum which is paid as an addi­            $72 by 45 hours to discover the average
tion to total wages usually because of              hourly increase resulting from the
extra effort of one kind or another, or             bonus—$1.60 per hour—and half this
as a reward for loyal service or as a               rate is paid for the 5 overtime hours—
gift. The term is improperly applied if             $4. This is improper. The employee’s
it is used to designate a portion of reg­           regular rate in this week is $6.67 per
ular wages which the employee is enti­              hour. He is owed $316.85 not $304.
tled to receive under his regular wage                (3) In the third week the employee
contract.                                           works 50 hours and is paid $300. The
   (b) For example, if an employer has              books show that the employee received
agreed to pay an employee $300 a week               $192 for the first 40 hours and $72 (10
without regard to the number of hours               hours×$7.20 per hour) for the 10 hours
worked, the regular rate of pay of the              over 40, for a total of $264 and the bal­
employee is determined each week by                 ance as a bonus of $36. Overtime pay
dividing the $300 salary by the number              due on the ‘‘bonus’’ is found to be $3.60.
of hours worked in the week. The situ­              This is improper. The employee’s reg­
ation is not altered if the employer                ular rate in this week is $6 and he is
continues to pay the employee, whose                owed $330, not $303.60.
applicable maximum hours standard is                  (d) Similar schemes have been de-
40 hours, the same $300 each week but               vised for piece-rate employees. The
arbitrarily breaks the sum down into                method is the same. An employee is as-
wages for the first 40 hours at an hour­            signed an arbitrary hourly rate (usu­
ly rate of $4.80 an hour, overtime com­             ally the minimum) and it is agreed
pensation at $7.20 per hour and labels              that his straight-time and overtime
the balance a ‘‘bonus’’ (which will vary            earnings will be computed on this rate
from week to week, becoming smaller                 but that if these earnings do not
as the hours increase and vanishing en­             amount to the sum he would have
tirely in any week in which the em­                 earned had his earnings been computed
ployee works 55 hours or more). The                 on a piece-rate basis of ‘‘x’’ cents per
situation is in no way bettered if the              piece, he will be paid the difference as
employer, standing by the logic of his              a ‘‘bonus.’’ The subterfuge does not
labels, proceeds to compute and pay                 serve to conceal the fact that this em­
overtime compensation due on this                   ployee is actually compensated on a
‘‘bonus’’ by prorating it back over the             piece-rate basis, that there is no bonus
hours of the workweek. Overtime com­                and his regular rate is the quotient of
pensation has still not been properly
                                                    piece-rate earnings divided by hours
computed for this employee at his reg­
                                                    worked (Walling v. Youngerman-Rey­
ular rate.
                                                    nolds Hardwood Company, 325 U.S. 419).
   (c) An illustration of how the plan
                                                      (e) The general rule may be stated
works over a 3-week period may serve
                                                    that wherever the employee is guaran­
to illustrate this principle more clear­
                                                    teed a fixed or determinable sum as his
ly:
                                                    wages each week, no part of this sum is
   (1) In the first week the employee
                                                    a true bonus and the rules for deter-
whose applicable maximum hours
                                                    mining overtime due on bonuses do not
standard is 40 hours, works 40 hours
                                                    apply.
and receives $300. The books show he
has received $192 (40 hours×$4.80 an                [33 FR 986, Jan. 26, 1968; 33 FR 3172, Feb. 20,
hour) as wages and $108 as bonus. No                1968, as amended at 46 FR 7318, Jan. 23, 1981]

                                                433

§ 778.503                                                                                             29 CFR Ch. V (7– 1– 02 Edition)

§ 778.503 Pseudo        ‘‘percentage    bo­                                               matter how many hours the employee
     nuses.’’                                                                             works. The employee’s regular rate is
   As explained in § 778.210 of this part, a                                              $300 divided by the number of hours
true bonus based on a percentage of                                                       worked in the particular week, and his
total wages—both straight time and                                                        overtime compensation due must be
overtime wages—satisfies the Act’s                                                        computed as shown in § 778.114.
overtime requirements, if it is paid un­                                                  [46 FR 7319, Jan. 23, 1981]
conditionally. Such a bonus increases
both straight time and overtime wages
by the same percentage, and thereby                                                            Subpart G— Miscellaneous
includes proper overtime compensation
as an arithmetic fact. Some bonuses,                                                      § 778.600 Veterans’ subsistence allow­
however, although expressed as a per­                                                         ances.
centage of both straight time and over-                                                     Subsistence allowances paid under
time wages, are in fact a sham. Such                                                      Public Law 346 (commonly known as
bonuses, like the bonuses described in                                                    the G.I. bill of rights) to a veteran em­
§ 778.502 of this part, are generally sepa­                                               ployed in on-the-job training program
rated out of a fixed weekly wage and                                                      work may not be used to offset the
usually decrease in amount in direct                                                      wages to which he is entitled under the
proportion to increases in the number                                                     Fair Labor Standards Act. The subsist­
of hours worked in a week in excess of                                                    ence allowances provided by Public
40. The hourly rate purportedly paid                                                      Law 346 for payment to veterans are
under such a scheme is artificially low,                                                  not paid as compensation for services
and the difference between the wages
                                                                                          rendered to an employer nor are they
paid at the hourly rate and the fixed
                                                                                          intended as subsidy payments for such
weekly compensation is labeled a per­
centage of wage ‘‘bonus.’’                                                                employer. In order to qualify as wages
                                                                                          under either section 6 or section 7 of
  Example: An employer’s wage records show                                                the Act, sums paid to an employee
an hourly rate of $5.62 per hour, and an over-                                            must be paid by or on behalf of the em­
time rate of one and one-half times that
amount, or $8.43 per hour. In addition, the                                               ployer. Since veterans’ subsistence al­
employer pays an alleged percentage of wage                                               lowances are not so paid, they may not
bonus on which no additional overtime com­                                                be used to make up the minimum wage
pensation is paid:                                                                        or overtime pay requirements of the
Week 1—40 hours worked:                                                                   Act nor are they included in the reg­
   40 hours at $5.62 per hour ..............................                    $224.80
   Percentage of total earnings bonus at 33.45%                                           ular rate of pay under section 7.
     of $224.80 .....................................................             75.20
                                                                                          § 778.601 Special overtime provisions
            Total ...........................................................    300.00       available for hospital and residen­
Week 2—43 hours worked:                                                                       tial care establishments under sec­
   40 hours at $5.62 per hour ..............................                     224.80       tion 7(j).
   3 hours at $8.43 per hour ................................                     25.29
                                                                                            (a) The statutory provision. Section
            Subtotal .....................................................       250.09   7(j) of the Act provides, for hospital
Percentage of total earnings bonus at 19.96% of
                                                                                          and residential care establishment em­
  $250.09 ................................................................        49.91   ployment, under prescribed conditions,
                                                                                          an exemption from the general require­
            Total ...........................................................    300.00
                                                                                          ment of section 7(a) that overtime
Week 3—48 hours worked:                                                                   compensation be computed on a work-
   40 hours at $5.62 per hour ..............................                     224.80   week basis. It permits a 14-day period
   8 hours at $8.43 per hour ................................                     67.44
                                                                                          to be established for the purpose of
        Subtotal .....................................................           292.24   computing overtime compensation by
Percentage of total earnings bonus at 2.66% of
  $292.24 ................................................................         7.76
                                                                                          an agreement or understanding be-
                                                                                          tween an employer engaged in the op­
            Total ...........................................................    300.00   eration of a hospital or residential care
This employee is in fact being paid no                                                    establishment, and any of his employ­
overtime compensation at all. The                                                         ees employed in connection therewith.
records in fact reveal that the em­                                                       The exemption provided by section 7(j)
ployer pays exactly $300 per week, no                                                     applies:

                                                                                      434

Wage and Hour Division, Labor                                                    § 778.601

if, pursuant to an agreement or under-         (d) Payment for overtime under the spe­
standing arrived at between the em­          cial provisions. If the parties have the
ployer and employee before perform­          necessary agreement or understanding
ance of the work, a work period of 14        to use the 14-day period, computation
consecutive days is accepted in lieu of      of overtime pay on the workweek basis
the workweek of 7 consecutive days for       as provided in section 7(a) is not re­
purposes of overtime computation and         quired so long as the employee receives
if, for his employment in excess of 8        overtime compensation at a rate not
hours in any workday and in excess of        less than one and one-half times his
80 hours in such 14-day period, the em­      regular rate of pay ‘‘for his employ­
ployee receives compensation at a rate       ment in excess of 8 hours in any work-
not less than one and one-half times         day and in excess of 80 hours in such 14-
the regular rate at which he is em­          day period.’’ Such compensation is re­
ployed.                                      quired for all hours in such period in
  (b) Conditions for application of exemp­   excess of eight in any workday or
tion. As conditions for use of the 14-day    workdays therein which are worked by
period in lieu of the workweek in com­       the employee, whether or not more
puting overtime, section 7(j) requires,      than 80 hours are worked in the period.
first, an agreement or understanding         The first workday in the period, for
between the employer and the em­             purposes of this computation, begins at
ployee before performance of the work        the same time as the 14-day period and
that such period is to be used, and sec­     ends 24 hours later. Each of the 13 con­
ond, the payment to the employee of          secutive 24-hour periods following con­
overtime compensation at a rate not          stitutes an additional workday of the
less than one and one-half times his         14-day period. Overtime compensation
regular rate for all hours worked in ex­     at the prescribed time and one-half
cess of eight in any workday within          rate is also required for all hours
such period and in excess of 80 during       worked in excess of 80 in the 14-day pe­
the period as a whole.                       riod, whether or not any daily over-
  (c) The agreement or understanding.        time is worked during the first 80
The agreement or understanding be-           hours. However, under the provisions of
tween the employer and employee to           section 7(h) and 7(e)(5) of the Act, any
use the 14-day period for computing
                                             payments at the premium rate for
overtime must be entered into before
                                             daily overtime hours within such pe­
the work to which it is intended to
                                             riod may be credited toward the over-
apply is performed. It may be arrived
                                             time compensation due for overtime
at directly with the employee or
through his representative. It need not      hours in excess of 80.
be in writing, but if it is not, a special     (e) Use of 14-day period in lieu of work-
record concerning it must be kept as         week. Where the 14-day period is used
required by part 516 of this chapter.        as authorized in section 7(j), such pe­
The 14-day period may begin at any           riod is used in lieu of the workweek in
hour of any day of the week; it need         computing the regular rate of pay of
not commence at the beginning of a           employees to whom it applies (i.e.,
calendar day. It consists of 14 consecu­     those of the hospital’s or residential
tive 24-hour periods, at the end of          care establishment’s employees with
which a new 14-day period begins. The        whom the employer has elected to
election to use the 14-day period in lieu    enter into the necessary agreement or
of the workweek must, like selection of      understanding as explained in para-
an employee’s workweek (§ 778.105) be        graph (c) of this section). With this ex­
with the intent to use such period per­      ception, the computation of the regular
manently or for a substantial period of      rate and the application of statutory
time. Changes from such period to the        exclusions therefrom is governed by
workweek and back again to take ad-          the general principles set forth in this
vantage of less onerous overtime pay         part 778.
liabilities with respect to particular
work schedules under one system than         [33 FR 986, Jan. 26, 1968, as amended at 46 FR
under the other are not permissible.         7319, Jan. 23, 1981; 46 FR 33516, June 30, 1981]


                                         435

§ 778.602                                                                       29 CFR Ch. V (7– 1– 02 Edition)

§ 778.602 Special overtime provisions                                for 12 hours at $7.80 an hour (11⁄2×$5.20),
    under section 7(b).                                              a total of $93.60 for the overtime hours,
  (a) Daily and weekly overtime stand­                               and to pay at his regular rate for the
ards. The general overtime pay require­                              remaining 56 hours (56×$5.20) in the
ments of the Act provide for such pay                                amonut of $291.20 or a total of $384.80
only when the number of hours worked                                 for the week. If the employee had not
exceeds the standard specified for the                               worked the 8 hours on Saturday, his
workweek; no overtime compensation                                   total hours worked in the week would
on a daily basis is required. However,                               have been 60, of which five were daily
section 7 of the Act, in subsection (b),                             overtime hours, and there would have
provides certain partial exemptions                                  been no weekly overtime hours under
from the general overtime provisions,                                the section 7(b) standard. For such a
each of which is conditioned upon the                                schedule the employee would be enti­
payment to the employee of overtime                                  tled to 5 hours of overtime pay at time
compensation at a rate not less than                                 and one-half (5×11⁄2×$5.20=$39) plus the
one and one-half times his regular rate                              pay at his regular rate for the remain­
of pay for his hours worked in the                                   ing 55 hours (55×$5.20=$286), making a
workweek in excess of daily, as well as                              total of $325 due him for the week.
weekly, standards specified in the sub-                              [33 FR 986, Jan. 26, 1968, as amended at 34 FR
section. Under these provisions, when                                144, Jan. 4, 1969; 46 FR 7319, Jan. 23, 1981]
an employee works in excess of both
the daily and weekly maximum hours                                   § 778.603 Special overtime provisions
                                                                         for certain employees receiving re-
standards in any workweek for which                                      medial education under section
such an exemption is claimed, he must                                    7(q).
be paid at such overtime rate for all
hours worked in the workweek in ex­                                     Section 7(q) of the Act, enacted as
cess of the applicable daily maximum                                 part of the 1989 Amendments, provides
or in excess of the applicable weekly                                an exemption from the overtime pay
maximum, whichever number of hours                                   requirements for time spent by certain
is greater. Thus, if his total hours of                              employees who are receiving remedial
work in the workweek which are in ex­                                education. The exemption provided by
cess of the daily maximum are 10, and                                section 7(q), as implemented by these
his hours in excess of the weekly max­                               regulations, allows any employer to re-
imum are 8, overtime compensation is                                 quire that an employee spend up to 10
required for 10 hours, not 8.                                        hours in the aggregate in any work-
  (b) Standards under section 7(b). The                              week in remedial education without
partial exemptions provided by section                               payment of overtime compensation
7(b) apply to an employee under the                                  provided that the employee lacks a
conditions specified in clause (1), (2), or                          high school diploma or educational at­
(3) of the subsection ‘‘if such employee                             tainment at the eighth-grade level; the
receives compensation for employment                                 remedial education is designed to pro-
in excess of 12 hours in any workday, or                             vide reading and other basic skills at
for employment in excess of 56 hours in                              an eighth-grade level or below, or to
any workweek, as the case may be, at                                 fulfill the requirements for a high
a rate not less than one and one-half                                school diploma or General Educational
times the regular rate at which he is                                Development (GED) certificate; and
employed.’’ As an example, suppose an                                the remedial education does not in­
employee is employed under the other                                 clude job-specific training. Employees
conditions specified for an exemption                                must be compensated at their regular
under section 7(b) at an hourly rate of                              rate of pay for the time spent receiving
$5.20 and works the following schedule:                              such remedial education. The employer
                                                                     must maintain a record of the hours
         Hours                M    T   W    T    F    S   S   Tot.   that an employee is engaged each
Worked ....................   14   9   10   15   12   8   0    68
                                                                     workday and each workweek in receiv­
                                                                     ing remedial education, and the com­
  Number of overtime hours: Daily, 5 (hours over 12); weekly,
12 (hours over 56).                                                  pensation paid each pay period for the
                                                                     time so engaged, as described in 29 CFR
Since the weekly overtime hours are                                  516.34. The remedial education must be
greater, the employee is entitled to pay                             conducted during discrete periods of

                                                                 436

Wage and Hour Division, Labor

time set aside for such a program, and,
to the maximum extent practicable,
away from the employee’s normal work
station. An employer has the burden to
establish compliance with all applica­
ble requirements of this special over-
time provision as set forth in section
7(q) of the Act and in this section of
the regulations. Section 7(q) is solely
an exemption from the overtime provi­
sions of section 7(a) of the Act. It is not
an exemption from the requirements of
any other law that regulates employ­
ment practices, including the stand­
ards that are used to select individuals
for employment. An employer creating
a remedial education program pursuant
to section 7(q) should be mindful not to
violate other applicable requirements.
See, for example, title VII of the Civil
Rights Act of 1964, as amended, 42
U.S.C. 2000e et seq.; Executive Order
11246, as amended, 3 CFR part 339 (1964–
1965 Compilation), reprinted in 42 U.S.C.
2000e note; the Rehabilitation Act of
1973, as amended, 29 U.S.C. 701 et seq.;
and the Uniform Guidelines on Em­
ployee Selection Procedures published
at 41 CFR part 60–3.
[56 FR 61101, Nov. 29, 1991]




                                          437

								
To top