29 CFR Ch. V (7–1–20 Edition) § 778.104

§ 776.30 29 CFR Ch. V (7–1–20 Edition)

until authoritative court decision in 778.101 Maximum nonovertime hours. the future hold otherwise, the con- 778.102 Application of overtime provisions struction of such new highways and ex- generally. pressways will be regarded as covered. 778.103 The workweek as the basis for applying section 7(a). 778.104 Each workweek stands alone. § 776.30 Construction performed on 778.105 Determining the workweek. temporarily idle facilities. 778.106 Time of payment. The Act applies to work on a covered interstate instrumentality or produc- PRINCIPLES FOR COMPUTING OVERTIME PAY tion facility even though performed BASED ON THE ‘‘REGULAR RATE’’ during periods of temporary non-use or 778.107 General standard for overtime pay. idleness. 52 The courts have held the 778.108 The ‘‘regular rate’’. Act applicable to performance of con- 778.109 The regular rate is an hourly rate. 778.110 Hourly rate employee. struction work upon a covered facility 778.111 Pieceworker. even though the use of the facility was 778.112 Day rates and job rates. temporarily interrupted or discon- 778.113 Salaried employees—general. tinued. 53 It is equally clear that the re- 778.114 Fixed salary for fluctuating hours. pair or maintenance of a covered facil- 778.115 Employees working at two or more ity (including its machinery, tools, rates. dies, and other equipment) though per- 778.116 Payments other than cash. 778.117 Commission payments—general. formed during the inactive or dead sea- 778.118 Commission paid on a workweek 54 son, is subject to the Acts. basis. 778.119 Deferred commission payments— PART 778—OVERTIME general rules. COMPENSATION 778.120 Deferred commission payments not identifiable as earned in particular workweeks. Subpart A—General Considerations 778.121 Commission payments—delayed Sec. credits and debits. 778.0 Introductory statement. 778.122 Computation of overtime for com- 778.1 Introductory statement. mission employees on established basic 778.2 Coverage and exemptions not dis- rate. cussed. 778.3 Interpretations made, continued, and Subpart C—Payments That May Be superseded by this part. Excluded From the ‘‘Regular Rate’’ 778.4 Reliance on interpretations. 778.5 Relation to other laws generally. THE STATUTORY PROVISIONS 778.6 Effect of Davis-Bacon Act. 778.200 Provisions governing inclusion, ex- 778.7 Effect of Service Contract Act of 1965. clusion, and crediting of particular payments. Subpart B—The Overtime Pay Requirements EXTRA COMPENSATION PAID FOR OVERTIME 778.201 Overtime premiums—general. INTRODUCTORY 778.202 Premium pay for hours in excess of a 778.100 The maximum-hours provisions. daily or weekly standard. 778.203 Premium pay for work on Saturdays, certiorari denied 345 U.S. 915; and Bennett v. Sundays, and other ‘‘special days’’. V. P. Loftis Co., 167 F. (2d) 286. 778.204 ‘‘Clock pattern’’ premium pay. 52 Walton v. Southern Package Corp., 320 U.S. 778.205 Premiums for weekend and holiday 540; Slover v. Wathen & Co., 140 F. (2d) 258 work—example. (C.A. 4); Bodden v. McCormick Shipping Corp., 778.206 Premiums for work outside basic 188 F. (2d) 733; and Russell Co. v. McComb, 187 workday or workweek—examples. F. (2d) 524 (C.A. 5). 778.207 Other types of contract premium 53 Pedersen v. J. F. Fitzgerald Construction pay distinguished. Co., ante; Bennett v. V. P. Loftis, ante; BONUSES Walling v. McCrady Const. Co., ante; and Bodden v. McCormick Shipping Corp., 188 F. 778.208 Inclusion and exclusion of bonuses in (2d) 733. computing the ‘‘regular rate’’. 54 Maneja v. Waialua Agricultural Co., 349 778.209 Method of inclusion of bonus in reg- U.S. 254; Bowie v. Gonzalez, 117 F. (2d) 11; ular rate. Weaver v. Pittsburgh Steamship Co., 153 F. (2d) 778.210 Percentage of total earnings as 597, certiorari denied 328 U.S. 858; Walling v. bonus. Keensburg Steamship Co., 462 F. (2d) 405. 778.211 Discretionary bonuses.

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778.212 Gifts, Christmas and special occa- 778.313 Computing overtime pay under the sion bonuses. Act for employees compensated on task 778.213 Profit-sharing, thrift, and savings basis. plans. 778.314 Special situations. 778.214 Benefit plans; including profit-sharing plans or trusts providing similar ben- EFFECT OF FAILURE TO COUNT OR PAY FOR efits. CERTAIN WORKING HOURS 778.215 Conditions for exclusion of benefit- plan contributions under section 7(e)(4). 778.315 Payment for all hours worked in overtime workweek is required. PAYMENTS NOT FOR HOURS WORKED 778.316 Agreements or practices in conflict 778.216 The provisions of section 7(e)(2) of with statutory requirements are ineffec- the Act. tive. 778.217 Reimbursement for expenses. 778.317 Agreements not to pay for certain 778.218 Pay for certain idle hours. nonovertime hours. 778.219 Pay for foregoing holidays and un- 778.318 Productive and nonproductive hours used leave. of work. 778.220 ‘‘Show-up’’ or ‘‘reporting’’ pay. 778.221 ‘‘Call-back’’ pay. EFFECT OF PAYING FOR BUT NOT COUNTING 778.222 Other payments similar to ‘‘call- CERTAIN HOURS back’’ pay. 778.223 Pay for non-productive hours distin- 778.319 Paying for but not counting hours guished. worked. 778.224 ‘‘Other similar payments’’. 778.320 Hours that would not be hours worked if not paid for. TALENT FEES IN THE RADIO AND TELEVISION INDUSTRY REDUCTION IN WORKWEEK SCHEDULE WITH NO 778.225 Talent fees excludable under regula- CHANGE IN PAY tions. 778.321 Decrease in hours without decrease in pay—general. Subpart D—Special Problems 778.322 Reducing the fixed workweek for INTRODUCTORY which a salary is paid. 778.323 Effect if salary is for variable work- 778.300 Scope of subpart. week. CHANGE IN THE BEGINNING OF THE WORKWEEK 778.324 Effect on hourly rate employees. 778.325 Effect on salary covering more than 778.301 Overlapping when change of work- 40 hours’ pay. week is made. 778.302 Computation of overtime due for 778.326 Reduction of regular overtime work- overlapping workweeks. week without reduction of take-home pay. ADDITIONAL PAY FOR PAST PERIOD 778.327 Temporary or sporadic reduction in 778.303 Retroactive pay increases. schedule. 778.328 Plan for gradual permanent reduc- HOW DEDUCTIONS AFFECT THE REGULAR RATE tion in schedule. 778.304 Amounts deducted from cash 778.329 Alternating workweeks of different wages—general. fixed lengths. 778.305 Computation where particular types PRIZES AS BONUSES of deductions are made. 778.306 Salary reductions in short work- 778.330 Prizes or contest awards generally. weeks. 778.331 Awards for performance on the job. 778.307 Disciplinary deductions. 778.332 Awards for activities not normally LUMP SUM ATTRIBUTED TO OVERTIME part of employee’s job. 778.333 Suggestion system awards. 778.308 The overtime rate is an hourly rate. 778.309 Fixed sum for constant amount of Subpart E—Exceptions From the Regular overtime. 778.310 Fixed sum for varying amounts of Rate Principles overtime. COMPUTING OVERTIME PAY ON AN 778.311 Flat rate for special job performed in ‘‘ESTABLISHED’’ RATE overtime hours. 778.400 The provisions of section 7(g)(3) of ‘‘TASK’’ BASIS OF PAYMENT the Act. 778.312 Pay for task without regard to ac- 778.401 Regulations issued under section tual hours. 7(g)(3).

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GUARANTEED COMPENSATION WHICH INCLUDES AUTHORITY: 52 Stat. 1060, as amended; 29 OVERTIME PAY U.S.C. 201 et seq. Section 778.200 also issued under Pub. L. 106–202, 114 Stat. 308 (29 U.S.C. 778.402 The statutory exception provided by 207(e) and (h)). section 7(f) of the Act. 778.403 Constant pay for varying workweeks SOURCE: 33 FR 986, Jan. 26, 1968, unless oth- including overtime is not permitted ex- erwise noted. cept as specified in section 7(f). 778.404 Purposes of exemption. Subpart A—General 778.405 What types of employees are affected. Considerations 778.406 Nonovertime hours as well as overtime hours must be irregular if section § 778.0 Introductory statement. 7(f) is to apply. The Fair Labor Standards Act, as 778.407 The nature of the section 7(f) con- amended, hereinafter referred to as the tract. Act, is a Federal statute of general ap- 778.408 The specified regular rate. plication which establishes minimum 778.409 Provision for overtime pay. wage, overtime pay, child labor, and 778.410 The guaranty under section 7(f). equal pay requirements that apply as 778.411 Sixty-hour limit on pay guaranteed by contract. provided in the Act. All employees 778.412 Relationship between amount guar- whose employment has the relation- anteed and range of hours employee may ship to interstate or foreign commerce be expected to work. which the Act specifies are subject to 778.413 Guaranty must be based on rates the prescribed labor standards unless specified in contract. specifically exempted from them. Em- 778.414 ‘‘Approval’’ of contracts under sec- ployers having such employees are re- tion 7(f). quired to comply with the Act’s provi- COMPUTING OVERTIME PAY ON THE RATE AP- sions in this regard unless relieved PLICABLE TO THE TYPE OF WORK PERFORMED therefrom by some exemption in the IN OVERTIME HOURS (SECS. 7(g)(1) AND (2)) Act. Such employers are also required 778.415 The statutory provisions. to comply with specified recordkeeping 778.416 Purpose of provisions. requirements contained in part 516 of 778.417 General requirements of section 7(g). this chapter. The law authorizes the 778.418 Pieceworkers. Department of Labor to investigate for 778.419 Hourly workers employed at two or compliance and, in the event of viola- more jobs. tions, to supervise the payment of un- 778.420 Combined hourly rates and piece paid wages or unpaid overtime com- rates. pensation owing to any employee. The 778.421 Offset hour for hour. law also provides for enforcement in Subpart F—Pay Plans Which Circumvent the courts. the Act § 778.1 Introductory statement. DEVICES TO EVADE THE OVERTIME (a) This part contains the Depart- REQUIREMENTS ment of Labor’s general interpreta- 778.500 Artificial regular rates. tions with respect to the meaning and 778.501 The ‘‘split-day’’ plan. application of the maximum hours and overtime pay requirements contained PSEUDO-BONUSES in section 7 of the Fair Labor Stand- 778.502 Artificially labeling part of the reg- ards Act of 1938, as amended (‘‘the Act’’ ular wages a ‘‘bonus’’. or ‘‘FLSA’’). The Administrator of the 778.503 Pseudo ‘‘percentage bonuses’’. Wage and Hour Division will use these Subpart G—Miscellaneous interpretations to guide the performance of his or her duties under the Act, 778.600 Veterans’ subsistence allowances. and intends the interpretations to be 778.601 Special overtime provisions avail- used by employers, employees, and able for hospital and residential care es- courts to understand employers’ obli- tablishments under section 7(j). gations and employees’ rights under 778.602 Special overtime provisions under section 7(b). the Act. These official interpretations 778.603 Special overtime provisions for cer- are issued by the Administrator on the tain employees receiving remedial edu- advice of the Solicitor of Labor, as au- cation under section 7(q). thorized by the Secretary (Reorg. Pl. 6

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of 1950, 64 Stat. 1263; Gen. Ord. 45A, § 778.3 Interpretations made, contin- published in the FEDERAL REGISTER on ued, and superseded by this part. May 24, 1950). On and after publication of this part (b) The Department recognizes that in the FEDERAL REGISTER, the interpre- compensation practices can vary sig- tations contained therein shall be in ef- nificantly and will continue to evolve fect and shall remain in effect until in the future. The Department also rec- they are modified, rescinded or with- ognizes that it is not feasible to ad- drawn. This part supersedes and re- dress all of the various compensation places the interpretations previously and benefits arrangements that may published in the FEDERAL REGISTER exist between employers and employ- and Code of Federal Regulations as ees, both currently and in the future. part 778 of this chapter. Prior opinions, In general, the FLSA does not restrict rulings and interpretations and prior the forms of ‘‘remuneration’’ that an enforcement policies which are not in- employer may pay—which may include consistent with the interpretations in an hourly rate, salary, commission, this part or with the Fair Labor Stand- piece rate, a combination thereof, or ards Act as amended are continued in any other method—as long as the reg- effect; all other opinions, rulings, interpretations, and enforcement policies ular rate is equal to at least the appli- on the subjects discussed in the inter- cable minimum wage and compensa- pretations in this part are rescinded tion for overtime hours worked is paid and withdrawn. Questions on matters at the rate of at least one and one-half not fully covered by this part may be times the regular rate. While the eight addressed to the Administrator of the categories of payments in section Wage and Hour Division, U.S. Depart- 7(e)(1)–(8) are the exhaustive list of ment of Labor, Washington, DC 20210, payments excludable from the regular or to any Regional Office of the Divi- rate, this part does not contain an ex- sion. haustive list of permissible or imper- missible compensation practices under [46 FR 7309, Jan. 23, 1981] section 7(e), unless otherwise indicated. § 778.4 Reliance on interpretations. Rather, it provides examples of regular rate and overtime calculations under The interpretations of the law contained in this part 778 are official inter- the FLSA and the types of compensa- pretations which may be relied upon as tion that may be excluded from regular provided in section 10 of the Portal-to- rate calculations under section 7(e) of Portal Act of 1947 (61 Stat. 84). the FLSA. [84 FR 68770, Dec. 16, 2019] § 778.5 Relation to other laws generally. § 778.2 Coverage and exemptions not Various Federal, State, and local discussed. laws require the payment of minimum This part 778 does not deal with the hourly, daily or weekly wages different general coverage of the Act or various from the minimum set forth in the specific exemptions provided in the Fair Labor Standards Act, and the payment of overtime compensation com- statute, under which certain employees puted on bases different from those set within the general coverage of the forth in the Fair Labor Standards Act. wage and hours provisions are wholly Where such legislation is applicable or partially excluded from the protec- and does not contravene the require- tion of the Act’s minimum-wage and ments of the Fair Labor Standards Act, overtime-pay requirements. Some of nothing in the act, the regulations or these exemptions are self-executing; the interpretations announced by the others call for definitions or other ac- Administrator should be taken to over- tion by the Administrator. Regulations ride or nullify the provisions of these and interpretations relating to general laws. Compliance with other applicable coverage and specific exemptions may legislation does not excuse noncompli- be found in other parts of this chapter. ance with the Fair Labor Standards Act. Where a higher minimum wage

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than that set in the Fair Labor Stand- subcontractors employed in work on ards Act is applicable to an employee such contracts, contains the following by virtue of such other legislation, the provision: regular rate of the employee, as the term is used in the Fair Labor Stand- SEC. 6. In determining any overtime pay to which such service employees are entitled ards Act, cannot be lower than such ap- under any Federal law, the regular or basic plicable minimum, for the words ‘‘reg- hourly rate of pay of such an employee shall ular rate at which he is employed’’ as not include any fringe benefit payments used in section 7 must be construed to computed hereunder which are excluded mean the regular rate at which he is from the regular rate under the Fair Labor lawfully employed. Standards Act by provisions of section 7(e)* thereof. (*Subsection designation changed in § 778.6 Effect of Davis-Bacon Act. text from section 7(d) to 7(e) to conform with Section 1 of the Davis-Bacon Act (46 the relettering enacted by the Fair Labor Stat. 1494, as amended; 40 U.S.C. 276a) Standards Amendments of 1966.) provides for the inclusion of certain Where the fringe benefits specified in fringe benefits in the prevailing wages such a service contract are furnished to that are predetermined by the Sec- an employee, the above provision per- retary of Labor, under that Act and re- mits exclusion of such fringe benefits lated statutes, as minimum wages for from the employee’s regular rate of pay laborers and mechanics employed by under the Fair Labor Standards Act contractors and subcontractors per- pursuant to the rules and principles set forming construction activity on Fed- forth in subpart C of this part 778. How- eral and federally assisted projects. La- ever, the McNamara-O’Hara Act per- borers and mechanics performing work mits an employer to discharge his obli- subject to such predetermined min- gation to provide the specified fringe imum wages may, if they work over- benefits by furnishing any equivalent time, be subject to overtime compensation provisions of other laws which combinations of bona fide fringe bene- may apply concurrently to them, in- fits or by making equivalent or dif- cluding the Fair Labor Standards Act. ferential payments in cash. Permis- In view of this fact, specific provision sible methods of doing this are set was made in the Davis-Bacon Act for forth in part 4 of this title, subpart B. the treatment of such predetermined If the employer furnishes equivalent fringe benefits in the computation of benefits or makes cash payments, or overtime compensation under other ap- both, to an employee as therein au- plicable statutes including the Fair thorized, the amounts thereof, to the Labor Standards Act. The application extent that they operate to discharge of this provision is discussed in § 5.32 of the employer’s obligation under the this title, which should be considered McNamara-O’Hara Act to furnish such together with the interpretations in specified fringe benefits, may be ex- this part 778 in determining any over- cluded pursuant to such Act from the time compensation payable under the employee’s regular or basic rate of pay Fair Labor Standards Act to such la- in computing any overtime pay due the borers and mechanics in any workweek employee under the Fair Labor Stand- when they are subject to fringe benefit ards Act, pursuant to the rule provided wage determinations under the Davis- in § 4.55 of this title. This means that Bacon and related acts. such equivalent fringe benefits or cash payments which are authorized under § 778.7 Effect of Service Contract Act the McNamara-O’Hara Act to be proof 1965. vided in lieu of the fringe benefits spec- The McNamara-O’Hara Service Con- ified in determinations issued under tract Act of 1965, which provides for such Act are excludable from the reg- the predetermination and the specifica- ular rate in applying the overtime pro- tion in service contracts entered into visions of the Fair Labor Standards by the Federal Government or the Dis- Act if the fringe benefits specified trict of Columbia, of the minimum under the McNamara-O’Hara Act would wages and fringe benefits to be re- be so excludable if actually furnished. ceived by employees of contractors and This is true regardless of whether the

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equivalent benefits or payments them- § 778.102 Application of overtime pro- selves meet the requirements of sec- visions generally. tion 7(e) of the Fair Labor Standards Since there is no absolute limitation Act and subpart C of this part 778. in the Act (apart from the child labor provisions and regulations thereunder) Subpart B—The Overtime Pay on the number of hours that an em- Requirements ployee may work in any workweek, he may work as many hours a week as he INTRODUCTORY and his employer see fit, so long as the § 778.100 The maximum-hours provi- required overtime compensation is paid sions. him for hours worked in excess of the maximum workweek prescribed by sec- Section 7(a) of the Act deals with tion 7(a). The Act does not generally maximum hours and overtime com- require, however, that an employee be pensation for employees who are with- paid overtime compensation for hours in the general coverage of the Act and in excess of eight per day, or for work are not specifically exempt from its on Saturdays, Sundays, holidays or overtime pay requirements. It pre- regular days of rest. If no more than scribes the maximum weekly hours of the maximum number of hours pre- work permitted for the employment of scribed in the Act are actually worked such employees in any workweek within the workweek, overtime compensa- out extra compensation for overtime, tion pursuant to section 7(a) need not and a general overtime rate of pay not be paid. Nothing in the Act, however, less than one and one-half times the employee’s regular rate which the em- will relieve an employer of any obliga- ployee must receive for all hours tion he may have assumed by contract worked in any workweek in excess of or of any obligation imposed by other the applicable maximum hours. The Federal or State law to limit overtime employment by an employer of an em- hours of work or to pay premium rates ployee in any work subject to the Act for work in excess of a daily standard in any workweek brings these provi- or for work on Saturdays, Sundays, sions into operation. The employer is holidays, or other periods outside of or prohibited from employing the em- in excess of the normal or regular ployee in excess of the prescribed max- workweek or workday. (The effect of imum hours in such workweek without making such payments is discussed in paying him the required extra com- §§ 778.201 through 778.207 and 778.219.) pensation for the overtime hours [46 FR 7309, Jan. 23, 1981] worked at a rate meeting the statutory requirement. § 778.103 The workweek as the basis for applying section 7(a). § 778.101 Maximum nonovertime hours. If in any workweek an employee is covered by the Act and is not exempt As a general standard, section 7(a) of from its overtime pay requirements, the Act provides 40 hours as the max- the employer must total all the hours imum number that an employee sub- worked by the employee for him in ject to its provisions may work for an that workweek (even though two or employer in any workweek without re- more unrelated job assignments may ceiving additional compensation at not have been performed), and pay over- less than the statutory rate for overtime compensation for each hour time. Hours worked in excess of the worked in excess of the maximum statutory maximum in any workweek hours applicable under section 7(a) of are overtime hours under the statute; a the Act. In the case of an employee em- workweek no longer than the pre- ployed jointly by two or more employ- scribed maximum is a nonovertime ers (see part 791 of this chapter), all workweek under the Act, to which the hours worked by the employee for such pay requirements of section 6 (min- employers during the workweek must imum wage and equal pay) but not be totaled in determining the number those of section 7(a) are applicable. of hours to be compensated in accord- [46 FR 7309, Jan. 23, 1981] ance with section 7(a). The principles

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for determining what hours are hours weekly. The general rule is that over- worked within the meaning of the Act time compensation earned in a par- are discussed in part 785 of this chap- ticular workweek must be paid on the ter. regular pay day for the period in which such workweek ends. When the correct § 778.104 Each workweek stands alone. amount of overtime compensation can- The Act takes a single workweek as not be determined until some time its standard and does not permit aver- after the regular pay period, however, aging of hours over 2 or more weeks. the requirements of the Act will be sat- Thus, if an employee works 30 hours isfied if the employer pays the excess one week and 50 hours the next, he overtime compensation as soon after must receive overtime compensation the regular pay period as is prac- for the overtime hours worked beyond ticable. Payment may not be delayed the applicable maximum in the second for a period longer than is reasonably week, even though the average number necessary for the employer to compute of hours worked in the 2 weeks is 40. and arrange for payment of the amount This is true regardless of whether the due and in no event may payment be employee works on a standard or delayed beyond the next payday after swing-shift schedule and regardless of such computation can be made. Where whether he is paid on a daily, weekly, retroactive wage increases are made, biweekly, monthly or other basis. The rule is also applicable to pieceworkers retroactive overtime compensation is and employees paid on a commission due at the time the increase is paid, as basis. It is therefore necessary to de- discussed in § 778.303. For a discussion termine the hours worked and the com- of overtime payments due because of pensation earned by pieceworkers and increases by way of bonuses, see commission employees on a weekly § 778.209. basis. PRINCIPLES FOR COMPUTING OVERTIME § 778.105 Determining the workweek. PAY BASED ON THE ‘‘REGULAR RATE’’ An employee’s workweek is a fixed § 778.107 General standard for over- and regularly recurring period of 168 time pay. hours—seven consecutive 24-hour periods. It need not coincide with the cal- The general overtime pay standard in endar week but may begin on any day section 7(a) requires that overtime and at any hour of the day. For pur- must be compensated at a rate not less poses of computing pay due under the than one and one-half times the reg- Fair Labor Standards Act, a single ular rate at which the employee is ac- workweek may be established for a tually employed. The regular rate of plant or other establishment as a pay at which the employee is employed whole or different workweeks may be may in no event be less than the statu- established for different employees or tory minimum. (The statutory min- groups of employees. Once the begin- imum is the specified minimum wage ning time of an employee’s workweek applicable under section 6 of the Act, is established, it remains fixed regard- except in the case of workers specially less of the schedule of hours worked by provided for in section 14 and workers him. The beginning of the workweek in Puerto Rico, the Virgin Islands, and may be changed if the change is in- American Samoa who are covered by tended to be permanent and is not de- wage orders issued pursuant to section signed to evade the overtime require- 8 of the Act.) If the employee’s regular ments of the Act. The proper method of rate of pay is higher than the statutory computing overtime pay in a period in minimum, his overtime compensation which a change in the time of com- must be computed at a rate not less mencement of the workweek is made, than one and one-half times such high- is discussed in §§ 778.301 and 778.302. er rate. Under certain conditions prescribed in section 7 (f), (g), and (j), the § 778.106 Time of payment. Act provides limited exceptions to the There is no requirement in the Act application of the general standard of that overtime compensation be paid section 7(a) for computing overtime

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pay based on the regular rate. With re- due to employees must be computed on spect to these, see §§ 778.400 through the basis of the hourly rate derived 778.421 and 778.601 and part 548 of this therefrom and, therefore, it is nec- chapter. The Act also provides, in sec- essary to compute the regular hourly tion 7(b), (i), (k) and (m) and in section rate of such employees during each 13, certain partial and total exemptions workweek, with certain statutory ex- from the application of section 7(a) to ceptions discussed in §§ 778.400 through certain employees and under certain 778.421. The regular hourly rate of pay conditions. Regulations and interpreta- of an employee is determined by divid- tions concerning these exemptions are ing his total remuneration for employ- outside the scope of this part 778 and ment (except statutory exclusions) in reference should be made to other ap- any workweek by the total number of plicable parts of this chapter. hours actually worked by him in that [46 FR 7309, Jan. 23, 1981] workweek for which such compensation was paid. The following sections § 778.108 The ‘‘regular rate’’. give some examples of the proper The ‘‘regular rate’’ of pay under the method of determining the regular rate Act cannot be left to a declaration by of pay in particular instances: (The the parties as to what is to be treated maximum hours standard used in these as the regular rate for an employee; it examples is 40 hours in a workweek). must be drawn from what happens under the employment contract (Bay § 778.110 Hourly rate employee. Ridge Operating Co. v. Aaron, 334 U.S. (a) Earnings at hourly rate exclusively. 446). The Supreme Court has described If the employee is employed solely on it as the hourly rate actually paid the the basis of a single hourly rate, the employee for the normal, nonovertime hourly rate is the ‘‘regular rate.’’ For workweek for which he is employed— overtime hours of work the employee an ‘‘actual fact’’ (Walling v. must be paid, in addition to the Youngerman-Reynolds Hardwood Co., 325 straight time hourly earnings, a sum U.S. 419). Section 7(e) of the Act re- determined by multiplying one-half the quires inclusion in the ‘‘regular rate’’ hourly rate by the number of hours of ‘‘all remuneration for employment worked in excess of 40 in the week. paid to, or on behalf of, the employee’’ Thus a $12 hourly rate will bring, for an except payments specifically excluded employee who works 46 hours, a total by paragraphs (1) through (7) of that weekly wage of $588 (46 hours at $12 subsection. (These seven types of pay- plus 6 at $6). In other words, the em- ments, which are set forth in § 778.200 ployee is entitled to be paid an amount and discussed in §§ 778.201 through equal to $12 an hour for 40 hours and 778.224, are hereafter referred to as $18 an hour for the 6 hours of overtime, ‘‘statutory exclusions.’’) As stated by or a total of $588. the Supreme Court in the Youngerman- (b) Hourly rate and bonus. If the em- Reynolds case cited above: ‘‘Once the ployee receives, in addition to the parties have decided upon the amount earnings computed at the $12 hourly of wages and the mode of payment the rate, a production bonus of $46 for the determination of the regular rate be- week, the regular hourly rate of pay is comes a matter of mathematical com- $13 an hour (46 hours at $12 yields $552; putation, the result of which is unaf- the addition of the $46 bonus makes a fected by any designation of a contrary total of $598; this total divided by 46 ‘regular rate’ in the wage contracts.’’ hours yields a regular rate of $13). The employee is then entitled to be paid a § 778.109 The regular rate is an hourly total wage of $637 for 46 hours (46 hours rate. at $13 plus 6 hours at $6.50, or 40 hours The ‘‘regular rate’’ under the Act is a at $13 plus 6 hours at $19.50). rate per hour. The Act does not require employers to compensate employees on [76 FR 18857, Apr. 5, 2011] an hourly rate basis; their earnings may be determined on a piece-rate, sal- § 778.111 Pieceworker. ary, commission, or other basis, but in (a) Piece rates and supplements gen- such case the overtime compensation erally. When an employee is employed

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on a piece-rate basis, the regular hour- at $11) for the 46 hours of productive ly rate of pay is computed by adding work (instead of the $491 earned at together total earnings for the work- piece rates). In a week in which no week from piece rates and all other waiting time was involved, the em- sources (such as production bonuses) ployee would be owed an additional and any sums paid for waiting time or $5.50 (half time) for each of the 6 over- other hours worked (except statutory time hours worked, to bring the total exclusions). This sum is then divided compensation up to $539 (46 hours at $11 by the number of hours worked in the plus 6 hours at $5.50 or 40 hours at $11 week for which such compensation was plus 6 hours at $16.50). If the employee paid, to yield the pieceworker’s ‘‘reg- is paid at a different rate for waiting ular rate’’ for that week. For overtime time, the regular rate is the weighted work the pieceworker is entitled to be average of the 2 hourly rates, as dis- paid, in addition to the total weekly cussed in § 778.115. earnings at this regular rate for all [76 FR 18857, Apr. 5, 2011] hours worked, a sum equivalent to one- half this regular rate of pay multiplied § 778.112 Day rates and job rates. by the number of hours worked in ex- If the employee is paid a flat sum for cess of 40 in the week. (For an alter- a day’s work or for doing a particular native method of complying with the job, without regard to the number of overtime requirements of the Act as hours worked in the day or at the job, far as pieceworkers are concerned, see and if he receives no other form of § 778.418.) Only additional half-time pay compensation for services, his regular is required in such cases where the em- rate is determined by totaling all the ployee has already received straight- sums received at such day rates or job time compensation at piece rates or by rates in the workweek and dividing by supplementary payments for all hours the total hours actually worked. He is worked. Thus, for example, if the em- then entitled to extra half-time pay at ployee has worked 50 hours and has this rate for all hours worked in excess earned $491 at piece rates for 46 hours of 40 in the workweek. of productive work and in addition has been compensated at $8.00 an hour for 4 § 778.113 Salaried employees—general. hours of waiting time, the total com- (a) Weekly salary. If the employee is pensation, $523.00, must be divided by employed solely on a weekly salary the total hours of work, 50, to arrive at basis, the regular hourly rate of pay, the regular hourly rate of pay—$10.46. on which time and a half must be paid, For the 10 hours of overtime the em- is computed by dividing the salary by ployee is entitled to additional com- the number of hours which the salary pensation of $52.30 (10 hours at $5.23). is intended to compensate. If an em- For the week’s work the employee is ployee is hired at a salary of $350 and if thus entitled to a total of $575.30 it is understood that this salary is (which is equivalent to 40 hours at compensation for a regular workweek $10.46 plus 10 overtime hours at $15.69). of 35 hours, the employee’s regular rate (b) Piece rates with minimum hourly of pay is $350 divided by 35 hours, or $10 guarantee. In some cases an employee is an hour, and when the employee works hired on a piece-rate basis coupled with overtime the employee is entitled to a minimum hourly guaranty. Where receive $10 for each of the first 40 hours the total piece-rate earnings for the and $15 (one and one-half times $10) for workweek fall short of the amount each hour thereafter. If an employee is that would be earned for the total hired at a salary of $375 for a 40-hour hours of work at the guaranteed rate, week the regular rate is $9.38 an hour. the employee is paid the difference. In (b) Salary for periods other than work- such weeks the employee is in fact paid week. Where the salary covers a period at an hourly rate and the minimum longer than a workweek, such as a hourly guaranty is the regular rate in month, it must be reduced to its work- that week. In the example just given, if week equivalent. A monthly salary is the employee was guaranteed $11 an subject to translation to its equivalent hour for productive working time, the weekly wage by multiplying by 12 (the employee would be paid $506 (46 hours number of months) and dividing by 52

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(the number of weeks). A semimonthly rate of the employee will vary from salary is translated into its equivalent week to week and is determined by di- weekly wage by multiplying by 24 and viding the number of hours worked in dividing by 52. Once the weekly wage is the workweek into the amount of the arrived at, the regular hourly rate of salary to obtain the applicable hourly pay will be calculated as indicated rate for the week. Payment for over- above. The regular rate of an employee time hours at one-half such rate in ad- who is paid a regular monthly salary of dition to the salary satisfies the over- $1,560, or a regular semimonthly salary time pay requirement because such of $780 for 40 hours a week, is thus hours have already been compensated found to be $9 per hour. Under regula- at the straight time regular rate, under tions of the Administrator, pursuant to the salary arrangement. the authority given to him in section (b) The application of the principles 7(g)(3) of the Act, the parties may pro- above stated may be illustrated by the vide that the regular rates shall be de- case of an employee whose hours of termined by dividing the monthly sal- work do not customarily follow a reg- ary by the number of working days in ular schedule but vary from week to the month and then by the number of week, whose total weekly hours of hours of the normal or regular work- work never exceed 50 hours in a workday. Of course, the resultant rate in week, and whose salary of $600 a week such a case must not be less than the is paid with the understanding that it statutory minimum wage. constitutes the employee’s compensa- [46 FR 7310, Jan. 23, 1981, as amended at 76 tion, except for overtime premiums, for FR 18857, Apr. 5, 2011] whatever hours are worked in the workweek. If during the course of 4 § 778.114 Fixed salary for fluctuating weeks this employee works 40, 37.5, 50, hours. and 48 hours, the regular hourly rate of (a) An employee employed on a sal- pay in each of these weeks is $15.00, ary basis may have hours of work $16.00, $12.00, and $12.50, respectively. which fluctuate from week to week and Since the employee has already re- the salary may be paid him pursuant to ceived straight-time compensation on an understanding with his employer a salary basis for all hours worked, that he will receive such fixed amount only additional half-time pay is due. as straight time pay for whatever For the first week the employee is en- hours he is called upon to work in a titled to be paid $600; for the second workweek, whether few or many. week $600.00; for the third week $660 Where there is a clear mutual under- ($600 plus 10 hours at $6.00 or 40 hours standing of the parties that the fixed at $12.00 plus 10 hours at $18.00); for the salary is compensation (apart from fourth week $650 ($600 plus 8 hours at overtime premiums) for the hours $6.25, or 40 hours at $12.50 plus 8 hours worked each workweek, whatever their at $18.75). number, rather than for working 40 (c) The ‘‘fluctuating workweek’’ hours or some other fixed weekly work method of overtime payment may not period, such a salary arrangement is be used unless the salary is sufficiently permitted by the Act if the amount of large to assure that no workweek will the salary is sufficient to provide com- be worked in which the employee’s av- pensation to the employee at a rate not erage hourly earnings from the salary less than the applicable minimum wage fall below the minimum hourly wage rate for every hour worked in those rate applicable under the Act, and un- workweeks in which the number of less the employee clearly understands hours he works is greatest, and if he re- that the salary covers whatever hours ceives extra compensation, in addition the job may demand in a particular to such salary, for all overtime hours workweek and the employer pays the worked at a rate not less than one-half salary even though the workweek is his regular rate of pay. Since the sal- one in which a full schedule of hours is ary in such a situation is intended to not worked. Typically, such salaries compensate the employee at straight are paid to employees who do not cus- time rates for whatever hours are tomarily work a regular schedule of worked in the workweek, the regular hours and are in amounts agreed on by

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the parties as adequate straight-time to the cash wages before the regular compensation for long workweeks as rate is determined. well as short ones, under the cir- [46 FR 7310, Jan. 23, 1981] cumstances of the employment as a whole. Where all the legal prerequisites § 778.117 Commission payments—gen- for use of the ‘‘fluctuating workweek’’ eral. method of overtime payment are Commissions (whether based on a present, the Act, in requiring that ‘‘not percentage of total sales or of sales in less than’’ the prescribed premium of 50 excess of a specified amount, or on percent for overtime hours worked be some other formula) are payments for paid, does not prohibit paying more. On hours worked and must be included in the other hand, where all the facts in- the regular rate. This is true regardless dicate that an employee is being paid of whether the commission is the sole for his overtime hours at a rate no source of the employee’s compensation greater than that which he receives for or is paid in addition to a guaranteed nonovertime hours, compliance with salary or hourly rate, or on some other the Act cannot be rested on any appli- basis, and regardless of the method, cation of the fluctuating workweek frequency, or regularity of computing, overtime formula. allocating and paying the commission. [33 FR 986, Jan. 26, 1968, as amended at 46 FR It does not matter whether the com- 7310, Jan. 23, 1981; 76 FR 18857, Apr. 5, 2011] mission earnings are computed daily, weekly, biweekly, semimonthly, § 778.115 Employees working at two or monthly, or at some other interval. more rates. The fact that the commission is paid Where an employee in a single work- on a basis other than weekly, and that week works at two or more different payment is delayed for a time past the types of work for which different non- employee’s normal pay day or pay pe- overtime rates of pay (of not less than riod, does not excuse the employer the applicable minimum wage) have from including this payment in the em- been established, his regular rate for ployee’s regular rate. that week is the weighted average of [36 FR 4981, Mar. 16, 1971] such rates. That is, his total earnings (except statutory exclusions) are com- § 778.118 Commission paid on a work- puted to include his compensation dur- week basis. ing the workweek from all such rates, When the commission is paid on a and are then divided by the total num- weekly basis, it is added to the employ- ber of hours worked at all jobs. Certain ee’s other earnings for that workweek statutory exceptions permitting alter- (except overtime premiums and other native methods of computing overtime payments excluded as provided in sec- pay in such cases are discussed in tion 7(e) of the Act), and the total is di- §§ 778.400 and 778.415 through 778.421. vided by the total number of hours worked in the workweek to obtain the § 778.116 Payments other than cash. employee’s regular hourly rate for the Where payments are made to employ- particular workweek. The employee ees in the form of goods or facilities must then be paid extra compensation which are regarded as part of wages, at one-half of that rate for each hour the reasonable cost to the employer or worked in excess of the applicable max- the fair value of such goods or of fur- imum hours standard. nishing such facilities must be included in the regular rate. (See part 531 § 778.119 Deferred commission pay- of this chapter for a discussion as to ments—general rules. the inclusion of goods and facilities in If the calculation and payment of the wages and the method of determining commission cannot be completed until 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

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ascertained. Until that is done he may workweeks, such as every 4 weeks (as pay compensation for overtime at a distinguished from every month) divide rate not less than one and one-half the total amount of commission by the times the hourly rate paid the em- number of weeks for which it rep- ployee, exclusive of the commission. resents additional compensation to get When the commission can be computed the amount of commission allocable to and paid, additional overtime com- each week. pensation due by reason of the inclu- (2) Once the amount of commission sion of the commission in the employ- allocable to a workweek has been ee’s regular rate must also be paid. To ascertained for each week in which compute this additional overtime com- overtime was worked, the commission pensation, it is necessary, as a general for that week is divided by the total rule, that the commission be appor- number of hours worked in that week, tioned back over the workweeks of the to get the increase in the hourly rate. period during which it was earned. The Additional overtime due is computed employee must then receive additional by multiplying one-half of this figure overtime compensation for each week by the number of overtime hours during the period in which he worked worked in the week. A shorter method in excess of the applicable maximum of obtaining the amount of additional hours standard. The additional com- overtime compensation due is to mul- pensation for that workweek must be tiply the amount of commission allo- not less than one-half of the increase in cable to the week by the decimal the hourly rate of pay attributable to equivalent of the fraction the commission for that week Overtime hours multipled by the number of hours ———————— worked in excess of the applicable maximum hours standard in that work- Total hours × 2 week. A coefficient table (WH–134) has been prepared which contains the appro- § 778.120 Deferred commission pay- priate decimals for computing the ments not identifiable as earned in particular workweeks. extra half-time due. If it is not possible or practicable to Examples: (i) If there is a monthly commission payment of $416, the amount of commis- allocate the commission among the sion allocable to a single week is $96 ($416 × workweeks of the period in proportion 12 = $4,992 ÷ 52 = $96). In a week in which an to the amount of commission actually employee who is due overtime compensation earned or reasonably presumed to be after 40 hours works 48 hours, dividing $96 by earned each week, some other reason- 48 gives the increase to the regular rate of $2. able and equitable method must be Multiplying one-half of this figure by 8 over- adopted. The following methods may be time hours gives the additional overtime pay used: due of $8. The $96 may also be multiplied by 0.083 (the appropriate decimal shown on the (a) Allocation of equal amounts to each coefficient table) to get the additional over- week. Assume that the employee time pay due of $8. earned an equal amount of commission (ii) An employee received $384 in commis- in each week of the commission com- sions for a 4-week period. Dividing this by 4 putation period and compute any addi- gives him a weekly increase of $96. Assume tional overtime compensation due on that he is due overtime compensation after this amount. This may be done as fol- 40 hours and that in the 4-week period he worked 44, 40, 44 and 48 hours. He would be lows: due additional compensation of $4.36 for the (1) For a commission computation first and third week ($96 ÷ 44 = $2.18 ÷ 2 = $1.09 period of 1 month, multiply the com- × 4 overtime hours = $4.36), no extra commission payment by 12 and divide by 52 pensation for the second week during which to get the amount of commission allo- no overtime hours were worked, and $8 for cable to a single week. If there is a the fourth week, computed in the same man- semimonthly computation period, mul- ner as weeks one and three. The additional overtime pay due may also be computed by tiply the commission payment by 24 multiplying the amount of the weekly in- and divide by 52 to get each week’s crease by the appropriate decimal on the co- commission. For a commission com- efficient table, for each week in which over- putation period of a specific number of time was worked.

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(b) Allocation of equal amounts to each § 778.122 Computation of overtime for hour worked. Sometimes, there are commission employees on estab- facts which make it inappropriate to lished basic rate. assume equal commission earnings for Overtime pay for employees paid each workweek. For example, the num- wholly or partly on a commission basis ber of hours worked each week may may be computed on an established vary significantly. In such cases, rath- basic rate, in lieu of the method de- er than following the method outlined scribed above. See § 778.400 and part 548 in paragraph (a) of this section, it is of this chapter. reasonable to assume that the employee earned an equal amount of com- Subpart C—Payments That May mission in each hour that he worked Be Excluded From the ‘‘Reg- during the commission computation period. The amount of the commission ular Rate’’ payment should be divided by the num- THE STATUTORY PROVISIONS ber of hours worked in the period in order to determine the amount of the § 778.200 Provisions governing inclu- increase in the regular rate allocable sion, exclusion, and crediting of to the commission payment. One-half particular payments. of this figure should be multiplied by (a) Section 7(e). This subsection of the the number of statutory overtime Act provides as follows: hours worked by the employee in the overtime workweeks of the commission As used in this section the ‘‘regular rate’’ computation period, to get the amount at which an employee is employed shall be deemed to include all remuneration for em- of additional overtime compensation ployment paid to, or on behalf of, the em- due for this period. ployee, but shall not be deemed to include: Example: An employee received commis- (1) Sums paid as gifts; payments in the na- sions of $192 for a commission computation ture of gifts made at Christmas time or on period of 96 hours, including 16 overtime other special occasions, as a reward for service, the amounts of which are not measured hours (i.e., two workweeks of 48 hours each). by or dependent on hours worked, produc- Dividing the $192 by 96 gives a $2 increase in tion, or efficiency; [discussed in § 778.212]. the hourly rate. If the employee is entitled (2) Payments made for occasional periods to overtime after 40 hours in a workweek, he when no work is performed due to vacation, is due an additional $16 for the commission holiday, illness, failure of the employer to computation period, representing an addi- provide sufficient work, or other similar tional $1 for each of the 16 overtime hours. cause; reasonable payments for traveling ex- [33 FR 986, Jan. 26, 1968, as amended at 46 FR penses, or other expenses, incurred by an em- 7310, Jan. 23, 1981] ployee in the furtherance of his employer’s interests and properly reimbursable by the § 778.121 Commission payments—de- employer; and other similar payments to an layed credits and debits. employee which are not made as compensation for his hours of employment; [discussed If there are delays in crediting sales in §§ 778.216 through 778.224]. or debiting returns or allowances (3) Sums paid in recognition of services which affect the computation of com- performed during a given period if either, (a) missions, the amounts paid to the em- both the fact that payment is to be made and ployee for the computation period will the amount of the payment are determined be accepted as the total commission at the sole discretion of the employer at or near the end of the period and not pursuant earnings of the employee during such to any prior contract, agreement, or promise period, and the commission may be al- causing the employee to expect such pay- located over the period from the last ments regularly; or (b) the payments are commission computation date to the made pursuant to a bona fide profit-sharing present commission computation date, plan or trust or bona fide thrift or savings even though there may be credits or plan, meeting the requirements of the Sec- debits resulting from work which actu- retary of Labor set forth in appropriate regulations which he shall issue, having due really 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- commission may be computed as out- ployee are determined without regard to lined in the preceding paragraphs. hours of work, production, or efficiency; or

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(c) the payments are talent fees (as such tal- ship, or other circumstances permitted by ent fees are defined and delimited by regula- regulation), and the exercise price is at least tions of the Secretary) paid to performers, 85 percent of the fair market value of the including announcers, on radio and tele- stock at the time of grant; vision programs; [discussed in §§ 778.208 (iii) Exercise of any grant or right is vol- through 778.215 and 778.225]. untary; and (4) Contributions irrevocably made by an (iv) Any determinations regarding the employer to a trustee or third person pursu- award of, and the amount of, employer-pro- ant to a bona fide plan for providing old-age, vided grants or rights that are based on per- retirement, life, accident, or health insur- formance are— ance or similar benefits for employees; [dis- (A) Made based upon meeting previously cussed in §§ 778.214 and 778.215]. established performance criteria (which may (5) Extra compensation provided by a pre- include hours of work, efficiency, or produc- mium rate paid for certain hours worked by tivity) of any business unit consisting of at the employee in any day or workweek be- least 10 employees or of a facility, except cause such hours are hours worked in excess that, any determinations may be based on of eight in a day or in excess of the max- length of service or minimum schedule of imum workweek applicable to such employee hours or days of work; or under subsection (a) or in excess of the em- (B) Made based upon the past performance ployee’s normal working hours or regular (which may include any criteria) of one or working hours, as the case may be; [dis- more employees in a given period so long as cussed in §§ 778.201 and 778.202]. the determination is in the sole discretion of (6) Extra compensation provided by a pre- the employer and not pursuant to any prior mium rate paid for work by the employee on contract. Saturdays, Sundays, holidays, or regular (b) Section 7(h). This subsection of the days of rest, or on the sixth or seventh day Act provides as follows: of the workweek, where such premium rate is not less than one and one-half times the (1) Except as provided in paragraph (2), rate established in good faith for like work sums excluded from the regular rate pursu- performed in nonovertime hours on other ant to subsection (e) shall not be creditable days; or [discussed in §§ 778.203, 778.205, and toward wages required under section 6 or 778.206]. overtime compensation required under this (7) Extra compensation provided by a pre- section. mium rate paid to the employee, in pursu- (2) Extra compensation paid as described in ance of an applicable employment contract paragraphs (5), (6), and (7) of subsection (e) of or collective bargaining agreement, for work this section shall be creditable toward over- outside of the hours established in good faith time compensation payable pursuant to this by the contract or agreement as the basic, section. normal, or regular workday (not exceeding eight hours) or workweek (not exceeding the (c) Only the statutory exclusions are maximum workweek applicable to such em- authorized. It is important to deter- ployee under subsection (a)), where such pre- mine the scope of these exclusions, mium rate is not less than one and one-half since all remuneration for employment times the rate established in good faith by paid to employees which does not fall the contract or agreement for like work per- within one of these seven exclusionary formed during such workday or workweek; [discussed in §§ 778.201 and 778.206]. clauses must be added into the total (8) Any value or income derived from em- compensation received by the employer-provided grants or rights provided ployee before his regular hourly rate of pursuant to a stock option, stock apprecia- pay is determined. tion right, or bona fide employee stock pur- chase program which is not otherwise ex- [33 FR 986, Jan. 26, 1968, as amended at 76 FR cludable under any of paragraphs (a)(1) 18858, Apr. 5, 2011] through (a)(7) of this section if— (i) Grants are made pursuant to a program, EXTRA COMPENSATION PAID FOR the terms and conditions of which are com- OVERTIME municated to participating employees either at the beginning of the employee’s participa- § 778.201 Overtime premiums—gen- tion in the program or at the time of the eral. grant; (a) Certain premium payments made (ii) In the case of stock options and stock by employers for work in excess of or appreciation rights, the grant or right can- outside of specified daily or weekly not be exercisable for a period of at least 6 months after the time of grant (except that standard work periods or on certain grants or rights may become exercisable be- special days are regarded as overtime cause of an employee’s death, disability, re- premiums. In such case, the extra com- tirement, or a change in corporate owner- pensation provided by the premium

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rates need not be included in the em- the amount of overtime premium pay, ployee’s regular rate of pay for the pur- due for hours in excess of 8 per day or pose of computing overtime compensa- the applicable maximum hours stand- tion due under section 7(a) of the Act. ard, which may be excluded from the Moreover, under section 7(h) this extra regular rate and credited toward the compensation may be credited toward statutory overtime compensation. the overtime payments required by the (b) Hours in excess of normal or regular Act. working hours. Similarly, where the (b) The three types of extra premium employee’s normal or regular daily or payments which may thus be treated weekly working hours are greater or as overtime premiums for purposes of fewer than 8 hours and 40 hours respec- the Act are outlined in section 7(e) (5), tively and such hours are reflected in (6), and (7) of the Act as set forth in an agreement or by established prac- § 778.200(a). These are discussed in de- tice, and the employee receives pay- tail in the sections following. ment of premium rates for work in ex- (c) Section 7(h) of the Act specifi- cess of such normal or regular hours of cally states that the extra compensa- work for the day or week (such as 7 in tion provided by these three types of a day or 35 in a week), the extra com- payments may be credited toward over- pensation provided by such premium time compensation due under section rates, paid for excessive hours, is a true 7(a) for work in excess of the applicable overtime premium to be excluded from maximum hours standard. No other the regular rate and it may be credited types of remuneration for employment toward overtime compensation due may be so credited. under the Act. (c) Premiums for excessive daily hours. § 778.202 Premium pay for hours in ex- If an employee whose maximum hours cess of a daily or weekly standard. standard is 40 hours is hired at the rate (a) Hours in excess of 8 per day or stat- of $12 an hour and receives, as overtime utory weekly standard. A written or un- compensation under his contract, $12.50 written employment contract, agree- per hour for each hour actually worked ment, understanding, handbook, pol- in excess of 8 per day (or in excess of icy, or practice may provide for the his normal or regular daily working payment of overtime compensation for hours), his employer may exclude the hours worked in excess of 8 per day or premium portion of the overtime rate 40 per week. If the payment of such from the employee’s regular rate and overtime compensation is in fact con- credit the total of the extra 50-cent tingent upon the employee’s having payments thus made for daily overtime worked in excess of 8 hours in a day or hours against the overtime compensa- in excess of the number of hours in the tion which is due under the statute for workweek specified in section 7(a) of hours in excess of 40 in that workweek. the Act as the weekly maximum and If the same contract further provided such hours are reflected in an agree- for the payment of $13 for hours in ex- ment or by established practice, the cess of 12 per day, the extra $1 pay- extra premium compensation paid for ments could likewise be credited to- the excess hours is excludable from the ward overtime compensation due under regular rate under section 7(e)(5) of the the Act. To qualify as overtime pre- Act and may be credited toward statu- miums under section 7(e)(5) of the Act, tory overtime payments pursuant to the daily overtime premium payments section 7(h) of the Act. In applying the must be made for hours in excess of 8 rules in this paragraph (a) to situations hours per day or the employee’s normal where it is the custom to pay employ- or regular working hours. If the normal ees for hours during which no work is workday is artificially divided into a performed due to vacation, holiday, ill- ‘‘straight time’’ period to which one ness, failure of the employer to provide rate is assigned, followed by a so-called sufficient work, or other similar cause, ‘‘overtime’’ period for which a higher as these terms are explained in ‘‘rate’’ is specified, the arrangement §§ 778.216 through 778.224, it is permis- will be regarded as a device to con- sible (but not required) to count these travene the statutory purposes and the hours as hours worked in determining premiums will be considered part of

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the regular rate. For a fuller discussion hourly rate in order to qualify under of this problem, see § 778.501. section 7(e)(6). If the employee is a (d) Hours in excess of other statutory pieceworker or if he works at more standard. Where payment at premium than one job for which different hourly rates for hours worked in excess of a or piece rates have been established specified daily or weekly standard is and these are bona fide rates applicable made pursuant to the requirements of to the work when performed during another applicable statute, the extra nonovertime hours, the extra com- compensation provided by such pre- pensation provided by a premium rate mium rates will be regarded as a true of at least one and one-half times ei- overtime premium. ther (1) the bona fide rate applicable to (e) Premium pay for sixth or seventh the type of job the employee performs day worked. Under sections 7(e)(6) and on the ‘‘special days’’, or (2) the aver- 7(h), extra premium compensation paid age hourly earnings in the week in for work on the sixth or seventh day question, will qualify as an overtime worked in the workweek (where the premium under this section. (For a workweek schedule is reflected in an fuller discussion of computation on the agreement or by established practice) average rate, see § 778.111; on the rate is regarded in the same light as pre- applicable to the job, see §§ 778.415 miums paid for work in excess of the through 778.421; on the ‘‘established’’ applicable maximum hours standard or the employee’s normal or regular rate, see § 778.400.) workweek. (b) Bona fide base rate required. The 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; 84 FR 68771, Dec. 16, 2019] ed as overtime premiums only if they § 778.203 Premium pay for work on are actually based on a ‘‘rate estab- Saturdays, Sundays, and other lished in good faith for like work per- ‘‘special days’’. formed in nonovertime hours on other Under section 7(e)(6) and 7(h) of the days.’’ This phrase is used for the pur- Act, extra compensation provided by a pose of distinguishing the bona fide Premium rate of at least time and one- employment standards contemplated half which is paid for work on Satur- by section 7(e)(6) from fictitious days, Sundays, holidays, or regular schemes and artificial or evasive de- days of rest or on the sixth or seventh vices as discussed in Subpart F of this day of the workweek (hereinafter re- part. Clearly, a rate which yields the ferred to as ‘‘special days’’) may be employee less than time and one-half treated as an overtime premium for the the minimum rate prescribed by the purposes of the Act. If the premium Act would not be a rate established in rate is less than time and one-half, the good faith. extra compensation provided by such (c) Work on the specified ‘‘special rate must be included in determining days’’: To qualify as an overtime pre- the employee’s regular rate of pay and mium under section 7(e)(6), the extra cannot be credited toward statutory compensation must be paid for work on overtime due, unless it qualifies as an the specified days. The term ‘‘holiday’’ overtime premium under section is read in its ordinary usage to refer to 7(e)(5). those days customarily observed in the (a) ‘‘Special days’’ rate must be at community in celebration of some his- least time and one-half to qualify as torical or religious occasion. A day of overtime premium: The premium rate rest arbitrarily granted to employees must be at least ‘‘one and one-half because of lack of work is not a ‘‘holi- times the rate established in good faith day’’ within the meaning of this sec- for like work performed in non- tion, nor is it a ‘‘regular day of rest.’’ overtime hours on other days.’’ Where The term ‘‘regular day of rest’’ means an employee is hired on the basis of a a day on which the employee in accord- salary for a fixed workweek or at a sin- ance with his regular prearranged gle hourly rate of pay, the rate paid for schedule is not expected to report for work on ‘‘special days’’ must be at work. In some instances the ‘‘regular least time and one-half his regular day of rest’’ occurs on the same day or

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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 thus need not be included in computing (b) Premiums for hours outside estab- the employee’s regular rate of pay and lished working hours. To qualify as an may be credited toward overtime pay- overtime premium under section 7(e)(7) ments due under the Act. the premium must be paid because the (d) Payment of premiums for work work was performed during hours performed on the ‘‘special day’’: To ‘‘outside of the hours established * * * qualify as an overtime premium under as the basic * * * workday or work- section 7(e)(6), the premium must be week’’ and not for some other reason. paid because work is performed on the Thus, if the basic workday is estab- 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 sections 7(e)(5), (6), or (7) of the and 8 a.m. would qualify as an over- Act. (For examples distinguishing pay time premium. However, where the for work on a holiday from idle holiday contract does not provide for the pay- pay, see § 778.219.) Thus a premium rate ment of a premium except for work be- paid to an employee only when he re- tween midnight and 6 a.m. the pre- ceived less than 24 hours’ notice that mium would not qualify under this sec- he is required to report for work on his tion since it is not a premium paid for regular day of rest is not a premium work outside the established workday paid for work on one of the specified but only for certain special hours out- days; it is a premium imposed as a pen- side the established workday, in most alty upon the employer for failure to instances because they are undesirable give adequate notice to compensate the hours. Similarly, where payments of employee for the inconvenience of dis- premium rates for work are made after arranging his private life. The extra compensation is not an overtime pre- 5 p.m. only if the employee has not had mium. It is part of his regular rate of a meal period or rest period, they are pay unless such extra compensation is not regarded as overtime premiums; paid the employee so as to qualify for they are premiums paid because of un- exclusion under section 7(e)(2) of the desirable working conditions. Act in which event it need not be in- (c) Payment in pursuance of agreement. cluded in computing his regular rate of Premiums of the type which section pay, as explained in § 778.222. 7(e)(7) authorizes to be treated as overtime premiums must be paid ‘‘in pursu- [33 FR 986, Jan. 26, 1968, as amended at 84 FR 68771, Dec. 16, 2019] ance of an applicable employment contract or collective bargaining agree- § 778.204 ‘‘Clock pattern’’ premium ment,’’ and the rates of pay and the pay. daily and weekly work periods referred (a) Overtime premiums under section to must be established in good faith by 7(e)(7). Where a collective bargaining such contract or agreement. Although agreement or other applicable employ- as a general rule a collective bar- ment contract in good faith establishes gaining agreement is a formal agree- certain hours of the day as the basic, ment which has been reduced to writ- normal, or regular workday (not ex- ing, an employment contract for pur- ceeding 8 hours) or workweek (not ex- poses of section 7(e)(7) may be either

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written or oral. Where there is a writ- § 778.206 Premiums for work outside ten employment contract and the prac- basic workday or workweek—exam- tices of the parties differ from its pro- ples. visions, it must be determined whether The effect of section 7(e)(7) where the practices of the parties have modi- ‘‘clock pattern’’ premiums are paid fied the contract. If the practices of the may be illustrated by reference to pro- parties have modified the written provisions typical of the applicable collec- visions of the contract, the provisions tive bargaining agreements tradition- of the contract as modified by the prac- ally in effect between employers and tices of the parties will be controlling employees in the longshore and steve- in determining whether the require- doring industries. These agreements ments of section 7(e)(7) are satisfied. specify straight time rates applicable during the hours established in good The determination as to the existence faith under the agreement as the basic, of the requisite provisions in an appli- normal, or regular workday and work- cable oral employment contract will week. Under one such agreement, for necessarily be based on all the facts, example, such workday and workweek including those showing the terms of are established as the first 6 hours of the oral contract and the actual em- work, exclusive of mealtime, each day, ployment and pay practices there- Monday through Friday, between the under. hours of 8 a.m. and 5 p.m. Under another typical agreement, such workday § 778.205 Premiums for weekend and and workweek are established as the holiday work—example. hours between 8 a.m. and 12 noon and The application of section 7(e)(6) of between 1 p.m. and 5 p.m., Monday the Act may be illustrated by the fol- through Friday. Work outside such lowing example: Suppose, based on a workday and workweek is paid for at written or unwritten employment con- premium rates not less than one and tract, agreement, understanding, hand- one-half times the bona fide straight- book, policy, or practice, an employee time rates applicable to like work earns $18 an hour for all hours worked when performed during the basic, nor- on a holiday or on Sunday in the oper- mal, or regular workday or workweek. ation of machines by operators whose The extra compensation provided by such premium rates will be excluded in maximum hours standard is 40 hours computing the regular rate at which and who are paid a bona fide hourly the employees so paid are employed rate of $12 for like work performed dur- and may be credited toward overtime ing nonovertime hours on other days. compensation due under the Act. For Suppose further that the workweek of example, if an employee is paid $5 an such an employee begins at 12:01 a.m. hour under such an agreement for han- Sunday, and in a particular week he dling general cargo during the basic, works a schedule of 8 hours on Sunday normal, or regular workday and $7.50 and on each day from Monday through per hour for like work outside of such Saturday, making a total of 56 hours workday, the extra $2.50 will be ex- worked in the workweek. Tuesday is a cluded from the regular rate and may holiday. The payment of $768 to which be credited to overtime pay due under the employee is entitled will satisfy the Act. Similarly, if the straight time the requirements of the Act since the rate established in good faith by the employer may properly exclude from contract should be higher because of the regular rate the extra $48 paid for handling dangerous or obnoxious cargo, work on Sunday and the extra $48 paid recognition of skill differentials, or for holiday work and credit himself similar reasons, so as to be $7.50 an with such amount against the statu- hour during the hours established as tory overtime premium required to be the basic or normal or regular workday paid for the 16 hours worked over 40. or workweek, and a premium rate of $11.25 an hour is paid for the same work [84 FR 68771, Dec. 16, 2019] performed during other hours of the day or week, the extra $3.75 may be excluded from the regular rate of pay and

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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 premium pay distinguished. [33 FR 986, Jan. 26, 1968, as amended at 84 FR 68772, Dec. 16, 2019] (a) Overtime premiums are those defined by the statute. The various types of pre- BONUSES mium payments which provide extra compensation qualifying as overtime § 778.208 Inclusion and exclusion of premiums to be excluded from the reg- bonuses in computing the ‘‘regular ular rate (under sections 7(e)(5), (6), rate.’’ and (7) and credited toward statutory Section 7(e) of the Act requires the overtime pay requirements (under sec- inclusion in the regular rate of all re- tion 7(h)) have been described in muneration for employment except §§ 778.201 through 778.206. The plain eight specified types of payments. wording of the statute makes it clear Among these excludable payments are that extra compensation provided by discretionary bonuses, gifts and pay- premium rates other than those de- ments in the nature of gifts on special scribed in the statute cannot be treat- occasions, contributions by the em- ed as overtime premiums. When such ployer to certain welfare plans and other premiums are paid, they must be payments made by the employer pursu- included in the employee’s regular rate ant to certain profit-sharing, thrift and before statutory overtime compensa- savings plans. These are discussed in tion is computed; no part of such pre- §§ 778.211 through 778.214. Bonuses miums may be credited toward statu- which do not qualify for exclusion from tory overtime pay. the regular rate as one of these types (b) Nonovertime premiums. The Act re- must be totaled in with other earnings quires the inclusion in the regular rate to determine the regular rate on which of such extra premiums as nightshift overtime pay must be based. Bonus differentials (whether they take the payments are payments made in addi- form of a percent of the base rate or an tion to the regular earnings of an em- addition of so many cents per hour) ployee. For a discussion on the bonus and premiums paid for hazardous, ardu- form as an evasive bookkeeping device, ous or dirty work. It also requires in- see §§ 778.502 and 778.503. clusion of any extra compensation which is paid as an incentive for the [33 FR 986, Jan. 26, 1968, as amended at 76 FR rapid performance of work, and since 18858, Apr. 5, 2011] any extra compensation in order to qualify as an overtime premium must § 778.209 Method of inclusion of bonus be provided by a premium rate per in regular rate. hour, except in the special case of (a) General rules. Where a bonus pay- pieceworkers as discussed in § 778.418, ment is considered a part of the regular lump sum premiums which are paid rate at which an employee is employed, without regard to the number of hours it must be included in computing his worked are not overtime premiums and regular hourly rate of pay and over- must be included in the regular rate. time compensation. No difficulty arises For example, where an employer pays 8 in computing overtime compensation if hours’ pay for a particular job whether the bonus covers only one weekly pay it is performed in 8 hours or in less period. The amount of the bonus is time, the extra premium of 2 hours’ merely added to the other earnings of pay received by an employee who com- the employee (except statutory exclu- pletes the job in 6 hours must be in- sions) and the total divided by total cluded in his regular rate. Similarly, hours worked. Under many bonus where an employer pays for 8 hours at plans, however, calculations of the premium rates for a job performed dur- bonus may necessarily be deferred over

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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- (a) Statutory provision. Section 7(e) able and equitable method of alloca- (3)(a) of the Act provides that the reg- tion must be adopted. For example, it ular rate shall not be deemed to in- may be reasonable and equitable to as- clude ‘‘sums paid in recognition of sume that the employee earned an services performed during a given pe- equal amount of bonus each week of riod if * * * (a) both the fact that pay- the period to which the bonus relates, ment is to be made and the amount of and if the facts support this assump- the payment are determined at the sole tion additional compensation for each discretion of the employer at or near overtime week of the period may be the end of the period and not pursuant computed and paid in an amount equal to any prior contract, agreement, or to one-half of the average hourly in- promise causing the employee to ex- crease in pay resulting from bonus al- pect such payments regularly * * *’’. located to the week, multiplied by the Such sums may not, however, be cred- number of statutory overtime hours ited toward overtime compensation due worked in that week. Or, if there are under the Act. facts which make it inappropriate to (b) Discretionary character of excluded assume equal bonus earnings for each bonus. In order for a bonus to qualify workweek, it may be reasonable and for exclusion as a discretionary bonus equitable to assume that the employee under section 7(e)(3)(a) the employer earned an equal amount of bonus each must retain discretion both as to the hour of the pay period and the result- fact of payment and as to the amount ant hourly increase may be determined until a time quite close to the end of by dividing the total bonus by the the period for which the bonus is paid. number of hours worked by the em- The sum, if any, to be paid as a bonus ployee during the period for which it is is determined by the employer without paid. The additional compensation due prior promise or agreement. The em- for the overtime workweeks in the pe- ployee has no contract right, express or riod may then be computed by multi- implied, to any amount. If the em- plying the total number of statutory ployer promises in advance to pay a overtime hours worked in each such bonus, he has abandoned his discretion

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with regard to it. Thus, if an employer to bonuses, bonuses are discretionary announces to his employees in January and excludable if both the fact that the that he intends to pay them a bonus in bonuses are to be paid and the amounts June, he has thereby abandoned his are determined at the sole discretion of discretion regarding the fact of pay- the employer at or near the end of the ment by promising a bonus to his em- periods to which the bonuses cor- ployees. Such a bonus would not be ex- respond and they are not paid pursuant cluded from the regular rate under sec- to any prior contract, agreement, or tion 7(e)(3)(a). Similarly, an employer promise causing the employee to ex- who promises to sales employees that pect such payments regularly. Exam- they will receive a monthly bonus com- ples of bonuses that may be discre- puted on the basis of allocating 1 cent tionary include bonuses to employees for each item sold whenever, is his dis- who made unique or extraordinary ef- cretion, the financial condition of the forts which are not awarded according firm warrants such payments, has to pre-established criteria, severance abandoned discretion with regard to bonuses, referral bonuses for employees the amount of the bonus though not not primarily engaged in recruiting ac- with regard to the fact of payment. tivities, bonuses for overcoming chal- Such a bonus would not be excluded lenging or stressful situations, em- from the regular rate. On the other ployee-of-the-month bonuses, and other hand, if a bonus such as the one just similar compensation. Such bonuses described were paid without prior con- are usually not promised in advance tract, promise or announcement and and the fact and amount of payment is the decision as to the fact and amount in the sole discretion of the employer of payment lay in the employer’s sole until at or near the end of the period to discretion, the bonus would be properly which the bonus corresponds. excluded from the regular rate. (c) Promised bonuses not excluded. The [33 FR 986, Jan. 26, 1968, as amended at 84 FR bonus, to be excluded under section 68772, Dec. 16, 2019] 7(e)(3)(a), must not be paid pursuant to any prior contract, agreement, or § 778.212 Gifts, Christmas and special occasion bonuses. promise. For example, any bonus which is promised to employees upon hiring (a) Statutory provision. Section 7(e)(1) or which is the result of collective bar- of the Act provides that the term gaining would not be excluded from the ‘‘regular rate’’ shall not be deemed to regular rate under this provision of the include ‘‘sums paid as gifts; payments Act. Bonuses which are announced to in the nature of gifts made at Christ- employees to induce them to work mas time or on other special occasions, more steadily or more rapidly or more as a reward for service, the amounts of efficiently or to remain with the firm which are not measured by or depend- are regarded as part of the regular rate ent on hours worked, production, or ef- of pay. Most attendance bonuses, indi- ficiency * * *’’. Such sums may not, vidual or group production bonuses, bo- however, be credited toward overtime nuses for quality and accuracy of work, compensation due under the Act. bonuses contingent upon the employ- (b) Gift or similar payment. To qualify ee’s continuing in employment until for exclusion under section 7(e)(1) the the time the payment is to be made bonus must be actually a gift or in the and the like are in this category; in nature of a gift. If it is measured by such circumstances they must be in- hours worked, production, or effi- cluded in the regular rate of pay. ciency, the payment is geared to wages (d) Labels are not determinative. The and hours during the bonus period and label assigned to a bonus does not con- is no longer to be considered as in the clusively determine whether a bonus is nature of a gift. If the payment is so discretionary under section 7(e)(3). In- substantial that it can be assumed that stead, the terms of the statute and the employees consider it a part of the facts specific to the bonus at issue de- wages for which they work, the bonus termine whether bonuses are exclud- cannot be considered to be in the na- able discretionary bonuses. Thus, re- ture of a gift. Obviously, if the bonus is gardless of the label or name assigned paid pursuant to contract (so that the

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employee has a legal right to the pay- § 778.214 Benefit plans; including prof- ment and could bring suit to enforce it-sharing plans or trusts providing it), it is not in the nature of a gift. similar benefits. (c) Application of exclusion. If the (a) Statutory provision. Section 7(e)(4) bonus paid at Christmas or on other of the Act provides that the term special occasion is a gift or in the na- ‘‘regular rate’’ shall not be deemed to ture of a gift, it may be excluded from include: ‘‘contributions irrevocably the regular rate under section 7(e)(1) made by an employer to a trustee or even though it is paid with regularity third person pursuant to a bona fide so that the employees are led to expect plan for providing old age, retirement, it and even though the amounts paid to life, accident, or health insurance or different employees or groups of em- similar benefits for employees * * *.’’ ployees vary with the amount of the Such sums may not, however, be cred- salary or regular hourly rate of such ited toward overtime compensation due employees or according to their length under the Act. of service with the firm so long as the (b) Scope and application of exclusion amounts are not measured by or di- generally. Plans for providing benefits rectly dependent upon hours worked, of the kinds described in section 7(e)(4) production, or efficiency. A Christmas are referred to herein as ‘‘benefit bonus paid (not pursuant to contract) plans’’. It is section 7(e)(4) which gov- in the amount of two weeks’ salary to erns the status for regular rate pur- all employees and an equal additional poses of any contributions made by an amount for each 5 years of service with employer pursuant to a plan for pro- the firm, for example, would be exclud- viding the described benefits. This is able from the regular rate under this true irrespective of any other features category. Employers may also provide the plan may have. Thus, it makes no gifts with more regularity throughout difference whether or not the benefit the year, as long as they are provided plan is one financed out of profits or with the understanding that they are one which by matching employee con- gifts. Office coffee and snacks provided tributions or otherwise encourages to employees, for example, would also thrift or savings. Where such a plan or be excludable from the regular rate trust is combined in a single program under this category. (whether in one or more documents) [33 FR 986, Jan. 26, 1968, as amended at 84 FR with a plan or trust for providing prof- 68772, Dec. 16, 2019] it-sharing payments to employees, the profit-sharing payments may be ex- § 778.213 Profit-sharing, thrift, and cluded from the regular rate if they savings plans. meet the requirements of the Profit- Section 7(e)(3)(b) of the Act provides Sharing Regulations, part 549 of this that the term ‘‘regular rate’’ shall not chapter, and the contributions made by be deemed to include ‘‘sums paid in the employer for providing the benefits recognition of services performed dur- described in section 7(e)(4) of the Act ing a given period if * * * the payments may be excluded from the regular rate are made pursuant to a bona fide prof- if they meet the tests set forth in it-sharing plan or trust or bona fide § 778.215. Advance approval by the De- thrift or savings plan, meeting the re- partment of Labor is not required. quirements of the Secretary of Labor (c) Tests must be applied to employer set forth in appropriate regulations contributions. It should be emphasized * * *’’. Such sums may not, however, that it is the employer’s contribution be credited toward overtime compensa- made pursuant to the benefit plan that tion due under the Act. The regula- is excluded from or included in the reg- tions issued under this section are ular rate according to whether or not parts 547 and 549 of this chapter. Pay- the requirements set forth in § 778.215 ments in addition to the regular wages are met. If the contribution is not of the employee, made by the employer made as provided in section 7(e)(4) or if pursuant to a plan which meets the re- the plan does not qualify as a bona fide quirements of the regulations in part benefit plan under that section, the 547 or 549 of this chapter, will be prop- contribution is treated the same as any erly excluded from the regular rate. bonus payment which is part of the

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regular rate of pay, and at the time the fits or payments provided by the em- contribution is made the amount ployer in satisfaction of his obligation thereof must be apportioned back over to provide the specified benefits are the workweeks of the period during also excludable from the regular rate if which it may be said to have accrued. authorized under part 4 of this title, Overtime compensation based upon the subpart B, pursuant to the McNamara- resultant increases in the regular hour- O’Hara Act, and their exclusion there- ly rate is due for each overtime hour from is not dependent on whether such worked during any workweek of the pe- equivalents, if separately considered, riod. The subsequent distribution of ac- would meet the requirements of crued funds to an employee on account § 778.215. See § 778.7. of severance of employment (or for any [33 FR 986, Jan. 26, 1968, as amended at 36 FR other reason) would not result in any 4699, Mar. 11, 1971] increase in his regular rate in the week in which the distribution is made. § 778.215 Conditions for exclusion of (d) Employer contributions when in- benefit-plan contributions under cluded in fringe benefit wage determina- section 7(e)(4). tions under Davis-Bacon Act. As noted in (a) General rules. In order for an em- § 778.6 where certain fringe benefits are ployer’s contribution to qualify for ex- included in the wage predetermina- clusion from the regular rate under tions of the Secretary of Labor for la- section 7(e)(4) of the Act the following borers and mechanics performing con- conditions must be met: tract work subject to the Davis-Bacon (1) The contributions must be made Act and related statutes, the provi- pursuant to a specific plan or program sions of Public Law 88–349 discussed in adopted by the employer, or by con- § 5.32 of this title should be considered tract as a result of collective bar- together with the interpretations in gaining, and communicated to the em- this part 778 in determining the exclud- ployees. This may be either a company- ability of such fringe benefits from the financed plan or an employer-employee regular rate of such employees. Accord- contributory plan. ingly, reference should be made to § 5.32 (2) The primary purpose of the plan of this title as well as to § 778.215 for must be to provide systematically for guidance with respect to exclusion the payment of benefits to employees from the employee’s regular rate of on account of death, disability, ad- contributions made by the employer to vanced age, retirement, illness, med- any benefit plan if, in the workweek or ical expenses, hospitalization, acci- workweeks involved, the employee per- dent, unemployment, legal services, or formed work as a laborer or mechanic other events that could cause signifi- subject to a wage determination made cant future financial hardship or ex- by the Secretary pursuant to part 1 of pense. this title, and if fringe benefits of the (3) In a plan or trust, either: kind represented by such contributions (i) The benefits must be specified or constitute a part of the prevailing definitely determinable on an actuarial wages required to be paid such em- basis; or ployee in accordance with such wage (ii) There must be both a definite for- determination. mula for determining the amount to be (e) Employer contributions or equiva- contributed by the employer and a defi- lents pursuant to fringe benefit deter- nite formula for determining the bene- minations under Service Contract Act of fits for each of the employees partici- 1965. Contributions by contractors and pating in the plan; or subcontractors to provide fringe bene- (iii) There must be both a formula for fits specified under the McNamara- determining the amount to be contrib- O’Hara Service Contract Act of 1965, uted by the employer and a provision which are of the kind referred to in sec- for determining the individual benefits tion 7(e)(4), are excludable from the by a method which is consistent with regular rate under the conditions set the purposes of the plan or trust under forth in § 778.215. Where the fringe ben- section 7(e)(4) of the Act. efit contributions specified under such (iv) NOTE: The requirements in para- Act are so excludable, equivalent bene- graphs (a)(3) (ii) and (iii) of this section

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for a formula for determining the amount of the necessary contributions amount to be contributed by the em- under the plan is not yet ascertained. ployer may be met by a formula which For example, a benefit plan may pro- requires a specific and substantial min- vide for definite insurance benefits for imum contribution and which provides employees in the event of the hap- that the employer may add somewhat pening of a specified contingency such to that amount within specified limits; as death, sickness, accident, etc., and provided, however, that there is a rea- may provide that the cost of such defi- sonable relationship between the speci- nite benefits, either in full or any bal- fied minimum and maximum contribu- ance in excess of specified employee tions. Thus, formulas providing for a contributions, will be borne by the em- minimum contribution of 10 percent of ployer. In such a case the return by the profits and giving the employer discre- insurance company to the employer of tion to add to that amount up to 20 sums paid by him in excess of the percent of profits, or for a minimum amount required to provide the bene- contribution of 5 percent of compensa- fits which, under the plan, are to be tion and discretion to increase up to a provided through contributions by the maximum of 15 percent of compensa- employer, will not be deemed a recap- tion, would meet the requirement. ture or diversion by the employer of However, a plan which provides for in- contributions made pursuant to the significant minimum contributions and plan. permits a variation so great that, for (5) The plan must not give an em- all practical purposes, the formula be- ployee the right to assign his benefits comes meaningless as a measure of under the plan nor the option to re- contributions, would not meet the receive any part of the employer’s con- quirements. tributions in cash instead of the bene- (4) The employer’s contributions fits under the plan: Provided, however, must be paid irrevocably to a trustee That if a plan otherwise qualified as a or third person pursuant to an insur- bona fide benefit plan under section ance agreement, trust or other funded 7(e)(4) of the Act, it will still be re- arrangement. The trustee must assume garded as a bona fide plan even though the usual fiduciary responsibilities im- it provides, as an incidental part there- posed upon trustees by applicable law. of, for the payment to an employee in The trust or fund must be set up in cash of all or a part of the amount such a way that in no event will the standing to his credit (i) at the time of employer be able to recapture any of the severance of the employment rela- the contributions paid in nor in any tion due to causes other than retire- way divert the funds to his own use or ment, disability, or death, or (ii) upon benefit. (It should also be noted that in proper termination of the plan, or (iii) the case of joint employer-employee during the course of his employment contributory plans, where the em- under circumstances specified in the ployee contributions are not paid over plan and not inconsistent with the gen- to a third person or to a trustee unaf- eral purposes of the plan to provide the filiated with the employer, violations benefits described in section 7(e)(4) of of the Act may result if the employee the Act. contributions cut into the required (b) Plans under sections of the Internal minimum or overtime rates. See part Revenue Code. In the absence of evi- 531 of this chapter.) Although an em- dence to the contrary, where the ben- ployer’s contributions made to a trust- efit plan or trust has been approved by ee or third person pursuant to a benefit the Internal Revenue Service as satis- plan must be irrevocably made, this fying the requirements of section does not prevent return to the em- 401(a), 403(a), or 403(b) of the Internal ployer of sums which he had paid in ex- Revenue Code, is otherwise maintained cess of the contributions actually pursuant to a written document that called for by the plan, as where such the plan sponsor reasonably believes excess payments result from error or satisfies the requirements of section from the necessity of marking pay- 401(a), 403(a), 403(b), 408(k) or 408(p) of ments to cover the estimated cost of the Internal Revenue Code, or is spon- contributions at a time when the exact sored by a government employer that

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reasonably believes the plan satisfies in paying organization membership the requirements of section 457(b) of dues or credentialing exam fees where the Internal Revenue Code, the plan or relevant to the employer’s business. trust will be considered to meet the (2) The actual or reasonably approxi- conditions specified in paragraphs mate amount expended by an employee (a)(1), (2), (4), and (5) of this section. in purchasing, laundering or repairing uniforms or special clothing which his [33 FR 986, Jan. 26, 1968, as amended at 46 FR 7312, Jan. 23, 1981; 84 FR 68772, Dec. 16, 2019] employer requires him to wear. (3) The actual or reasonably approxi- PAYMENTS NOT FOR HOURS WORKED mate amount expended by an employee, who is traveling ‘‘over the § 778.216 The provisions of section road’’ on his employer’s business, for 7(e)(2) of the Act. transportation (whether by private car Section 7(e)(2) of the Act provides or common carrier) and living expenses that the term ‘‘regular rate’’ shall not away from home, other travel ex- be deemed to include ‘‘payments made penses, such as taxicab fares, incurred for occasional periods when no work is while traveling on the employer’s busi- performed due to vacation, holiday, illness. ness, failure of the employer to provide (4) ‘‘Supper money’’, a reasonable sufficient work, or other similar cause; amount given to an employee, who or- reasonable payments for traveling ex- dinarily works the day shift and can penses, or other expenses, incurred by ordinarily return home for supper, to an employee in the furtherance of his cover the cost of supper when he is re- employer’s interests and properly reim- quested by his employer to continue bursable by the employer; and other work during the evening hours. similar payments to an employee (5) The actual or reasonably approxi- which are not made as compensation mate amount expended by an employee for his hours of employment * * *.’’ as temporary excess home-to-work However, since such payments are not travel expenses incurred (i) because the made as compensation for the employ- employer has moved the plant to an- ee’s hours worked in any workweek, no other town before the employee has part of such payments can be credited had an opportunity to find living quar- toward overtime compensation due ters at the new location or (ii) because under the Act. the employee, on a particular occasion, is required to report for work at a § 778.217 Reimbursement for expenses. place other than his regular workplace. (a) General rule. Where an employee The foregoing list is intended to be il- incurs expenses on his employer’s be- lustrative rather than exhaustive. half or where he is required to expend (c) Payments excluding expenses. (1) It sums by reason of action taken for the should be noted that only the actual or convenience of his employer, section reasonably approximate amount of the 7(e)(2) is applicable to reimbursement expense is excludable from the regular for such expenses. Payments made by rate. If the amount paid as ‘‘reim- the employer to cover such expenses bursement’’ is disproportionately are not included in the employee’s reg- large, the excess amount will be in- ular rate (if the amount of the reim- cluded in the regular rate. bursement reasonably approximates (2) A reimbursement amount for an the expense incurred). Such payment is employee traveling on his or her em- not compensation for services rendered ployer’s business is per se reasonable, by the employees during any hours and not disproportionately large, if it: worked in the workweek. (i) Is the same or less than the max- (b) Illustrations. Payment by way of imum reimbursement payment or per reimbursement for the following types diem allowance permitted for the same of expenses will not be regarded as part type of expense under 41 CFR subtitle of the employee’s regular rate: F (the Federal Travel Regulation Sys- (1) The actual amount expended by tem) or IRS guidance issued under 26 an employee in purchasing supplies, CFR 1.274–5(g) or (j); and tools, materials, cell phone plans, or (ii) Otherwise meets the require- equipment on behalf of his employer or ments of this section.

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(3) Paragraph (c)(2) of this section (b) Limitations on exclusion. The provi- creates no inference that a reimburse- sion of section 7(e)(2) of the Act deals ment for an employee traveling on his with the type of absences which are in- or her employer’s business exceeding frequent or sporadic or unpredictable. the amount permitted under 41 CFR It has no relation to regular ‘‘ab- subtitle F (the Federal Travel Regula- sences’’ such as regularly scheduled tion System) or IRS guidance issued days of rest. Sundays may not be work- under 26 CFR 1.274–5(g) or (j) is unrea- days in a particular establishment, but sonable for purposes of this section. this does not make them either ‘‘holi- (d) Payments for expenses personal to days’’ or ‘‘vacations,’’ or days on which the employee. The expenses for which the employee is absent because of the reimbursement is made must in order failure of the employer to provide suffi- to merit exclusion from the regular cient work. The term holiday is read in rate under this section, be expenses in- its ordinary usage to refer to those curred by the employee on the employ- days customarily observed in the com- er’s behalf or for his benefit or conven- munity in celebration of some histor- ience. If the employer reimburses the ical or religious occasion; it does not employee for expenses normally in- refer to days of rest given to employees curred by the employee for his own in lieu of or as an addition to com- benefit, he is, of course, increasing the pensation for working on other days. employee’s regular rate thereby. An (c) Failure to provide work. The term employee normally incurs expenses in ‘‘failure of the employer to provide suf- traveling to and from work, buying ficient work’’ is intended to refer to oc- lunch, paying rent, and the like. If the casional, sporadically recurring situa- employer reimburses him for these normal everyday expenses, the payment is tions where the employee would nor- not excluded from the regular rate as mally be working but for such a factor ‘‘reimbursement for expenses.’’ Wheth- as machinery breakdown, failure of ex- er the employer ‘‘reimburses’’ the em- pected supplies to arrive, weather con- ployee for such expenses or furnishes ditions affecting the ability of the em- the facilities (such as free lunches or ployee to perform the work and simi- free housing), the amount paid to the larly unpredictable obstacles beyond employee (or the reasonable cost to the the control of the employer. The term employer or fair value where facilities does not include reduction in work are furnished) enters into the regular schedule (as discussed in §§ 778.321 rate of pay as discussed in § 778.116. See through 778.329), ordinary temporary also § 531.37(b) of this chapter. layoff situations, or any type of routine, recurrent absence of the em- [33 FR 986, Jan. 26, 1968, as amended at 84 FR 68772, Dec. 16, 2019] ployee. (d) Other similar cause. The term § 778.218 Pay for certain idle hours. ‘‘other similar cause’’ refers to payments made for periods of absence due (a) General rules. Payments which are to factors like holidays, vacations, made for occasional periods when the sickness, and failure of the employer to employee is not at work due to vacation, holiday, illness, failure of the em- provide work. Examples of ‘‘similar ployer to provide sufficient work, or causes’’ are absences due to jury serv- other similar cause, where the pay- ice, reporting to a draft board, attend- ments are in amounts approximately ing a funeral, inability to reach the equivalent to the employee’s normal workplace because of weather condi- earnings for a similar period of time, tions, attending adoption or child cus- are not made as compensation for his tody hearings, attending school activi- hours of employment. Therefore, such ties, donating organs or blood, voting, payments may be excluded from the volunteering as a first responder, mili- regular rate of pay under section 7(e)(2) tary leave, family medical leave, and of the Act and, for the same reason, no nonroutine paid leave required under part of such payments may be credited state or local laws. Only absences of a toward overtime compensation due non-routine character which are infre- under the Act. quent or sporadic or unpredictable are

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included in the ‘‘other similar cause’’ This is a matter of private contract be- category. tween the parties who may agree that vacation pay will be measured by [33 FR 986, Jan. 26, 1968, as amended at 84 FR 68772, Dec. 16, 2019] straight-time earnings for any agreed number of hours or days, or by total § 778.219 Pay for forgoing holidays and normal or expected take-home pay for unused leave. the period, or that no vacation pay at (a) Sums payable whether employee all will be paid. The example merely il- works or not. As explained in § 778.218, lustrates the proper method of com- certain payments made to an employee puting overtime for an employee whose for periods during which he performs employment contract provides $576 va- no work because of a holiday, vacation, cation pay.) or illness are not required to be in- (2) An employee who is entitled under cluded in the regular rate because they his employment contract to 8 hours’ are not regarded as compensation for pay at his rate of $12 an hour for the working. When an employee who is en- Christmas holiday, forgoes his holiday titled to such paid leave forgoes the and works 9 hours on that day. During use of leave and instead receives a pay- the entire week, he works a total of 50 ment that is the approximate equiva- hours. He is paid under his contract lent to the employees’ normal earnings $600 as straight-time compensation for for a similar period of working time, 50 hours plus $96 as idle holiday pay. He and is in addition to the employee’s is owed, under the statute, an addi- normal compensation for hours tional $60 as overtime premium (addi- worked, the sum allocable to the for- tional half-time) for the 10 hours in ex- gone leave may be excluded from the cess of 40. His regular rate of $12 per regular rate. Such payments may be hour has not been increased by virtue excluded whether paid out during the of the holiday pay but no part of the pay period in which the holiday or $96 holiday pay may be credited toward prescheduled leave is forgone or as a statutory overtime compensation due. lump sum at a later point in time. (3) An employee whose rate of pay is Since it is not compensation for work, $12 an hour and who usually works a 40- pay for unused leave may not be cred- hour week is entitled to two weeks of ited toward overtime compensation due paid time off per year per his or her under the Act. Four examples in which employer’s policies. The employee the maximum hours standard is 40 takes one week of paid time off during hours may serve to illustrate this prin- the year and is paid $480 pursuant to ciple: employer policy for the one week of un- (1) An employee whose rate of pay is used paid time off at the end of the $12 an hour and who usually works a 6- year. The leave payout may be ex- day, 48-hour week is entitled, under his cluded from the employee’s regular employment contract, to a week’s paid rate of pay, but no part of the payout vacation in the amount of his usual may be credited toward statutory over- straight-time earnings—$576. He time compensation due. forgoes his vacation and works 50 hours (4) An employee is scheduled to work in the week in question. He is owed $600 a set schedule of two 24-hour shifts on as his total straight-time earnings for duty, followed by four 24-hour shifts off the week, and $576 in addition as his duty. This cycle repeats every six days. vacation pay. Under the statute he is The employer recognizes ten holidays owed an additional $60 as overtime pre- per year and provides employees with mium (additional half-time) for the 10 holiday pay for these days at amounts hours in excess of 40. His regular rate approximately equivalent to their nor- of $12 per hour has not been increased mal earnings for a similar period of by virtue of the payment of $576 vaca- working time. Due to the cycle of the tion pay, but no part of the $576 may be schedule, employees may be on duty offset against the statutory overtime during some recognized holidays and compensation which is due. (Nothing in off duty during others, and due to the this example is intended to imply that nature of their work, employees may the employee has a statutory right to be required to forgo a holiday if an $576 or any other sum as vacation pay. emergency arises. In recognition of

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this fact, the employer provides the time premium under section 7(e)(6), it employees holiday pay regardless of is excludable from the regular rate and whether the employee works on the the employer may credit it toward holiday. If the employee works on the statutory overtime compensation due. holiday, the employee will receive his Because the total thus paid exceeds the or her regular salary in addition to the statutory requirements, no additional holiday pay. In these circumstances, compensation is due under the Act. In the sum allocable to the holiday pay distinguishing this situation from that may be excluded from the regular rate. in the example in paragraph (a)(2) of (b) Premiums for holiday work distin- this section, it should be noted that guished. The example in paragraph the contract provisions in the two situ- (a)(2) of this section should be distin- ations are different and result in the guished from a situation in which an payment of different amounts. In the employee is entitled to idle holiday example in paragraph (a)(2) of this sec- pay under the employment agreement tion, the employee received a total of only when he is actually idle on the $204 attributable to the holiday: 8 holiday, and who, if he forgoes his holi- hours’ idle holiday pay at $12 an hour (8 day also, under his contract, forgoes × $12), due him whether he worked or his idle holiday pay. not, and $108 pay at the nonholiday (1) The typical situation is one in rate for 9 hours’ work on the holiday. which an employee is entitled by con- In the situation discussed in this para- tract to 8 hours’ pay at his rate of $12 graph (b)(2), the employee received $216 an hour for certain named holidays pay for working on the holiday—double when no work is performed. If, how- time for 9 hours of work. All of the pay ever, he is required to work on such in this situation is paid for and di- days, he does not receive his idle holi- rectly related to the number of hours day pay. Instead he receives a premium worked on the holiday. rate of $18 (time and one-half) for each [84 FR 68773, Dec. 16, 2019] hour worked on the holiday. If he worked 9 hours on the holiday and a § 778.220 ‘‘Show-up’’ or ‘‘reporting’’ total of 50 hours for the week, he would pay. be owed, under his contract, $162 (9 × (a) Applicable principles. Under some $18) for the holiday work and $492 for employment agreements, an employee the other 41 hours worked in the week, may be paid a minimum of a specified a total of $654. Under the statute number of hours’ pay at the applicable (which does not require premium pay straight time or overtime rate on infre- for a holiday) he is owed $660 for a quent and sporadic occasions when, workweek of 50 hours at a rate of $12 an after reporting to work at his sched- hour. Since the holiday premium is one uled starting time on a regular work and one-half times the established rate day or on another day on which he has for nonholiday work, it does not in- been scheduled to work, he is not pro- crease the regular rate because it vided with the expected amount of qualifies as an overtime premium work. The amounts that may be paid under section 7(e)(6), and the employer under such an agreement over and may credit it toward statutory over- above what the employee would receive time compensation due and need pay if paid at his customary rate only for the employee only the additional sum the number of hours worked are paid to of $6 to meet the statutory require- compensate the employee for the time ments. (For a discussion of holiday pre- wasted by him in reporting for work miums see § 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 $24 (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 $216 (9 × $24) for the holiday work ees in to work for only a fraction of a in addition to $492 for the other 41 day when they might get full-time hours worked, a total of $708. Since work elsewhere. Pay arrangements of this holiday premium is also an over- this kind are commonly referred to as

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‘‘show-up’’ or ‘‘reporting’’ pay. Under amount of work. All such payments or the principles and subject to the condi- penalties paid to employees that are tions set forth in subpart B of this part mandated by such laws and that are and §§ 778.201 through 778.207, that por- not payments for hours worked by the tion of such payment which represents employee are excludable from the reg- compensation at the applicable rates ular rate if such penalties are paid or for the straight time or overtime hours payments made on an infrequent or actually worked, if any, during such sporadic basis. They cannot be credited period may be credited as straight time toward statutory overtime compensa- or overtime compensation, as the case tion due. may be, in computing overtime com- [46 FR 7312, Jan. 23, 1981, as amended at 85 pensation due under the Act. The FR 68774, Dec. 16, 2019] amount by which the specified number of hours’ pay exceeds such compensa- § 778.221 ‘‘Call-back’’ pay. tion for the hours actually worked is (a) General. Typically, ‘‘call-back’’ or considered as a payment that is not ‘‘call-out’’ payments are made pursu- made for hours worked. As such, it ant to agreement or established prac- may be excluded from the computation tice and consist of a specified number of the employee’s regular rate and can- of hours’ pay at the applicable straight not be credited toward statutory overtime or overtime rates received by an time compensation due him. employee on occasions when, after his (b) Application illustrated. To illus- scheduled hours of work have ended trate, assume that an employee enti- and without prearrangement, he re- tled to overtime pay after 40 hours a sponds to a call from his employer to week whose workweek begins on Mon- perform extra work. The amount by day and who is paid $12 an hour reports which the specified number of hours’ for work on Monday according to pay exceeds the compensation for schedule and is sent home after being hours actually worked is considered as given only 2 hours of work. He then a payment that is not made for hours works 8 hours each day on Tuesday worked. As such, it may be excluded through Saturday, inclusive, making a from the computation of the employ- total of 42 hours for the week. The em- ee’s regular rate and cannot be credited ployment agreement covering the em- toward statutory overtime compensa- ployees in the plant, who normally tion due the employee. Payments that work 8 hours a day, Monday through are prearranged, however, may not be Friday, provides that an employee re- excluded from the regular rate. For ex- porting for scheduled work on any day ample, if an employer retailer called in will receive a minimum of 4 hours’ an employee to help clean up the store work or pay. The employee thus re- for 3 hours after an unexpected roof ceives not only the $24 earned in the 2 leak, and then again 3 weeks later for hours of work on Monday but an extra 2 hours to cover for a coworker who 2 hours’ ‘‘show-up’’ pay, or $24 by rea- left work for a family emergency, pay- son of this agreement. However, since ments for those instances would be this $24 in ‘‘show-up’’ pay is not re- without prearrangement and any call- garded as compensation for hours back pay that exceeded the amount the worked, the employee’s regular rate re- employee would receive for the hours mains $12 and the overtime require- worked would be excludable. However, ments of the Act are satisfied if he re- when payments under §§ 778.221 and ceives, in addition to the $504 straight- 778.222 are prearranged, they are com- time pay for 42 hours and the $24 pensation for work. The key inquiry ‘‘show-up’’ payment, the sum of $12 as for determining prearrangement is extra compensation for the 2 hours of whether the extra work was antici- overtime work on Saturday. pated and therefore reasonably could (c) Show-up or reporting pay mandated have been scheduled. For example, if by law. State and local laws may man- an employer restaurant anticipates date payments or penalties paid to an needing extra servers for two hours employee when, before or after report- during the busiest part of each Satur- ing to work as scheduled, the employee day evening and calls in employees to is not provided with the expected meet that need instead of scheduling

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additional servers, that would be pre- rate of the employee, therefore, re- arrangement and any call-back pay mains $12, and he has received an over- would be included in the regular rate. time premium of $6 an hour for 3 over- (b) Application illustrated. The appli- time hours of work. This satisfies the cation of the principles in paragraph requirements of section 7 of the Act. (a) of this section to call-back pay- The same would be true, of course, if in ments may be illustrated as follows: the foregoing example, the employee An employment agreement provides a was called back outside his scheduled minimum of 3 hours’ pay at time and hours for the 2-hour emergency job on one-half for any employee called back another night of the week or on Satur- to work outside his scheduled hours. day or Sunday, instead of on Friday The employees covered by the agree- night. ment, who are entitled to overtime pay after 40 hours a week, normally work 8 [84 FR 68774, Dec. 16, 2019] hours each day, Monday through Fri- day, inclusive, in a workweek begin- § 778.222 Other payments similar to ning on Monday, and are paid overtime ‘‘call-back’’ pay. compensation at time and one-half for The principles discussed in § 778.221 all hours worked in excess of 8 in any are also applied with respect to certain day or 40 in any workweek. Assume types of extra payments which are that an employee covered by this similar to call-back pay. Payments are agreement and paid at the rate of $12 similar to call-back pay if they are an hour works 1 hour overtime or a extra payments, including payments total of 9 hours on Monday, and works made pursuant to state or local sched- 8 hours each on Tuesday through Fri- uling laws, to compensate an employee day, inclusive. After he has gone home on Friday evening, he is called back to for working unanticipated or insuffi- perform an emergency job. His hours ciently scheduled hours or shifts. The worked on the call total 2 hours and he extra payment, over and above the em- receives 3 hours’ pay at time and one- ployee’s earnings for the hours actu- half, or $54, under the call-back provi- ally worked at his applicable rate sion, in addition to $480 for working his (straight time or overtime, as the case regular schedule and $18 for overtime may be), is considered as a payment worked on Monday evening. In com- that is not made for hours worked. puting overtime compensation due this Payments that are prearranged, how- employee under the Act, the 43 actual ever, may not be excluded from the hours (not 44) are counted as working regular rate. Examples of payments time during the week. In addition to similar to excludable call-back pay in- $516 pay at the $12 rate for all these clude: hours, he has received under the agree- (a) Extra payments made to employment a premium of $6 for the 1 over- ees for failure to give the employee suf- time hour on Monday and of $12 for the ficient notice to report for work on 2 hours of overtime work on the call, regular days of rest or during hours plus an extra sum of $18 paid by reason outside of his regular work schedule; of the provision for minimum call-back (b) Extra payments made solely be- pay. For purposes of the Act, the extra cause the employee has been called premiums paid for actual hours of over- back to work before the expiration of a time work on Monday and on the Fri- specified number of hours between day call (a total of $18) may be excluded as true overtime premiums in shifts or tours of duty, sometimes re- computing his regular rate for the ferred to as a ‘‘rest period;’’ week and may be credited toward com- (c) Pay mandated by state or local pensation due under the Act, but the law for employees who are scheduled to extra $18 received under the call-back work the end of one day’s shift and the provision is not regarded as paid for start of the next day’s shift with fewer hours worked; thus, it may be excluded than the legally required number of from the regular rate, but it cannot be hours between the shifts; and credited toward overtime compensa- (d) ‘‘Predictability pay’’ mandated by tion due under the Act. The regular state or local law for employees who do

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not receive requisite notice of a sched- calls for specific periods will receive a ule change. payment of $5 for each 8-hour period during which they are ‘‘on call’’ in ad- [84 FR 68775, Dec. 16, 2019] dition to pay at their regular (or over- § 778.223 Pay for non-productive hours time) rate for hours actually spent in distinguished. making calls. If the employees who are (a) Under the Act an employee must thus on call are not confined to their be compensated for all hours worked. homes or to any particular place, but As a general rule the term ‘‘hours may come and go as they please, pro- worked’’ will include: vided that they leave word where they (1) All time during which an em- may be reached, the hours spent ‘‘on ployee is required to be on duty or to call’’ are not considered as hours be on the employer’s premises or at a worked. Although the payment re- prescribed workplace; and ceived by such employees for such ‘‘on (2) All time during which an em- call’’ time is, therefore, not allocable ployee is suffered or permitted to work to any specific hours of work, it is whether or not he is required to do so. clearly paid as compensation for per- (b) Thus, working time is not limited forming a duty involved in the employ- to the hours spent in active productive ee’s job and is not of a type excludable labor, but includes time given by the under section 7(e)(2). The payment employee to the employer even though must therefore be included in the em- part of the time may be spent in idle- ployee’s regular rate in the same man- ness. Some of the hours spent by em- ner as any payment for services, such ployees, under certain circumstances, as an attendance bonus, which is not in such activities as waiting for work, related to any specific hours of work. remaining ‘‘on call’’, traveling on the The principle in this paragraph (b) also employer’s business or to and from applies when such ‘‘on call’’ pay is workplaces, and in meal periods and mandated by state or local law. rest periods are regarded as working [84 FR 68775, Dec. 16, 2019] time and some are not. The governing principles are discussed in part 785 of § 778.224 ‘‘Other similar payments’’. this chapter (interpretative bulletin on (a) General. Sections 778.216 through ‘‘hours worked’’) and part 790 of this 778.223 have enumerated and discussed chapter (statement of effect of Portal- the basic types of payments for which to-Portal Act of 1947). To the extent exclusion from the regular rate is spe- that these hours are regarded as work- cifically provided under section 7(e)(2) ing time, payment made as compensa- because they are not made as com- tion for these hours obviously cannot pensation for hours of work. Section be characterized as ‘‘payments not for 7(e)(2) also authorizes exclusion from hours worked.’’ Such compensation is the regular rate of other similar pay- treated in the same manner as com- ments to an employee which are not pensation for any other working time made as compensation for his hours of and is, of course, included in the reg- employment. Such payments do not de- ular rate of pay. Where payment is os- pend on hours worked, services ren- tensibly made as compensation for dered, job performance, or other cri- such of these hours as are not regarded teria that depend on the quality or as working time under the Act, the quantity of the employee’s work. Con- payment is nevertheless included in ditions not dependent on the quality or the regular rate of pay unless it quali- quality of work include a reasonable fies for exclusion from the regular rate waiting period for eligibility, the re- as one of a type of ‘‘payments made for quirement to repay benefits as a rem- occasional periods when no work is per- edy for employee misconduct, and lim- formed due to failure of the employer iting eligibility on the basis of geo- to provide sufficient work, or other graphic location or job position. Since similar cause’’ as discussed in § 778.218 a variety of miscellaneous payments or is excludable on some other basis are paid by an employer to an em- under section 7(e)(2). For example, an ployee under peculiar circumstances, it employment contract may provide that was not considered feasible to attempt employees who are assigned to take to list them. They must, however, be

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‘‘similar’’ in character to the payments TALENT FEES IN THE RADIO AND specifically described in section 7(e)(2). TELEVISION INDUSTRY It is clear that the clause was not intended to permit the exclusion from § 778.225 Talent fees excludable under the regular rate of payments such as regulations. most bonuses or the furnishing of fa- Section 7(e)(3) provides for the exclu- cilities like board and lodging which, sion from the regular rate of ‘‘talent though not directly attributable to any fees (as such talent fees are defined and particular hours of work are, neverthe- delimited by regulations of the Sec- less, clearly understood to be com- retary) paid to performers, including pensation for services. announcers, on radio and television (b) Examples of other excludable pay- programs.’’ Regulations defining ‘‘tal- ments. A few examples may serve to il- ent fees’’ have been issued as part 550 of this chapter. Payments which accord lustrate some of the types of payments with this definition are excluded from intended to be excluded as ‘‘other simi- the regular rate. lar payments’’. (1) Sums paid to an employee for the rental of his truck or car. Subpart D—Special Problems (2) Loans or advances made by the INTRODUCTORY employer to the employee. (3) The cost to the employer of con- § 778.300 Scope of subpart. veniences furnished to the employee This subpart applies the principles of such as: computing overtime to some of the (i) Parking spaces and parking bene- problems that arise frequently. fits; (ii) Restrooms and lockers; CHANGE IN THE BEGINNING OF THE (iii) On-the-job medical care; WORKWEEK (iv) Treatment provided on-site from § 778.301 Overlapping when change of specialists such as chiropractors, mas- workweek is made. sage therapists, physical therapists, As stated in § 778.105, the beginning of personal trainers, counselors, or Em- the workweek may be changed for an ployee Assistance Programs; or employee or for a group of employees if (v) Gym access, gym memberships, the change is intended to be permanent fitness classes, and recreational facili- and is not designed to evade the over- ties. time requirements of the Act. A change (4) The cost to the employer of pro- in the workweek necessarily results in viding wellness programs, such as a situation in which one or more hours health risk assessments, biometric or days fall in both the ‘‘old’’ work- screenings, vaccination clinics (includ- week as previously constituted and the ing annual flu vaccinations), nutrition ‘‘new’’ workweek. Thus, if the work- classes, weight loss programs, smoking week in the plant commenced at 7 a.m. cessation programs, stress reduction on Monday and it is now proposed to programs, exercise programs, coaching begin the workweek at 7 a.m. on Sun- to help employees meet health goals, day, the hours worked from 7 a.m. Sun- financial wellness programs or finan- day to 7 a.m. Monday will constitute cial counseling, and mental health both the last hours of the old work- wellness programs. week and the first hours of the newly (5) Discounts on employer-provided established workweek. retail goods and services, and tuition benefits (whether paid to an employee, § 778.302 Computation of overtime due for overlapping workweeks. an education provider, or a student loan program). (a) General rule. When the beginning (6) Adoption assistance (including fi- of the workweek is changed, if the nancial assistance, legal services, or hours which fall within both ‘‘old’’ and ‘‘new’’ workweeks as explained in information and referral services). § 778.301 are hours in which the em- [84 FR 68775, Dec. 16, 2019] ployee does no work, his statutory

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

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(5) Deductions for disciplinary rea- made. Therefore, in cases where the un- sons. derstanding of the parties is not clear- (b) In general, where such deductions ly shown as to whether a fixed salary is are made, the employee’s ‘‘regular intended to cover a fixed or a variable rate’’ is the same as it would have been workweek the practice of making ‘‘de- if the occasion for the deduction had ductions’’ from the salary for hours not not arisen. Also, as explained in part worked in short weeks will be consid- 531 of this chapter, the requirements of ered strong, if not conclusive, evidence the Act place certain limitations on that the salary covers a fixed work- the making of some of the above deduc- week. tions. [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 employee 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 § 778.306 Salary reductions in short the regular rate before the deduction is workweeks. applied. In no event may such deduc- (a) The reductions in pay described in tions (or deductions of the type de- § 778.304(a)(4) are not, properly speak- scribed in § 778.304(a)(2)) reduce the ing, ‘‘deductions’’ at all. If an employee earnings to an average below the appli- is compensated at a fixed salary for a cable minimum wage or cut into any fixed workweek and if this salary is re- part of the overtime compensation due duced by the amount of the average the employee. For a full discussion of hourly earnings for each hour lost by the limits placed on such deductions, the employee in a short workweek, the see part 531 of this chapter. The prin- employee is, for all practical purposes, ciples set forth therein with relation to employed at an hourly rate of pay. deductions have no application, how- This hourly rate is the quotient of the ever, to situations involving refusal or fixed salary divided by the fixed num- failure to pay the full amount of wages ber of hours it is intended to com- due. See part 531 of this chapter; also pensate. If an employee is hired at a § 778.306. It should be noted that al- fixed salary of $200 for a 40-hour week, though an employer may penalize an his hourly rate is $5. When he works employee for lateness subject to the only 36 hours he is therefore entitled to limitations stated above by deducting $180. The employer makes a ‘‘deduc- a half hour’s straight time pay from tion’’ of $20 from his salary to achieve his wages, for example, for each half this result. The regular hourly rate is hour, or fraction thereof of his late- not altered. (b) When an employee is paid a fixed ness, the employer must still count as salary for a workweek of variable hours worked all the time actually hours (or a guarantee of pay under the worked by the employee in deter- provisions of section 7(f) of the Act, as mining the amount of overtime com- discussed in §§ 778.402 through 778.414), pensation due for the workweek. the understanding is that the salary or [46 FR 7314, Jan. 23, 1981] guarantee is due the employee in short workweeks as well as in longer ones and ‘‘deductions’’ of this type are not

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LUMP SUM ATTRIBUTED TO OVERTIME overtime hours, a fixed sum in any such week for his overtime work, de- § 778.308 The overtime rate is an hour- termined by multiplying his overtime ly rate. rate by the number of overtime hours (a) Section 7(a) of the Act requires regularly worked. the payment of overtime compensation for hours worked in excess of the appli- § 778.310 Fixed sum for varying cable maximum hours standard at a amounts of overtime. rate not less than one and one-half A premium in the form of a lump times the regular rate. The overtime sum which is paid for work performed rate, like the regular rate, is a rate per during overtime hours without regard hour. Where employees are paid on to the number of overtime hours some basis other than an hourly rate, worked does not qualify as an overtime 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

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for a special job performed during over- under section 7(e)(7) of the Act, as dis- time hours, without regard to the time cussed in § 778.204. The $15 paid on Mon- actually consumed in performance. day, the $7.50 paid on Wednesday and (This situation should be distinguished the $30 paid on Saturday are paid pur- from ‘‘show-up’’ and ‘‘call-back’’ pay suant to rates which qualify as pre- situations discussed in §§ 778.220 mium rates under section 7(e)(7) of the through 778.222 and from payment at a Act. The total extra compensation rate not less than one and one-half (over the straight time pay for these times the applicable rate to piece- hours) provided by these premium workers for work performed during rates is $17.50. The sum of $17.50 should overtime hours, as discussed in be subtracted from the total of $292.50 §§ 778.415 through 778.421). The total due the employee under the employ- amount paid must be included in the ment agreement. No part of the $45 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 contract ...... $40 $40 $35 $40 $40 0 0 forms are the following: Hours outside (1) It is determined (sometimes on basic workday 2 2 1 1 0 0 4 0 the basis of a time study) that an em- Pay under contract ...... $15 $45 $7.50 0 0 $30 0 ployee (or group) should complete a particular task in 8 hours. Upon the 1 Hours 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 compensation 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

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for the ‘‘hours’’ so credited in excess of plans for hours worked within the basic 40. The number of ‘‘hours’’ credited to or normal workday (if one is estab- the employee bears no necessary rela- lished) and without regard to whether tionship to the number of hours actu- the hours are or are not in excess of 8 ally worked. It may be greater or less. per day or 40 per week, they cannot ‘‘Overtime’’ may be payable in some qualify as overtime premiums under cases after 20 hours of work; in others section 7(e) (5), (6), or (7) of the Act. only after 50 hours or any other num- They must therefore be included in the ber of hours. regular rate and no part of them may (2) A similar task is set up and 8 be credited against statutory overtime hours’ pay at the established rate is compensation due. Under plans of the credited for the completion of the task second type, however, where the pay of in 8 hours or less. If the employee fails an employee on a given day is actually to complete the task in 8 hours he is controlled by the established hourly paid at the established rate for each of rate (because he fails to complete the the first 8 hours he actually worked. task in the 8-hour period) and he is For work in excess of 8 hours or after paid at one and one-half times the es- the task is completed (whichever oc- tablished rate for hours in excess of 8 curs first) he is paid one and one-half hours actually worked, the premium times the established rate for each rate paid on that day will qualify as an such hour worked. He is owed overtime overtime premium under section compensation under the Act for hours 7(e)(5). worked in the workweek in excess of 40 but is paid his weekly overtime com- § 778.313 Computing overtime pay pensation at the premium rate for the under the Act for employees com- hours in excess of 40 actual or ‘‘task’’ pensated on task basis. hours (or combination thereof) for which he received pay at the estab- (a) An example of the operation of a lished rate. ‘‘Overtime’’ pay under this plan of the second type discussed in plan may be due after 20 hours of work, § 778.312 may serve to illustrate the ef- 25 or any other number up to 40. fects on statutory overtime computa- (b) These employees are in actual tions of payment on a task basis. As- fact compensated on a daily rate of pay sume the following facts: The employ- basis. In plans of the first type, the es- ment agreement establishes a basic tablished hourly rate never controls hourly rate of $5 per hour, provides for the compensation which any employee the payment of $7.50 per hour for over- actually receives. Therefore, the estab- time work (in excess of the basic work- lished rate cannot be his regular rate. day or workweek) and defines the basic In plans of the second type the rate is workday as 8 hours, and the basic operative only for the slower employ- workweek as 40 hours, Monday through ees who exceed the time allotted to Friday. It further provides that the as- complete the task; for them it operates sembling of a machine constitutes a in a manner similar to a minimum day’s work. An employee who com- hourly guarantee for piece workers, as pletes the assembling job in less than 8 discussed in § 778.111. On such days as it hours will be paid 8 hours’ pay at the is operative it is a genuine rate; at established rate of $5 per hour and will other times it is not. receive pay at the ‘‘overtime’’ rate for (c) Since the premium rates (at one hours worked after the completion of and one-half times the established the task. An employee works the fol- hourly rate) are payable under both lowing hours in a particular week:

M T W T F S S

Hours spent on task ...... 6 7 7 9 81⁄2 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

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(b) In the example in paragraph (a) of ticular workweek must be counted. this section the employee has actually Overtime compensation, at a rate not worked a total of 48 hours and is owed less than one and one-half times the under the contract a total of $305 for regular rate of pay, must be paid for the week. The only sums which can be each hour worked in the workweek in excluded as overtime premiums from excess of the applicable maximum this total before the regular rate is de- hours standard. This extra compensa- termined are the extra $2.50 payments tion for the excess hours of overtime for the extra hour on Thursday and work under the Act cannot be said to Friday made because of work actually have been paid to an employee unless in excess of 8 hours. The payment of all the straight time compensation due the other premium rates under the con- him for the nonovertime hours under tract is either without regard to whether or not the hours they com- his contract (express or implied) or pensated were in excess of a bona fide under any applicable statute has been daily or weekly standard or without re- paid. gard to the number of overtime hours worked. Thus only the sum of $5 is ex- § 778.316 Agreements or practices in conflict with statutory require- cluded from the total. The remaining ments are ineffective. $300 is divided by 48 hours to determine the regular rate—$6.25 per hour. One- While it is permissible for an em- half this rate is due under the Act as ployer and an employee to agree upon extra compensation for each of the 8 different base rates of pay for different overtime hours—$25. The $5 payment types of work, it is settled under the under the contract for actual excess Act that where a rate has been agreed hours may be credited and the bal- upon as applicable to a particular type ance—$20—is owed in addition to the of work the parties cannot lawfully $305 due under the contract. agree that the rate for that work shall [46 FR 7315, Jan. 23, 1981] be lower merely because the work is performed during the statutory over- § 778.314 Special situations. time hours, or during a week in which There may be special situations in statutory overtime is worked. Since a which the facts demonstrate that the lower rate cannot lawfully be set for hours for which contract overtime overtime hours it is obvious that the compensation is paid to employees parties cannot lawfully agree that the working on a ‘‘task’’ or ‘‘stint’’ basis working time will not be paid for at actually qualify as overtime hours all. An agreement that only the first 8 under section 7(e)(5), (6), or (7). Where hours of work on any days or only the this is true, payment of one and one- hours worked between certain fixed half times an agreed hourly rate for hours of the day or only the first 40 ‘‘task’’ or ‘‘stint’’ work may be equiva- hours of any week will be counted as lent to payment pursuant to agreement working time will clearly fail of its of one and one-half time a piece rate. evasive purpose. An announcement by The alternative methods of overtime the employer that no overtime work pay computation permitted by section will be permitted, or that overtime 7(g)(1) or (2), as explained in §§ 778.415 work will not be compensated unless through 778.421 may be applicable in authorized in advance, will not impair such a case. the employee’s right to compensation for work which he is actually suffered EFFECT OF FAILURE TO COUNT OR PAY or permitted to perform. FOR CERTAIN WORKING HOURS

§ 778.315 Payment for all hours § 778.317 Agreements not to pay for worked in overtime workweek is re- certain nonovertime hours. quired. An agreement not to compensate em- In determining the number of hours ployees for certain nonovertime hours for which overtime compensation is stands on no better footing since it due, all hours worked (see § 778.223) by would have the same effect of dimin- an employee for an employer in a par- ishing the employee’s total overtime

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compensation. An agreement, for ex- times that rate for hours in excess of ample, to pay an employee whose max- 40. imum hours standard for the particular (c) Compensation attributable to both workweek is 40 hours, $5 an hour for productive and nonproductive hours. The the first 35 hours, nothing for the hours situation described in paragraph (a) of between 35 and 40 and $7.50 an hour for this section is to be distinguished from the hours in excess of 40 would not one in which such nonproductive hours meet the overtime requirements of the are properly counted as working time Act. Under the principles set forth in but no special hourly rate is assigned § 778.315, the employee would have to be to such hours because it is understood paid $25 for the 5 hours worked between by the parties that the other com- 35 and 40 before any sums ostensibly pensation received by the employee is paid for overtime could be credited to- intended to cover pay for such hours. ward overtime compensation due under For example, while it is not proper for the Act. Unless the employee is first an employer to agree with his piece- paid $5 for each nonovertime hour workers that the hours spent in down- worked, the $7.50 per hour payment time (waiting for work) will not be paid 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 employees 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 may agree to compensate nonproduc- § 778.319 Paying for but not counting tive hours worked at a rate (at least hours worked. 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

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the applicable maximum hours stand- worked under the Portal-to-Portal Act ard, extra half-time compensation will even if made compensable by contract, be due regardless of any agreement to custom, or practice, such time will not the contrary. be counted as hours worked unless agreement or established practice indi- § 778.320 Hours that would not be cates that the parties have treated the hours worked if not paid for. time as hours worked. Such time in- In some cases an agreement or estab- cludes bona fide meal periods, see lished practice provides for compensa- § 785.19. Unless it appears from all the tion for hours spent in certain types of pertinent facts that the parties have activities which would not be regarded treated such activities as hours as working time under the Act if no worked, payments for such time will be compensation were provided. Prelimi- regarded as qualifying for exclusion nary and postliminary activities and from the regular rate under the provi- time spent in eating meals between sions of section 7(e)(2), as explained in working hours fall in this category. §§ 778.216 through 778.224. The payments Compensation for such hours does not for such hours cannot, of course, qual- convert them into hours worked unless ify as overtime premiums creditable it appears from all the pertinent facts toward overtime compensation under that the parties have treated such time section 7(h) of the Act. as hours worked. Except for certain ac- [84 FR 68776, Dec. 16, 2019] tivity governed by the Portal-to-Portal Act (see paragraph (b) of this section), REDUCTION IN WORKWEEK SCHEDULE the agreement or established practice WITH NO CHANGE IN PAY of the parties will be respected, if reasonable. § 778.321 Decrease in hours without (a) Time treated as hours worked. decreasing pay—general. Where the parties have reasonably Since the regular rate of pay is the agreed to include as hours worked time average hourly rate at which an em- devoted to activities of the type de- ployee is actually employed, and since scribed in the introductory text of this this rate is determined by dividing his section, payments for such hours will total remuneration for employment not have the mathematical effect of in- (except statutory exclusions) for a creasing or decreasing the regular rate given workweek by the total hours of an employee if the hours are com- worked in that workweek for which pensated at the same rate as other such remuneration was paid, it nec- working hours. The requirements of essarily follows that if the schedule of section 7(a) of the Act will be consid- hours is reduced while the pay remains ered to be met where overtime com- the same, the regular rate has been in- pensation at one and one-half times creased. such rate is paid for the hours so compensated in the workweek which are in § 778.322 Reducing the fixed work- excess of the statutory maximum. week for which a salary is paid. (b) Time not treated as hours worked. If an employee whose maximum Under the principles set forth in hours standard is 40 hours was hired at § 778.319, where the payments are made a salary of $200 for a fixed workweek of for time spent in an activity which, if 40 hours, his regular rate at the time of compensable under contract, custom, hiring was $5 per hour. If his workweek or practice, is required to be counted as is later reduced to a fixed workweek of hours worked under the Act by virtue 35 hours while his salary remains the of section 4 of the Portal-to-Portal Act same, it is the fact that it now takes of 1947 (see parts 785 and 790 of this him only 35 hours to earn $200, so that chapter), no agreement by the parties he earns his salary at the average rate to exclude such compensable time from of $5.71 per hour. His regular rate thus hours worked would be valid. On the becomes $5.71 per hour; it is no longer other hand, in the case of time spent in $5 an hour. Overtime pay is due under an activity which would not be hours the Act only for hours worked in excess worked under the Act if not com- of 40, not 35, but if the understanding of pensated and would not become hours the parties is that the salary of $200

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now covers 35 hours of work and no ment of the parties is that the salary more, the employee would be owed $5.71 covers up to 40 hours and no more) and per hour under his employment con- his overtime rate, for hours in excess of tract for each hour worked between 35 40, thus remains $7.50 per hour. Such a and 40. He would be owed not less than salary arrangement presumably con- one and one-half times $5.71 ($8.57) per templates that the salary will be paid hour, under the statute, for each hour in full for any workweek of 40 hours or worked in excess of 40 in the work- less. The employee would thus be enti- week. In weeks in which no overtime is tled to his full salary if he worked only worked only the provisions of section 6 25 or 30 hours. No deductions for hours of the Act, requiring the payment of not worked in short workweeks would not less than the applicable minimum be made. (For a discussion of the effect wage for each hour worked, apply so of deductions on the regular rate, see that the employee’s right to receive §§ 778.304 to 778.307.) $5.71 per hour is enforceable only under [46 FR 7316, Jan. 23, 1981; 46 FR 33516, June 30, his contract. However, in overtime 1981] weeks the Administrator has the duty to insure the payment of at least one § 778.324 Effect on hourly rate employ- and one-half times the employee’s reg- ees. ular rate of pay for hours worked in ex- A similar situation is presented cess of 40 and this overtime compensa- where employees have been hired at an tion cannot be said to have been paid hourly rate of pay and have custom- until all straight time compensation arily worked a fixed workweek. If the due the employee under the statute or workweek is reduced from 40 to 35 his employment contract has been hours without reduction in total pay, paid. Thus if the employee works 41 the average hourly rate is thereby in- hours in a particular week, he is owed creased as in § 778.322. If the reduction his salary for 35 hours—$200, 5 hours’ in work schedule is accompanied by a pay at $5.71 per hour for the 5 hours be- new agreement altering the mode of tween 35 and 40—$28.55, and 1 hour’s compensation from an hourly rate pay at $8.57 for the 1 hour in excess of basis to a fixed salary for a variable 40—$8.57, or a total of $237.12 for the workweek up to 40 hours, the results week. described in § 778.323 follow. [46 FR 7316, Jan. 23, 1981] § 778.325 Effect on salary covering § 778.323 Effect if salary is for variable more than 40 hours’ pay. workweek. The same reasoning applies to salary The discussion in the prior section covering straight time pay for a longer sets forth one result of reducing the workweek. If an employee whose max- workweek from 40 to 35 hours. It is not imum hours standard is 40 hours was either the necessary result or the only hired at a fixed salary of $275 for 55 possible result. As in all cases of em- hours of work, he was entitled to a ployees hired on a salary basis, the reg- statutory overtime premium for the 15 ular rate depends in part on the agree- hours in excess of 40 at the rate of $2.50 ment of the parties as to what the sal- per hour (half-time) in addition to his ary is intended to compensate. In re- salary, and to statutory overtime pay ducing the customary workweek sched- of $7.50 per hour (time and one-half) for ule to 35 hours the parties may agree any hours worked in excess of 55. If the to change the basis of the employment scheduled workweek is later reduced to arrangement by providing that the sal- 50 hours, with the understanding be- ary which formerly covered a fixed tween the parties that the salary will workweek of 40 hours now covers a be paid as the employee’s nonovertime variable workweek up to 40 hours. If compensation for each workweek of 55 this is the new agreement, the em- hours or less, his regular rate in any ployee receives $200 for workweeks of overtime week of 55 hours or less is de- varying lengths, such as 35, 36, 38, or 40 termined by dividing the salary by the hours. His rate thus varies from week number of hours worked to earn it in to week, but in weeks of 40 hours or that particular week, and additional over, it is $5 per hour (since the agree- half-time, based on that rate, is due for

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each hour in excess of 40. In weeks of 55 who works more than 40 hours in any hours or more, his regular rate remains workweek be compensated, in accord- $5 per hour and he is due, in addition to ance with express congressional intent, his salary, extra compensation of $2.50 at a rate not less than one and one-half for each hour over 40 but not over 55 times his regular rate of pay for the and full time and one-half, or $7.50, for burden of working long hours. In ar- each hour worked in excess of 55. If, rangements of this type, no additional however, the understanding of the par- financial pressure would fall upon the ties is that the salary now covers a employer and no additional compensa- fixed workweek of 50 hours, his regular tion would be due to the employee rate is $5.50 per hour in all weeks. This under such a plan until the workweek assumes that when an employee works exceeded 50 hours. less than 50 hours in a particular week, [46 FR 7316, Jan. 23, 1981] deductions are made at a rate of $5.50 per hour for the hours not worked. § 778.327 Temporary or sporadic re- [46 FR 7316, Jan. 23, 1981] duction in schedule. (a) The problem of reduction in the § 778.326 Reduction of regular over- workweek is somewhat different where time workweek without reduction a temporary reduction is involved. Re- of take-home pay. ductions for the period of a dead or The reasoning applied in the fore- slow season follow the rules announced going sections does not, of course, above. However, reduction on a more apply to a situation in which the temporary or sporadic basis presents a former earnings at both straight time different problem. It is obvious that as and overtime are paid to the employee a matter of simple arithmetic an em- for the reduced workweek. Suppose an ployer might adopt a series of different employee was hired at an hourly rate rates for the same work, varying in- of $5 an hour and regularly worked 50 versely with the number of overtime hours, earning $275 as his total straight hours worked in such a way that the time and overtime compensation, and employee would earn no more than his the parties now agree to reduce the straight time rate no matter how many workweek to 45 hours without any re- hours he worked. If he set the rate at $6 duction in take-home pay. The parties per hour for all workweeks in which in such a situation may agree to an in- the employee worked 40 hours or less, crease in the hourly rate from $5 per approximately $5.93 per hour for work- hour to $6 so that for a workweek of 45 weeks of 41 hours, approximately $5.86 hours (the reduced schedule) the em- for workweeks of 42 hours, approxi- ployee’s straight time and overtime mately $5.45 for workweeks of 50 hours, earnings will be $285. The parties can- and so on, the employee would always not, however, agree that the employee receive (for straight time and overtime is to receive exactly $285 as total com- at these ‘‘rates’’) $6 an hour regardless pensation (including overtime pay) for of the number of overtime hours a workweek varying, for example, up to worked. This is an obvious book- 50 hours, unless he does so pursuant to keeping device designed to avoid the contracts specifically permitted in sec- payment of overtime compensation and tion 7(f) of the Act, as discussed in 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.

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If the employer raises their rate to standing that his weekly salary is in- $7.65 for such weeks so that their total tended to cover the fixed schedule of compensation is $328.95 for a 42-hour hours (and no more) and that this fixed week the question may properly be schedule provides for alternating work- asked, when they return to the 50–hour weeks of different fixed lengths. For week, whether the $6 rate is really example, many offices operate with their regular rate. Are they putting in half staff on Saturdays and, in con- 8 additional hours of work for that sequence, employees are hired at a extra $1.05 or is their ‘‘regular’’ rate fixed salary covering a fixed working really now $7.65 an hour since this is schedule of 7 hours a day Monday 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 ferent rates of pay—one thirty-fifth of all weeks. 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 contract are followed, if the nonovertime § 778.328 Plan for gradual permanent hours are compensated in full at the reduction in schedule. applicable regular rate in each week In some cases, pursuant to a definite and overtime compensation is properly plan for the permanent reduction of computed for hours in excess of 40 at the normal scheduled workweek from time and one-half the rate applicable say, 48 hours to 40 hours, an agreement in the particular workweek, the over- is entered into with a view to lessening time requirements of the Fair Labor the shock caused by the expected re- Standards Act will be met. While this duction in take-home wages. The situation bears some resemblance to agreement may provide for a rising the one discussed in § 778.327 there is scale of rates as the workweek is this significant difference; the arrange- gradually reduced. The varying rates ment is permanent, the length of the established by such agreement will be respective workweeks and the rates for recognized as bona fide in the weeks in such weeks are fixed on a permanent- which they are respectively operative schedule basis far in advance and are provided that (a) the plan is bona fide therefore not subject to the control of and there is no effort made to evade the employer and do not vary with the the overtime requirements of the Act; fluctuations in business. In an arrange- (b) there is a clear downward trend in ment of this kind, if the employer re- the duration of the workweek through- quired the employee to work on Satur- out the period of the plan even though day in a week in which he was sched- fluctuations from week-to-week may uled for work only on the Monday not be constantly downward; and (c) through Friday schedule, he would be the various rates are operative for sub- paid at his regular rate for all the Sat- stantial periods under the plan and do urday hours in addition to his salary. not vary from week-to-week in accordance with the number of hours which PRIZES AS BONUSES any particular employee or group happens to work. § 778.330 Prizes or contest awards generally. § 778.329 Alternating workweeks of All compensation (except statutory different fixed lengths. exclusions) paid by or on behalf of an In some cases an employee is hired employer to an employee as remunera- on a salary basis with the under- tion for employment must be included

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in the regular rate, whether paid in the lieve that he will not merit promotion form of cash or otherwise. Prizes are or advancement unless he participates. therefore included in the regular rate if (b) By way of example, a prize paid they are paid to an employee as remu- for work performed in obtaining new neration for employment. If therefore business for an employer would be re- it is asserted that a particular prize is garded as remuneration for employ- not to be included in the regular rate, ment. Although the duties of the em- it must be shown either that the prize ployees who participate in the contest 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 employers, 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 allocated (for the method of allocation see § 778.333 Suggestion system awards. § 778.209) over the period during which it was earned to determine the result- The question has been raised whether ant increase in the average hourly rate awards made to employees for sugges- for each week of the period. If the prize tions submitted under a suggestion is merchandise, the cost to the em- system plan are to be regarded as part ployer is the sum which must be allo- of the regular rate. There is no hard cated. Where the prize is either cash or and fast rule on this point as the term merchandise, with the choice left the ‘‘suggestion system’’ has been used to 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

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suggestion system plan or led to be- ments described in paragraphs (1) through (7) lieve that he will not merit promotion of subsection (e) are not less than the min- or advancement (or retention of his ex- imum hourly rate required by applicable isting job) unless he submits sugges- law, and (ii) extra overtime compensation is tions; and properly computed and paid on other forms of additional pay required to be included in (d) The invitation to employees to computing the regular rate. submit suggestions is general in nature and no specific assignment is outlined § 778.401 Regulations issued under to employees (either as individuals or section 7(g)(3). as a group) to work on or develop; and (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 schedule of work undertaken by the em- § 778.402 The statutory exception provided by section 7(f) of the Act. ployee. Section 7(f) of the Act provides the Subpart E—Exceptions From the following exception from the provi- Regular Rate Principles sions of section 7(a): (f) No employer shall be deemed to have COMPUTING OVERTIME PAY ON AN violated subsection (a) by employing any ‘‘ESTABLISHED’’ RATE employee for a workweek in excess of the maximum workweek applicable to such em- § 778.400 The provisions of section ployee under subsection (a) if such employee 7(g)(3) of the Act. is employed pursuant to a bona fide indi- Section 7(g)(3) of the Act provides the vidual contract, or pursuant to an agreement following exception from the provi- made as a result of collective bargaining by sions of section 7(a): representatives of employees, if the duties of such employee necessitate irregular hours of (g) No employer shall be deemed to have work, and the contract or agreement (1) violated subsection (a) by employing any specifies a regular rate of pay of not less employee for a workweek in excess of the than the minimum hourly rate provided in maximum workweek applicable to such em- subsection (a) or (b) of section 6 (whichever ployee under such subsection if, pursuant to may be applicable) and compensation at not an agreement or understanding arrived at less than one and one-half times such rate between the employer and the employee be- for all hours worked in excess of such max- fore performance of the work, the amount imum workweek, and (2) provides a weekly paid to the employee for the number of hours guaranty of pay for not more than 60 hours worked by him in such workweek in excess based on the rates so specified. of the maximum workweek applicable to such employee under such subsection: § 778.403 Constant pay for varying workweeks including overtime is * * * * * not permitted except as specified in section 7(f). (3) is computed at a rate not less than one and one-half times the rate established by Section 7(f) is the only provision of such agreement or understanding as the the Act which allows an employer to basic rate to be used in computing overtime pay the same total compensation each compensation thereunder: Provided, That the week to an employee who works over- rate so established shall be authorized by time and whose hours of work vary regulation by the Secretary of Labor as from week to week. (See in this con- being substantially equivalent to the aver- nection the discussion in §§ 778.207, age hourly earnings of the employee, exclusive of overtime premiums, in the particular 778.321–778.329, and 778.308–778.315.) Un- work over a representative period of time; less the pay arrangements in a par- and if (1) the employee’s average hourly ticular situation meet the require- earnings for the workweek exclusive of payments of section 7(f) as set forth, all

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

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newspaper reporters and photog- ular resort to overtime more costly to raphers, propmen, script girls and oth- the employer and thus providing an in- ers engaged in similar work in the mo- ducement to spread the work rather tion picture industry, firefighters, than to impose additional overtime troubleshooters and the like. There are work on employees regularly employed some employees in these groups whose for a workweek of the maximum statu- hours of work are conditioned by fac- tory length. The ‘‘security of a regular tors beyond the control of their em- weekly income’’ which the Supreme ployer or themselves. However, the Court viewed as an important feature 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

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not qualify for the exemption. (See the employee in a substantial portion Goldberg v. Winn-Dixie Stores (S.D. of the workweeks of the period exam- Fla.), 15 WH Cases 641; Wirtz v. Midland ined by the court worked sufficient Finance Co. (N.D. Ga.), 16 WH Cases 141; hours to earn in excess of the guaran- Trager v. J. E. Plastics Mfg. Co. teed amount and in those workweeks (S.D.N.Y.), 13 WH Cases 621; McComb v. was paid at the specified hourly rate Utica Knitting Co., 164 F. 2d 670; Fore- for the first 40 hours and at time and most Dairies v. Wirtz, 381 F. 2d 653 (C.A. one-half such rate for hours in excess 5).) of 40 (Walling v. A. H. Belo Company, 316 U.S. 624, and Walling v. Halliburton Oil § 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 of compensation in advance of per- no requirement, however, that the reg- forming the work. Collective bar- ular rate specified be equal to the reg- gaining agreements in general are for- ular rate at which the employee was mal agreements which have been re- formerly employed before the contract duced to writing, but an individual em- was entered into. The specified regular ployment contract may be either oral rate may be any amount (at least the or written. While there is no require- applicable minimum wage) which the ment in section 7(f) that the agreement parties agree to and which can reason- or contract be in writing, it is cer- ably be expected to be operative in con- tainly desirable to reduce the agree- trolling the employee’s compensation. ment to writing, since a contract of (c) The rate specified in the contract this character is rather complicated must also be a ‘‘regular’’ rate which is and proof both of its existence and of operative in determining the total its compliance with the various re- amount of the employee’s compensa- quirements of the section may be dif- tion. Suppose, for example, that the ficult if it is not in written form. Fur- compensation of an employee is nor- thermore, the contract must be ‘‘bona mally made up in part by regular bo- fide.’’ This implies that both the mak- nuses, commissions, or the like. In the ing of the contract and the settlement past he has been employed at an hourly of its terms were done in good faith. rate of $5 per hour in addition to which he has received a cost-of-living bonus § 778.408 The specified regular rate. of $7 a week and a 2-percent commis- (a) To qualify under section 7(f), the sion on sales which averaged $70 per contract must specify ‘‘a regular rate week. It is now proposed to employ him of pay of not less than the minimum under a guaranteed pay contract which hourly rate provided in subsection (a) specifies a rate of $5 per hour and guar- or (b) of section 6 (whichever may be antees $200 per week, but he will con- applicable).’’ The word ‘‘regular’’ de- tinue to receive his cost-of-living scribing the rate in this provision is bonus and commissions in addition to not to be treated as surplusage. To un- the guaranteed pay. Bonuses and com- derstand the nature of this require- missions of this type are, of course, in- ment it is important to consider the cluded in the ‘‘regular rate’’ as defined past history of this type of agreement in section 7(e). It is also apparent that in the courts. In both of the two cases the $5 rate specified in the contract is before it, the Supreme Court found not a ‘‘regular rate’’ under the require- that the relationship between the hour- ments of section 7(f) since it never con- ly rate specified in the contract and trols or determines the total com- the amount guaranteed was such that pensation he receives. For this reason,

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it is not possible to enter into a guar- for example, double time. If it does pro- anteed pay agreement of the type per- vide a specific overtime rate it must mitted under section 7(f) with an em- provide that such rate will be paid for ployee whose regular weekly earnings all hours worked in excess of the appli- are made up in part by the payment of cable maximum hours standard. regular bonuses and commissions of this type. This is so because even in [46 FR 7317, Jan. 23, 1981] weeks in which the employee works sufficient hours to exceed, at his hour- § 778.410 The guaranty under section ly rate, the sum guaranteed, his total 7(f). compensation is controlled by the (a) The statute provides that the bonus and the amount of commissions guaranty must be a weekly guaranty. earned as well as by the hourly rate. A guaranty of monthly, semimonthly, (d) In order to qualify as a ‘‘regular or biweekly pay (which would allow rate’’ under section 7(f) the rate speci- averaging wages over more than one fied in the contract together with the workweek) does not qualify under this guarantee must be the actual measure paragraph. Obviously guarantees for of the regular wages which the em- periods less than a workweek do not ployee receives. However, the payment qualify. Whatever sum is guaranteed of extra compensation, over and above the guaranteed amount, by way of must be paid in full in all workweeks, extra premiums for work on holidays, however short in which the employee or for extraordinarily excessive work performs any amount of work for the (such as for work in excess of 16 con- employer. The amount of the guaranty secutive hours in a day, or for work in may not be subject to proration or de- excess of 6 consecutive days of work), duction in short weeks. year-end bonuses and similar payments (b) The contract must provide a guar- which are not regularly paid as part of anty of pay. The amount must be speci- the employee’s usual wages, will not fied. A mere guaranty to provide work invalidate a contract which otherwise for a particular number of hours does qualifies under section 7(f). not qualify under this section. [33 FR 986, Jan. 26, 1968, as amended at 46 FR (c) The pay guaranteed must be ‘‘for 7317, Jan. 23, 1981] not more than 60 hours based on the rate so specified.’’ § 778.409 Provision for overtime pay. The section 7(f) contract must pro- § 778.411 Sixty-hour limit on pay guar- vide for compensation at not less than anteed by contract. one and one-half times the specified The amount of weekly pay guaran- regular rate for all hours worked in ex- teed may not exceed compensation due cess of the applicable maximum hours at the specified regular rate for the ap- standard for the particular workweek. plicable maximum hours standard and All excessive hours, not merely those at the specified overtime rate for the covered by the guarantee, must be additional hours, not to exceed a total compensated at one and one-half times of 60 hours. Thus, if the maximum (or a higher multiple) of the specified hours standard is 40 hours and the spec- regular rate. A contract which guaranteed a weekly salary of $169, specified a ified regular rate is $5 an hour the rate of $3.60 per hour, and provided that weekly guaranty cannot be greater not less than one and one-half times than $350. This does not mean that an such rate would be paid only for all employee employed pursuant to a guar- hours up to and including 462⁄3 hours anteed pay contract under this section would not qualify under this section. may not work more than 60 hours in The contract must provide for payment any week; it means merely that pay in at time and one-half (or more) for all an amount sufficient to compensate for hours in excess of the applicable max- a greater number of hours cannot be imum hours standard in any work- covered by the guaranteed pay. If he week. A contract may provide a spe- works in excess of 60 hours he must be cific overtime rate greater than one paid, for each hour worked in excess of and one-half times the specified rate, 60, overtime compensation as provided

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in the contract, in addition to the on the validity of the pay arrangement. guaranteed amount. By a periodic review of the actual operation of the contract the employer can [46 FR 7317, Jan. 23, 1981] determine whether a stipulated con- § 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

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

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employees paid on the basis of a piece duced during the overtime hours. No rate, or at a variety of hourly rates or additional overtime pay will be due piece rates, or a combination thereof. under the Act provided that the gen- 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 payments 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;

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

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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 standard. 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

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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. (2) In the second week he works 45 [46 FR 7318, Jan. 23, 1981; 46 FR 33516, June 30, 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 § 778.502 Artificially labeling part of of $228 as wages, and the balance as a the regular wages a ‘‘bonus’’. bonus of $72. Overtime compensation is (a) The term ‘‘bonus’’ is properly ap- then computed by the employer by di- plied to a sum which is paid as an addi- viding $72 by 45 hours to discover the tion to total wages usually because of average hourly increase resulting from extra effort of one kind or another, or the 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]

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§ 778.503 Pseudo ‘‘percentage bo- employee works. The employee’s regular nuses.’’ rate is $300 divided by the number of hours worked in the particular week, and his over- As explained in § 778.210 of this part, a time compensation due must be computed as true bonus based on a percentage of shown in § 778.114. total wages—both straight time and [46 FR 7319, Jan. 23, 1981] overtime wages—satisfies the Act’s overtime requirements, if it is paid un- conditionally. Such a bonus increases Subpart G—Miscellaneous both straight time and overtime wages by the same percentage, and thereby § 778.600 Veterans’ subsistence allowances. includes proper overtime compensation as an arithmetic fact. Some bonuses, Subsistence allowances paid under however, although expressed as a per- Public Law 346 (commonly known as centage of both straight time and over- the G.I. bill of rights) to a veteran em- time wages, are in fact a sham. Such ployed in on-the-job training program bonuses, like the bonuses described in work may not be used to offset the § 778.502 of this part, are generally sepa- wages to which he is entitled under the rated out of a fixed weekly wage and Fair Labor Standards Act. The subsist- usually decrease in amount in direct ence allowances provided by Public proportion to increases in the number Law 346 for payment to veterans are of hours worked in a week in excess of not paid as compensation for services 40. The hourly rate purportedly paid rendered to an employer nor are they under such a scheme is artificially low, intended as subsidy payments for such and the difference between the wages employer. In order to qualify as wages paid at the hourly rate and the fixed under either section 6 or section 7 of weekly compensation is labeled a per- the Act, sums paid to an employee centage of wage ‘‘bonus.’’ must be paid by or on behalf of the employer. Since veterans’ subsistence al- Example: An employer’s wage records show lowances are not so paid, they may not an hourly rate of $5.62 per hour, and an over- be used to make up the minimum wage time rate of one and one-half times that amount, or $8.43 per hour. In addition, the or overtime pay requirements of the employer pays an alleged percentage of wage Act nor are they included in the reg- bonus on which no additional overtime com- ular rate of pay under section 7. pensation is paid: Week 1—40 hours worked: § 778.601 Special overtime provisions 40 hours at $5.62 per hour ...... $224.80 available for hospital and residen- Percentage of total earnings bonus at 33.45% tial care establishments under sec- of $224.80 ...... 75.20 tion 7(j). Total ...... 300.00 (a) The statutory provision. Section 7(j) of the Act provides, for hospital Week 2—43 hours worked: 40 hours at $5.62 per hour ...... 224.80 and residential care establishment em- 3 hours at $8.43 per hour ...... 25.29 ployment, under prescribed conditions, an exemption from the general require- Subtotal ...... 250.09 ment of section 7(a) that overtime Percentage of total earnings bonus at 19.96% of compensation be computed on a work- $250.09 ...... 49.91 week basis. It permits a 14-day period to be established for the purpose of Total ...... 300.00 computing overtime compensation by Week 3—48 hours worked: an agreement or understanding be- 40 hours at $5.62 per hour ...... 224.80 tween an employer engaged in the op- 8 hours at $8.43 per hour ...... 67.44 eration of a hospital or residential care Subtotal ...... 292.24 establishment, and any of his employ- Percentage of total earnings bonus at 2.66% of ees employed in connection therewith. $292.24 ...... 7.76 The exemption provided by section 7(j) Total ...... 300.00 applies: This employee is in fact being paid no over- if, pursuant to an agreement or under- time compensation at all. The records in fact standing arrived at between the employer reveal that the employer pays exactly $300 and employee before performance of the per week, no matter how many hours the work, a work period of 14 consecutive days is 463

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accepted in lieu of the workweek of 7 con- less than one and one-half times his secutive days for purposes of overtime com- regular rate of pay ‘‘for his employ- putation and if, for his employment in excess ment in excess of 8 hours in any work- of 8 hours in any workday and in excess of 80 day and in excess of 80 hours in such 14- hours in such 14-day period, the employee receives compensation at a rate not less than day period.’’ Such compensation is re- one and one-half times the regular rate at quired for all hours in such period in which he is employed. excess of eight in any workday or workdays therein which are worked by (b) Conditions for application of exemp- the employee, whether or not more tion. As conditions for use of the 14-day than 80 hours are worked in the period. period in lieu of the workweek in com- The first workday in the period, for puting overtime, section 7(j) requires, purposes of this computation, begins at first, an agreement or understanding the same time as the 14-day period and between the employer and the em- ends 24 hours later. Each of the 13 con- ployee before performance of the work secutive 24-hour periods following con- that such period is to be used, and sec- stitutes an additional workday of the ond, the payment to the employee of 14-day period. Overtime compensation overtime compensation at a rate not at the prescribed time and one-half less than one and one-half times his rate is also required for all hours regular rate for all hours worked in ex- worked in excess of 80 in the 14-day pe- cess of eight in any workday within riod, whether or not any daily over- such period and in excess of 80 during time is worked during the first 80 the period as a whole. hours. However, under the provisions of (c) The agreement or understanding. section 7(h) and 7(e)(5) of the Act, any The agreement or understanding be- payments at the premium rate for tween the employer and employee to daily overtime hours within such pe- use the 14-day period for computing riod may be credited toward the over- overtime must be entered into before time compensation due for overtime the work to which it is intended to hours in excess of 80. apply is performed. It may be arrived (e) Use of 14-day period in lieu of work- at directly with the employee or week. Where the 14-day period is used through his representative. It need not as authorized in section 7(j), such pe- be in writing, but if it is not, a special record concerning it must be kept as riod is used in lieu of the workweek in required by part 516 of this chapter. computing the regular rate of pay of The 14-day period may begin at any employees to whom it applies (i.e., hour of any day of the week; it need those of the hospital’s or residential not commence at the beginning of a care establishment’s employees with calendar day. It consists of 14 consecu- whom the employer has elected to tive 24-hour periods, at the end of enter into the necessary agreement or which a new 14-day period begins. The understanding as explained in para- election to use the 14-day period in lieu graph (c) of this section). With this ex- of the workweek must, like selection of ception, the computation of the regular an employee’s workweek (§ 778.105) be rate and the application of statutory with the intent to use such period per- exclusions therefrom is governed by manently or for a substantial period of the general principles set forth in this time. Changes from such period to the part 778. workweek and back again to take ad- [33 FR 986, Jan. 26, 1968, as amended at 46 FR vantage of less onerous overtime pay 7319, Jan. 23, 1981; 46 FR 33516, June 30, 1981] liabilities with respect to particular work schedules under one system than § 778.602 Special overtime provisions under the other are not permissible. under section 7(b). (d) Payment for overtime under the spe- (a) Daily and weekly overtime stand- cial provisions. If the parties have the ards. The general overtime pay require- necessary agreement or understanding ments of the Act provide for such pay to use the 14-day period, computation only when the number of hours worked of overtime pay on the workweek basis exceeds the standard specified for the as provided in section 7(a) is not re- workweek; no overtime compensation quired so long as the employee receives on a daily basis is required. However, overtime compensation at a rate not section 7 of the Act, in subsection (b),

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

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an exemption from the overtime provi- 779.20 Person. sions of section 7(a) of the Act. It is not 779.21 Enterprise. an exemption from the requirements of 779.22 Enterprise engaged in commerce or in any other law that regulates employ- the production of goods for commerce. 779.23 Establishment. ment practices, including the stand- 779.24 Retail or service establishment. ards that are used to select individuals for employment. An employer creating Subpart B—Employment to Which the Act a remedial education program pursuant May Apply: Basic Principles and Indi- to section 7(q) should be mindful not to vidual Coverage violate other applicable requirements. See, for example, title VII of the Civil GENERAL PRINCIPLES Rights Act of 1964, as amended, 42 779.100 Basic coverage in general. U.S.C. 2000e et seq.; Executive Order 779.101 Guiding principles for applying cov- 11246, as amended, 3 CFR part 339 (1964– erage and exemption provisions. 1965 Compilation), reprinted in 42 U.S.C. 779.102 Scope of this subpart. 2000e note; the Rehabilitation Act of EMPLOYEES ENGAGED IN COMMERCE OR IN THE 1973, as amended, 29 U.S.C. 701 et seq.; PRODUCTION OF GOODS FOR COMMERCE and the Uniform Guidelines on Em- 779.103 Employees ‘‘engaged in commerce.’’ ployee Selection Procedures published 779.104 Employees ‘‘engaged in the produc- at 41 CFR part 60–3. tion of goods for commerce.’’ [56 FR 61101, Nov. 29, 1991] 779.105 Employees engaged in activities ‘‘closely related’’ and ‘‘directly essen- tial’’ to the production of goods for com- PART 779—THE FAIR LABOR STAND- merce. ARDS ACT AS APPLIED TO RE- 779.106 Employees employed by an inde- TAILERS OF GOODS OR SERV- pendent employer. 779.107 Goods defined. ICES 779.108 Goods produced for commerce. 779.109 Amount of activities which con- Subpart A—General stitute engaging in commerce or in the production of goods for commerce. INTRODUCTORY 779.110 Employees in retailing whose activi- Sec. ties may bring them under the Act. 779.0 Purpose of interpretative bulletin. 779.111 Buyers and their assistants. 779.1 General scope of the Act. 779.112 Office employees. 779.2 Previous and new coverage. 779.113 Warehouse and stock room employ- 779.3 Pay standards for employees subject ees. to previous coverage of the Act. 779.114 Transportation employees. 779.4 Pay standards for newly covered em- 779.115 Watchmen and guards. ployment. 779.116 Custodial and maintenance employ- 779.5 Matters discussed in this part. ees. 779.6 Matters discussed in other interpreta- 779.117 Salesmen and sales clerks. tive bulletins. 779.118 Employees providing central services for multi-unit organizations. INTERPRETATIONS OF THE LAW 779.119 Exempt occupations. 779.7 Significance of official interpretations. Subpart C—Employment to Which the Act 779.8 Basic support for interpretations. May Apply; Enterprise Coverage 779.9 Reliance on interpretations. ENTERPRISE; THE BUSINESS UNIT 779.10 Interpretations made, continued, and superseded by this part. 779.200 Coverage expanded by 1961 and 1966 amendments. SOME BASIC DEFINITIONS 779.201 The place of the term ‘‘enterprise’’ 779.11 General statement. in the Act. 779.12 Commerce. 779.202 Basic concepts of definition. 779.13 Production. 779.203 Distinction between ‘‘enterprise,’’ 779.14 Goods. ‘‘establishment,’’ and ‘‘employer.’’ 779.15 Sale and resale. 779.204 Common types of ‘‘enterprise.’’ 779.16 State. RELATED ACTIVITIES 779.17 Wage and wage payments to tipped employees. 779.205 Enterprise must consist of ‘‘related 779.18 Regular rate. activities.’’ 779.19 Employer, employee, and employ. 779.206 What are ‘‘related activities.’’

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