Chapter 32 Overtime CH FOH Ch32
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CHAPTER 32 TABLE OF CONTENTS
Chapter 32
OVERTIME
Source: FOH Modernization revision 729, published 11/17/2016. Substantive revisions made after
11/17/2016 are noted at the end of affected provisions below. Historical information on revisions
published prior to 11/17/2016 can be found at the link beside this chapter at www.dol.gov/whd/foh.
Table of Contents
32a STATUTORY AND REGULATORY PROVISIONS
32a00 Interpretations and instructions.
32a01 Application of partial overtime exemptions.
32b REGULAR RATE OF PAY
32b00 Computation of regular rate of pay.
32b00a Regular rate for workweeks in which employee receives no pay or only partial
payment.
32b01 Hourly rate employees.
32b01a Hourly rate employees paid semi-monthly or monthly.
32b02 Pieceworkers.
32b03 Day rates and job rates.
32b04 Salaried employees.
32b04a General rule.
32b04b Irregular hours worked.
32b05 Employees employed at two rates.
32b06 Payments other than cash.
32b07 Push money and other wage payments made by suppliers.
32b08 Annual salary earned in shorter period: regular rate.
32c BONUSES
32c00 Bonuses as a part of the regular rate.
32c01 Discretionary bonuses.
32c02 Profit-sharing plans or trusts.
32c03 How a bonus is to be included in the regular rate.
32c04 Distribution of bonuses as a percentage of total earnings or by the boosted hour
method.
32c05 Methods of distributing bonuses.
32c05a Bonuses on total earnings.
32c05b Bonuses on hours.
32c05c Distribution according to length of service and similar factors.
32d OTHER REMUNERATION WHICH MAY BE EXCLUDABLE FROM
COMPUTATION OF REGULAR RATE
32d00 Sums paid as gifts.
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32d01 Payments for suggestions.
32d02 New business contents awards
32d03 Payments for absences, holidays, or leave.
32d03a Payment for occasional absences.
32d03b Holiday defined.
32d03c Permissive counting of excused absence in computing overtime.
32d03d Payment of overtime by an additional period of vacation with pay.
32d03e Payment for foregoing a vacation or sick leave.
32d03f Compensation for day before or after a holiday.
32d03g Annual leave plan.
32d03h Fringe benefits paid in cash.
32d04 Report and call back pay.
32d04a General rule.
32d04b Report and call back rule not restricted to arrangements which are so designated.
32d04c Straight-time pay provisions in a call back agreement.
32d04d Rest period payments may be treated as call back payments.
32d05 Reimbursement of employee expenses.
32d05a General rule.
32d05b Payment for travel time.
32d05c Employer’s share of board and lodging cost.
32d06 Benefit plans.
32d07 Thrift and savings plans.
32d08 Talent fees.
32d08a Radio and television broadcasting.
32d08b Offsetting talent fees against overtime.
32d09 DBA fringe benefits payments.
32d10 Piece rate premium pay under section 7(e)(5).
32e PREMIUM RATES FOR EXCESSIVE HOURS
32e00 Premium payments for excessive hours.
32e01 Valid hours standards.
32e02 Questionable hours standard.
32e03 Offset of premium payments for excessive hours.
32e04 Premium rates for specified days.
32f PREMIUM RATES FOR WORK OUTSIDE THE BASIC WORKDAY OR BASIC
WORKWEEK
32f00 General rule.
32f01 Effect of regular practice where agreement does not specifically designate an
hours standard workday.
32f02 Employment contract.
32g GUARANTEED WEEKLY WAGE PLANS (FLSA SECTION 7(f))
32g00 FLSA section 7(f).
32g01 Contract or agreement.
32g02 Irregular hours.
32g03 Agreements covering more than one employee.
32g04 Payment of the guaranty and for hours in excess of guaranty deductions.
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32g05 Regular rate in relation to guaranty: excessivity standard not controlling.
32g06 Guaranty of pay for not more than 60 hours in a workweek.
32g07 Computations: invalid section 7(f) plans.
32g08 Section 7(f) plans and the PCA.
32g09 Exempt workweeks.
32h OVERTIME BASED ON RATE FOR SAME WORK WHEN PERFORMED DURING
NON-OVERTIME HOURS
32h00 General provisions of FLSA section 7(g)(1) and (2).
32h01 Prior agreement or understanding.
32h02 Two or more kinds of work for which different rates of pay have been
established.
32h03 Bona fide rates: FLSA sections 7(g)(1) and (2).
32h04 Overtime compensation on other forms of pay.
32h05 Number of hours for which compensation is due.
32h06 Computation under FLSA section 7(g)(2) when one of the rates is averaged.
32i OVERTIME BASED ON RATE ESTABLISHED AS OVERTIME RATE BY
AGREEMENT OR UNDERSTANDING
32i00 General provisions of FLSA section 7(g)(3).
32i01 Payments under 29 CFR 548.
32i02 Public agencies may utilize section 7(g).
32j SPECIAL OVERTIME PROBLEMS
32j00 Multiple minima where records do not show segregation.
32j01 Multiple minima under state, territorial, and U.S. laws.
32j02 Straight compensation to be paid in full.
32j03 Owner-operators of equipment.
32j04 Wage raises cannot cover overtime.
32j05 Changes in scheduled hours without change in pay.
32j06 Lump-sum overtime payment.
32j07 Retroactive increases.
32j08 Deductions in overtime weeks.
32j09 Payments for activities not normally hours worked.
32j10 Delayed payment of overtime compensation.
32j11 Semi-monthly or monthly payments which include overtime.
32j12 Concurrently working for more than one employer.
32j13 Change of workweek.
32j14 Stint or task system.
32j14a Characteristics.
32j14b The stint as an hours standard.
32j14c Application of section 7(g)(1) or (2).
32j14d 29 CFR 778.312 distinguished.
32j14e Variations in plans.
32j14f Stint or task basis of payment in other industries.
32j15 Wage pool arrangement.
32j16 Time off and prepayment plans.
32j16a Basic requirements to be considered.
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32j16b The time off plan.
32j16c Prepayment plans.
32j16d Comparison of the time off and prepayment plans.
32j17 Domestic service employees.
32j18 Tipped employees.
32k PCA SPECIAL PROBLEMS
32k00 (Reserved.)
32k01 Exchanging shifts.
32k02 Making up lost time.
32L SECTIONS 7(b)(1) and (2)
32L00 Public agency employment may qualify under section 7(b).
32a STATUTORY AND REGULATORY PROVISIONS
32a00 Interpretations and instructions.
(a) 29 CFR 778, 41 CFR 50-201.103, Rulings and Interpretations Number 3 (R&I No. 3), and
FOH 32 contain the official Wage and Hour Division (WHD) interpretations and instructions
regarding the applicability of the maximum hours and overtime premium pay provisions of
the Fair Labor Standards Act (FLSA) and Walsh-Healey Public Contracts Act (PCA).
(b) In each instance where a new overtime standard is applicable (e.g., 48 hours to 44 hours), or
where employment is newly subject to an overtime standard, it shall be effective as to any
workweek beginning on or after the date indicated.
32a01 Application of partial overtime exemptions.
(a) Notwithstanding 29 CFR 778.603, where overtime has not been paid for hours worked in
excess of the statutory workweek standard, back wages are owed to the employee only for the
hours worked in excess of the statutory standard (e.g., 48, 46, 44) in the following
exemptions:
Section 13(b)(4): Fish processing
Section 13(b)(7): Local transit
Section 13(b)(8): Restaurant and hotel
Section 13(b)(18): Food service
Section 13(b)(19): Bowling alley
Section 13(b)(23): Telegraph
(b) Back wage will be based, with appropriate modifications, on the enforcement policy in FOH
20i09 in the following exemptions:
Section 7(m): Tobacco (see also FOH 20t01(c))
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Section 7(c) and 7(d): Seasonal industries
Section 13(b)(25): Cotton
Section 13(b)(26): Sugar
Section 13(h): Cotton, cottonseed, and sugar
(c) If overtime has not been paid for hours over 8 or 80, as required by section 7(j), back wages
are owed for hours worked over these standards. However, if there is no prior agreement (see
FOH 25h02) to utilize 7(j), back wages are due for hours over 40 a week.
(d) The policy in FOH 25c01 will be followed for back wages if the conditions in section 7(b)(3)
are not met.
(e) If no work period is designated or otherwise objectively established for purposes of section
7(k), as for example by employee agreement or established practice, back wages are owed for
hours over 40 a week. However, if the preconditions are met, back wages are owed for hours
worked in excess of the work period standard.
32b REGULAR RATE OF PAY
32b00 Computation of regular rate of pay.
An employee’s regular rate of pay is computed by dividing his total remuneration for his
hours worked in the workweek, minus any true overtime pay and any other specific statutory
exclusions, by the number of hours of work for which the remuneration was paid.
32b00a Regular rate for workweeks in which employee receives no pay or only partial payment.
(a) The regular rate for purposes of back wage computations for overtime weeks in which an
employee subject to the overtime provisions of the acts receive no pay or only part of his/her
pay shall be determined on the basis of the established practice, agreement, or understanding.
In the case of an employee paid solely on the basis of an hourly rate, this hourly rate shall be
the regular rate for purposes of computations during such weeks. Similarly, where it is
determined that the practice or agreement by which an employee’s wages are computed is, for
example, an established weekly salary, piece rate, or day rate, such salary, piece rate or day
rate shall be used to compute the regular rate. The following examples illustrate the
application of this principle:
(1) An employee works a total of 48 hours in a particular week and receives no pay for
that workweek. He/she regularly receives a weekly salary of $96 as straight-time
payment for all hours in a week. For the workweek in question the employee’s
regular rate would be $2 an hour ($96 divided by 48 hours). He/she would be due $2
an hour for the first 40 hours and $3 an hour for each hour over 40, or a total of $104
for the week.
(2) An employee is paid $1.90 per hour and has 38 recorded hours and has received
$72.20 but has actually worked 44 hours. He/she would be due $1.90 for the 39th
hour, $1.90 for the 40th hour, and $2.85 for each additional hour.
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(b) If the regular rate cannot be determined as in FOH 32b00a(a) above, or if the regular rate so
determined is less than the legal minimum, the regular rate for overtime purposes shall be the
legal minimum (see FOH 32j01 and 02).
32b01 Hourly rate employees.
Where an employee is employed solely on the basis of a single hourly rate that rate is his/her
regular rate. If, in addition to his/her earnings at the hourly rate of pay, other payments are
made, such as a production bonus, the amount of the bonus must be added to his/her total
straight-time earnings. The new regular rate is then determined by dividing the total straight-
time earnings by the number of hours worked.
32b01a Hourly rate employees paid semi-monthly or monthly.
It is permissible under the FLSA overtime requirements for hourly rate employees to receive
semi-monthly or monthly payments which include overtime premium if the requirements as
described in FOH 32j11 are met.
32b02 Pieceworkers.
When an employee is employed on a piece rate basis, his/her regular hourly rate of pay is
computed by adding together his/her total weekly earnings from piece rates and all other
sources (such as production bonuses) and any sums paid for waiting time or other hours
worked (except statutory exclusions). This sum is then divided by the number of hours
worked in the week to yield the pieceworker’s regular rate for that week. In some cases, the
pieceworker is hired on a piece rate basis with a minimum hourly guarantee. Where the total
piece rate earnings for the week fall short of the amount that would be earned for the total
hours at the guaranteed rate, the employee is paid the difference. In those weeks in which the
make-up payment is made, the employee is in fact paid at an hourly rate and the minimum
hourly guaranty which he/she was paid is his/her regular rate for that week.
32b03 Day rates and job rates.
If the employee is paid a flat sum for a day’s work or for doing a particular job without regard
to the number of hours worked in the day or at the job, and if he/she receives no other form of
compensation for his/her services, his/her regular rate is determined by totaling all the sums
received in the workweek at the day or job rates and dividing by the total hours actually
worked.
32b04 Salaried employees.
32b04a General rule.
(a) If an employee is employed solely on a weekly salary basis his/her regular hourly rate of pay,
on which premium pay for overtime must be calculated, is computed by dividing the straight-
time salary by the number of hours for which the salary is intended to compensate. Where
there was a written or oral agreement between the employer and the employee as to the
number of hours which the salary was to compensate and it is determined that in actual
practice the terms of the agreement have been modified, the practices of the parties will
control. Where the salary covers a period longer than a workweek (e.g., a month), it must be
reduced to its workweek equivalent. A monthly salary is converted to its equivalent weekly
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wage by multiplying by 12 (months) and dividing by 52 (weeks) or by multiplying by the
coefficient 0.2308. A semi-monthly salary is translated into its equivalent weekly wage by
multiplying by 24 and dividing by 52 or by multiplying by the coefficient 0.4615.
(b) For purposes of section 7(j) of the amended FLSA, a monthly salary is converted into its bi-
weekly equivalent by multiplying by 12 (months) and dividing by 26 (bi-weekly periods) or
by multiplying by the coefficient 0.4615. A semi-monthly salary is translated into its
equivalent bi-weekly wage by multiplying by 24 and dividing by 26 or by multiplying by the
coefficient 0.9230.
32b04b Irregular hours worked.
(a) If an employee is given a stipulated salary with the understanding that it constitutes straight-
time pay for all hours he/she works, and if his/her hours of work fluctuate from week to
week, his/her regular rate of pay ordinarily will vary from week to week in accordance with
the number of hours worked each week. The regular rate, of course, cannot be less than the
applicable minimum wage. Since straight-time compensation has already been paid, such an
employee must receive additional overtime compensation for each overtime hour in a
particular workweek computed at not less than one-half the regular rate obtained by dividing
the weekly salary by the number of hours worked in that workweek. If the employer, to
avoid weekly computations, chooses to pay extra half-time based on the salary divided by 40
hours, such a method is permissible.
(b) The above rule will apply where an employee works a varying number of hours, and
normally receives his/her full salary regardless of how few the scheduled hours may be in a
particular week, even though occasional disciplinary deductions for willful absence or
tardiness are made. Disciplinary deductions of course, may not cut into the minimum wage
or overtime pay required by the FLSA.
(c) Similarly, an employee employed on a fixed salary basis for irregular hours of work may be
paid a pro rata share of his/her salary in the initial or terminal week of his/her employment,
when he/she is not in payroll status for the entire week.
32b05 Employees employed at two rates.
Where an employee in a single workweek works at two or more different types of work for
which different hourly rates at not less than the legal minimum have been established, his/her
regular rate for that week is the weighted average of the rates; that is his/her total earnings
(except statutory exclusions) at the different rates are divided by the total number of hours
he/she worked in the workweek.
32b06 Payments other than cash.
Where employees are paid goods or facilities which are regarded as part of their wages, the
reasonable cost to the employer of the goods or the facilities must be included in the regular
rate.
32b07 Push money and other wage payments made by suppliers.
Certain retail establishment sales employees (e.g., those who sell cosmetics and related items)
may receive, in addition to the wages paid by their employer, payments from manufacturers
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or distributors for selling certain items or brands. Such payments may be made directly to the
sales employees or to the employer for distribution to the employees. All such payments to
employees for their work are wages and must be recorded by the employer and included in
the regular rate of pay of the employees involved.
32b08 Annual salary earned in shorter period: regular rate.
Certain employment such as that in schools does not normally constitute 12 months of work
each year. For the convenience of the employee, the annual salary earned during the duty
months is often paid in equal monthly installments throughout the entire year. For purposes
of finding the regular rate of pay for overtime purpose in such cases, the annual salary is
considered in relation to the duty month rather than in relation to the entire year. Thus, for
example, a school bus driver may receive an annual salary of $3,000 for 10 months duty but
be paid equal monthly installments of $250 each. In such a case, he/she is considered as
being paid at the salary rate of $300 per month or $69.23 per week. The regular rate for
overtime purposes is found in the usual manner based on this weekly salary. See FOH 22b11
and FOH 30b18.
32c BONUSES
32c00 Bonuses as a part of the regular rate.
(a) FLSA section 7(e) requires the inclusion in the regular rate of all remuneration for
employment except seven specified types of payments including certain bonuses. For a
discussion of remuneration, other than bonuses, excludable from the regular rate, see FOH
32d. Bonuses that do not qualify for exclusion from the regular rate must be totaled with
other earnings to determine the rate on which overtime pay must be based. See 29 CFR
778.208.
(b) Examples of bonuses which would normally be included in the regular rate are:
(1) production bonuses,
(2) bonuses that are paid for performing work in less than an established standard time,
(3) bonuses that are paid when certain types of merchandise are sold through an
employee’s effort,
(4) cost-of-living bonuses,
(5) attendance bonuses, and
(6) bonuses paid as an incentive to attract employees to an isolated or otherwise
undesirable job site.
32c01 Discretionary bonuses.
(a) Sums paid in recognition of service performed during a given period need not be included in
the regular rate of pay if:
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(1) both the fact that payment is to be made and the amount of the payment are
determined at the sole discretion of the employer at or near the end of the period
(regularity and/or repetitive payment of a bonus is not in itself sufficient to destroy
the discretionary character of a bonus); and
(2) the payments are not made pursuant to any prior contract, agreement, or promise
causing the employee to expect such payments regularly.
(b) Where a substantial group of employees receive uniform treatment in the actual payment of a
bonus, the statements of a scattered few will not be conclusive in determining whether there
is, or is not, a prior contract, agreement, or promise causing the employee to expect such
payments regularly. Statements must be taken from that number of employees which will
ensure a preponderance of evidence on which a proper decision can be made. Statements
such as “I was told about the quarterly bonus,” “[w]hen I was first employed I was told of this
bonus,” “I believe that Mr.---------- told me about this bonus when I was hired,” or “[w]hen I
was first employed it was mentioned as a part of the pay I was to receive” are not in
themselves conclusive statements. Employee information should tell who made the promise,
under what circumstances, and whether any reassurances were received at some later time.
32c02 Profit-sharing plans or trusts.
Payments made to employees pursuant to a bona fide profit-sharing plan or trust which meets
the requirements of 29 CFR 549 need not be included in the regular rate of pay.
32c03 How a bonus is to be included in the regular rate.
(a) If a bonus covers only one weekly pay period, the amount of the bonus is merely added to the
other earnings of the employee (except statutory exclusions) and the total divided by the total
hours worked by the employee.
(b) Where the calculation of a bonus is deferred over a period of time longer than 1 workweek,
the employer may disregard the bonus in computing the regular hourly rate until the amount
of the bonus can be ascertained. At the time the amount of the bonus is ascertained, it must
be apportioned back over the workweeks of the period during which it may be said to have
been earned, so that the employee will receive an additional amount of compensation for each
week in which he/she worked overtime during the period. This additional amount will be
based on one-half the hourly rate of pay allocable to the bonus for that week multiplied by the
number of overtime hours worked during the week.
(c) If it is impractical to allocate the bonus among the workweeks of the period in proportion to
the amount of the bonus actually earned each week, some other reasonable and equitable
method of allocation should be adopted. For example, it may be assumed that the employee
earned an equal amount of bonus each hour worked in the bonus period. The hourly increase
is then determined by dividing the total bonus by the number of hours worked by the
employee during the period for which it is paid.
32c04 Distribution of bonuses as a percentage of total earnings or by the boosted hour method.
(a) Whether a bonus may be distributed as a percentage of total earnings of each participating
employee, or by the boosted hour method, to achieve compliance with the overtime
provisions of the FLSA or PCA, depends on whether the additional money to be paid is a true
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bonus or whether it is a device to evade the payment of overtime. If the so-called regular rate
of the employee is so low as to be obviously fictitious, the bonus in all probability will be a
part of the regular straight-time earnings upon which overtime compensation must be
computed. On the other hand, if the additional money to be paid is a true bonus, it may be
distributed in proportion to the total earnings (exclusive of the bonus) of each participating
employee properly computed to include time and one-half for the overtime hours or in
proportion to the boosted hours worked during the bonus period.
(b) Extra payments not directly related to hours worked, production, or efficiency, such as profit-
sharing type bonuses and year-end or Christmas bonuses which fail to meet the tests for
exclusion from the regular rate of pay under FLSA section 7 will generally be found to be
true bonuses. Production bonuses and labor saving bonuses present a more difficult problem.
For investigation purposes, if the Wage and Hour Investigator (WHI) finds that such
additional payments periodically made are not merely devices for the postponement of the
full payment to the employees of their ordinary wage or salary or devices for the perpetuation
of an obsolete pay structure, he/she will be justified in concluding that the payments are true
bonuses. In this event, such payments could be made as a percentage of total earnings or by
the boosted hour method. Evidence that the payment is not being used for evasive purposes
may be found in the fact that the wages otherwise paid to the employees are fair and not out
of line with wages which might ordinarily be expected to be paid for the occupation in the
locality. The determination should be based on the actual or potential operation of the bonus
plan during a reasonably extended series for pay periods.
(c) Many employers distribute bonuses on the basis of total straight-time hours or earnings. If an
investigation discloses that a bonus has been distributed in this manner and overtime has been
worked, the investigation will be handled as follows:
(1) If the bonus is of the type not directly related to hours worked, production or
efficiency but which for some reason fails to qualify for exclusion from the regular
rate under section 7(e), no request for back wages shall be made. In such cases the
employer shall be informed of possible section 16(b) liability and of the steps
necessary to effect compliance. The number of employees and the estimated amount
of back wages shall not be shown on form WH-51. The narrative shall contain a
concise statement of the facts. Where an employee involved in such bonus payments
is due back wages arising from other causes, the payment of such of other back
wages will be requested and supervised.
(2) If the bonus is a production bonus, a cost of living bonus or any other bonus directly
related to hours worked, production or efficiency, overtime violations will be
recorded and the employer will be requested to pay the back wages.
(3) In the case of either (1) or (2) above, it must be kept in mind that the payments may
be excludable under the provisions of FLSA section 7(g)(3) and 29 CFR 548.
32c05 Methods of distributing bonuses.
32c05a Bonuses on total earnings.
A total bonus may be distributed to each individual member sharing therein on a percentage
basis by dividing the total payroll (both straight-time and overtime at time and one-half) of
the participating employees into the total bonus. If each participating employee is then paid
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as his/her share this percentage of his/her total earnings for the bonus period, the bonus
mathematically will include both straight-time and overtime and payment will be in
compliance with the FLSA and PCA.
32c05b Bonuses on hours.
A total bonus may be distributed on the basis of boosted hours instead of gross earnings.
Thus, the total bonus to be paid to the group may be divided by the total number of boosted
hours of all participating employees. Each employee will then be entitled to his/her
proportionate share calculated on his/her total boosted hours worked during the bonus period
as follows:
Total bonus
Total boosted hours of all employees =Amount of bonus allocable for each hour of work
(Amount of bonus allocable for each hour of work) × (number of boosted hours of employee)
= employee’s share of bonus
32c05c Distribution according to length of service and similar factors.
(a) Distribution of a total bonus may also take into account such factors as length of service,
attendance lateness, production, efficiency, place of employment, job classifications, and the
like. For example, the gross earnings of each participating employee may be weighted by
multiplying them by a length of service factor such as 1.0 for 1 year, 1.1 for 2 years, 1.2 for 3
years, and so on. A total bonus can then be distributed on a percentage basis to each
individual member sharing in the bonus by dividing the total weighted payroll of the
participating employees into the total bonus. If each participating employee is then paid as
his/her share this percentage of his/her total weighted earnings for the bonus period, the
bonus mathematically will include both straight-time and overtime and the payment will be in
compliance with the FLSA and PCA. Such a bonus distribution may be based on more than
one such factor by multiplying the gross earning of each employee by the additional factors
and then determining each employee’s share as above.
(b) The weighting of employees’ gross earnings to take into account length of service and similar
factors is not invalid provided it is not designed to circumvent the overtime requirements of
the FLSA or PCA. It would, for example, be improper to apply a factor that decreases in
inverse proportion to the overtime worked by various groups of employees. A group to
which a particular factor is to be applied may happen to include only one employee and still
be valid. However, it should be clear that the dollar amount of the employee’s share of the
total bonus has not been determined before establishment of the value of the length of service
or other factor that is applied to his gross earnings. If the gross earnings of each of the
participating employees are weighted by a factor of different value, there would be some
evidence that the values of the factors had not been predetermined. In any instance where
there is a question, the WHI shall discuss his/her findings with his district director (DD).
32d OTHER REMUNERATION WHICH MAY BE EXCLUDABLE FROM
COMPUTATION OF REGULAR RATE
32d00 Sums paid as gifts.
Sums paid as gifts and payments in the nature of gifts are not a part of the regular rate of pay,
nor may they be credited toward overtime compensation which may be due an employee. To
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qualify for exclusion from the regular rate, the sum paid must actually be paid as a gift or in
the nature of a gift. If the amount of the payment is measured by hours worked, production,
or efficiency, the payment is geared to wages and hours during the bonus period and so is not
in the nature of a gift. If the payment is made pursuant to a contract so that the employee has
a legal right to bring suit to enforce it, or if the employees reasonably assume or consider the
payment to be a part of the wages for which they work, it is not a gift or in the nature of a
gift. If the sum is paid at Christmas or on other special occasions and it is a bona fide gift or
in the nature of a gift, it may be excluded from the regular rate even though paid with
regularity and to different employees or groups in amounts which vary with the amounts of
the salaries or regular hourly rates of the employees or according to their length of service.
32d01 Payments for suggestions.
(a) There is no hard and fast rule on payments for suggestions for the term suggestion plan has
been used to describe a variety of plans. Generally, though, prizes paid pursuant to a bona
fide suggestion plan may be excluded from the regular rate at least in situations where:
(1) the amount of the prize has no relation to the earnings of the employee at his/her job,
but is instead geared to the value to the employer of the suggestion submitted;
(2) the prize represents a bona fide award for a suggestion that is the result of additional
effort or ingenuity unrelated to and outside the scope of the usual and customary
duties of any employee of the class eligible to participate and the prize is not used as
a substitute for wages;
(3) no employee is required or specifically urged to participate in the suggestion plan or
led to believe that he/she will not merit promotion or advancement (or retention of
his/her existing job) unless he/she submits suggestions;
(4) the invitation to employees to submit suggestions is general in nature and no specific
assignment is outlined to the employees, either as individuals or as a group, to work
on or develop;
(5) there is no time limit during which suggestions must be submitted; and
(6) the employer has, prior to the submission of the suggestion by an employee, no
notice or knowledge that an employee is preparing a suggestion, and there are no
circumstances indicating that the employer approved the task and the schedule of
work undertaken by the employee.
32d02 New business contest awards.
(a) Employees are not required to be credited with hours worked for time spent participating in a
new business contest, and prizes and awards received for such participation are not required
to be included in the employees’ regular rates of pay, provided the contest is conducted under
conditions which are substantially in accord with those set forth below. Any major deviation
therefrom might of course require a different conclusion. See 29 CFR 778.330 -.333.
(1) The contests are designed to obtain new business and are of limited duration,
frequently three months or less.
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(2) Participation is strictly voluntary.
(3) The activities of the employee in connection with the contest do not involve
significant amounts of time.
(4) Employees are regularly compensated for any time spent on the contest during
regular working time.
(5) After hours solicitation is usually done among friends, relatives, neighbors and
acquaintances as a part of the employee’s social activity.
(6) Door-to-door solicitation is prohibited.
(7) Awards for participation are provided under the contest rules and may be in the
nature of points to be accumulated toward merchandise prices or cash payments.
32d03 Payments for absences, holidays, or leave.
32d03a Payment for occasional absences.
Payments made by an employer to an employee for occasional periods when no work is
performed due to vacation, holiday, illness, weather conditions, failure of the employer to
provide sufficient work because of machinery breakdown, shortage of material, and the like,
may be excluded from the regular rate of pay of the employee. Likewise payment for
infrequent, occasional, or sporadic excused absences of a non-routine character (e.g., for jury
duty, attending court, attending funerals, physical check-ups, and for engaging in purely
personal pursuits like going fishing or to the beauty parlor) will not invalidate an otherwise
valid pay plan, unless these absences show a pattern of such consistency as to result in a
change in rate or appear to be in furtherance of, or adaptable to, a scheme to avoid payment
of overtime at the proper rate.
32d03b Holiday defined.
The term holiday refers to those days customarily observed in the community in celebration
of some historical or religious occasion. It does not refer to days of rest given to employees
in lieu of, or as an addition to, compensation for working other days.
32d03c Permissive counting of excused absence in computing overtime.
Where it is the custom or practice to pay employees for hours during which no work is
performed due to vacation, holiday, illness, failure of employer to provide sufficient work, or
other similar cause, as these terms are explained in 29 CFR 778.218, it is permissible (but not
required) for the employer to count these hours as hours worked in determining whether
overtime is due under the employment agreement.
32d03d Payment of overtime by an additional period of vacation with pay.
Payment of statutory overtime compensation by an additional period of vacation with pay in
an amount equal to the total accrued overtime will not satisfy the requirement of the FLSA
that the full amount of straight-time and extra half-time due for all hours worked in excess of
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40 in each workweek be paid promptly at the end of the regular pay period either in cash or in
“facilities” as defined in FLSA section 3(m) and 29 CFR 532.
32d03e Payment for foregoing a vacation or sick leave.
(a) Where a sum is paid to an employee for foregoing a vacation which is in addition to the
employee’s normal compensation for working it is not in fact compensation for hours
worked, and hence need not be counted in determining the regular rate of pay. This rule is
limited to situations where there is a bona fide agreement or understanding that the employee
shall receive a vacation with pay, and the sum paid for foregoing the vacation is the
approximate equivalent of the employee’s normal earnings for a similar period of working
time.
(b) This same rule applies to payments for unused sick leave where there is a bona fide
agreement that the employees will receive a specific amount of sick leave with pay, and the
sum paid for unused sick leave is the approximate equivalent of the employee’s normal
earnings for a similar period of working time.
32d03f Compensation for day before or after a holiday.
(a) Prepayment effect of advance compensation
Where compensation for a day off before or after a holiday is advanced by the employer with
the understanding that the compensation is a bona fide advance to be earned in the succeeding
week, it would be proper for the employer to offset this amount against the straight-time and
overtime compensation caused by the make-up hours.
32d03g Annual leave plan.
Payment for absences charged against leave under a bona fide plan granting the employee a
specified amount of annual, vacation, or sick leave with pay need not be included in the
regular rate of pay, if the sum paid is the approximate equivalent of the employee’s normal
earnings for a similar period of working time. Payments for such absences may be excluded
regardless of when or how the leave is taken.
32d03h Fringe benefits paid in cash.
In some cases employers pay their employees a proportionate part of certain fringe benefits,
such as vacation pay, sick leave, and holiday pay in cash on each pay day. This practice may
be found in certain industries such as the construction industry where the employee usually is
employed by more than one employer during the year. Such payments may be made, for
example, as a certain number of cents per hour or as a percentage of the hourly rate. Such
payments may be excluded from the regular rate under section 7(e)(2) provided (1) they
represent bona fide fringe benefits, (2) they are the cash equivalent of such benefits, and (3)
there is a clear understanding between the employer and employees that the payments are in
lieu of such fringe benefits. There should also be a designation on the payroll records that
such payments are in lieu of the specific fringe benefits. However, the absence of such a
designation per se will not cause such otherwise bona fide fringe payments to be considered
part of the regular rate provided in fact that the tests set forth above are met.
32d04 Report and call back pay.
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32d04a General rule.
Where an employee is guaranteed pay for a minimum number of hours, if, on infrequent or
sporadic occasions, he/she reports for work at his/her scheduled time and is not given work
for the specified number of hours, or if he/she is called back to work outside of his/her
regular schedule, the amount paid over and above what the employee would have received, if
paid at his/her customary rate only for hours actually worked, need not be included in
computing his/her regular rate of pay. That part of the pay for hours actually worked which
may be credited as overtime compensation, in accordance with FLSA section 7(e)(5), (6), or
(7), may be applied to the statutory overtime pay due.
32d04b Report and call back rule not restricted to arrangements which are so designated.
The report and call back pay rule is not restricted to situations which are so designated by the
employment agreement. It may be applied to any situation where the employee performs
work outside his/her regular working hours, is guaranteed pay for a minimum number of
hours, and does not work the number of hours covered by the guarantee. Thus, for example,
this rule is applicable to some wire changing payments in the paper industry.
32d04c Straight-time pay provisions in a call back agreement.
Many call back pay agreements provide that where an employee is called back to work during
overtime hours he shall receive time and one-half or some greater multiple of his regular rate
for the hours actually worked or a minimum of X hours straight-time pay, whichever amount
of money is greater. Since in such situations provision is made for the payment of not less
than the legal overtime rate, that portion of the payment which is equal to the overtime
compensation due for the overtime hours actually worked may be credited as a true overtime
premium in computing overtime compensation under the FLSA or PCA despite the fact that
under the employment agreement the employee receives straight-time pay.
32d04d Rest period payments may be treated as call back payments.
Premium payments made solely because the employee has been called back to work before
the expiration of a so-called rest period between shifts or tours of duty may be treated as call
back payments and so excluded from the regular rate of pay. However, since these payments
are not for overtime, but are made solely because of the interruption of a rest period, they
may not be offset against statutory overtime.
32d05 Reimbursement of employee expenses.
32d05a General rule.
(a) Payments reasonably approximating traveling or other expenses incurred by an employee in
furtherance of his/her employer’s interests, and properly reimbursable by the employer, may
be excluded from the regular rate of pay. However, if the amount paid is disproportionately
large, the excess amount shall be included in the regular rate of pay for overtime purposes.
See 29 CFR 778.217.
(b) Situations may be encountered where the employer makes per diem or other subsistence
payments, or pays an allowance to offset the additional expenses incurred by an employee
because he/she is required to work at a distant or isolated location and must live away from
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home. Such payments may be excluded from the regular rate of pay to the extent that they do
not exceed a reasonable approximation of actual additional expenses involved in such
situations. On the other hand, where an employee receives such payments but actually incurs
no such additional expenses, the entire amount of the payments shall be included in
determining the regular rate. This would be true, for example, where such payments are
made to an employee who is not required to live away from home or where he/she establishes
a new residence at or near the place of work.
(c) If the amount of per diem or other subsistence payment is based upon and thus varies with the
number of hours worked per day or week, such payments are a part of the regular rate in their
entirety. However, this does not preclude an employer from making proportionate payments
for that part of a day that the employee is required to be away from home on the employer’s
business. For example, if an employee returns to his/her home or employer’s place of
business at noon, the payment of only one-half the established per diem rate for that
particular day would not thereby be considered as payment for hours worked and could thus
be excluded from the regular rate.
32d05b Payment for travel time.
The payment for travel time which is not hours worked constitutes “other similar payments to
an employee which are not made as compensation for his hours of employment” and is
therefore excludable from the computation of the regular rate of pay.
32d05c Employer’s share of board and lodging cost.
The employer’s share of the cost of board and lodging furnished employees need not be
included in the regular rate where it is similar to reimbursements for expenses incurred by
employees in traveling on the employer’s business. This rule applies where the employees’
wage rates are not influenced by the furnishing of board and lodging and where both parties
understand the employer’s share of the cost is not compensation for services or hours worked.
Examples are employees who maintain dual residences, such as barge workers and mechanics
who travel.
32d06 Benefit plans.
Contributions irrevocably made by an employer to a trustee or third person pursuant to a bona
fide plan for providing old-age retirement, life, accident, health, or layoff (e.g., the Ford-
United Automobile, Aerospace, and Agricultural Implement Workers of America Agreement)
insurance or other similar benefits for employees are excluded from the regular rate of pay.
The requirements of a bona fide benefit plan are set forth in 29 CFR 778.214 -.215.
32d07 Thrift and savings plans.
An employer’s contributions to bona fide thrift or savings plans which meet the requirements
of 29 CFR 547 need not be included in the regular rate of pay.
32d08 Talent fees.
32d08a Radio and television broadcasting.
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(a) Performers and announcers on radio and television programs are customarily compensated by
the payment of a fixed salary which covers certain regular duties enumerated in the contract
of employment. In the case of announcers, these duties will usually include presence at the
station during particular hours called the stretch and such duties as announcement of station
breaks, routine news, weather reports, sustaining programs, etc.
(b) In addition to his/her salary, the announcer usually receives talent fees, which are specific
payments for the performance of special services that may occur in or out of the stretch. For
example, some stations pay an announcer a fixed amount for each spot commercial
announcement such as “Buy Bond Bread.”
(c) The services for which talent fees are paid vary from station to station. In some, a talent fee
is paid for any service in connection with a commercial (i.e., sponsored) program while all
sustaining (i.e., non-sponsored) program work is considered part of the regular staff duties.
In others, special services in connection with sustaining programs carry a fee. Where a
collective bargaining agreement is in force, the agreement will usually specify under what
circumstances talent fees will be paid and will set forth a scale of rates for such fees.
(d) Although talent fees are thus part of an announcer’s regular earnings, they are excluded from
the regular rate by virtue of FLSA section 7(e)(3)(c), provided they meet the requirements of
29 CFR 550.
32d08b Offsetting talent fees against overtime.
(a) Time spent in earning talent fees outside of regular working hours need not be included in
determining the amount of overtime compensation due if:
(1) the parties agree in advance of the program that a special payment therefor shall
include any increased statutory compensation attributable to the additional worktime;
and
(2) the special payment, when made, is actually sufficient in amount to include the
statutory straight-time and overtime compensation due computed without regard to
the talent fees.
32d09 DBA fringe benefits payments.
(a) Pub. L. No. 88-349 amends the Davis-Bacon Act (DBA) and provides in certain
circumstances for the inclusion by the Secretary of Labor of the costs of fringe benefits in
DBA prevailing wage determinations. It also provides that the cost of such fringe benefits (or
cash equivalent paid in lieu of such benefits) shall be excluded from the regular rate under the
FLSA, PCA, and Contract Work Hours and Safety Standards Act (CWHSSA).
(b) Subpart B of 29 CFR 5 contains interpretations of the fringe benefits provisions of the DBA,
as amended. If situations are encountered during FLSA or PCA investigations which involve
DBA fringe benefit payments and the question of whether or to what extent such payments
may be excluded from the regular rate cannot be resolved on the basis of 29 CFR 5, subpart B
(including situations where there is no concurrent coverage but the employer asserts that
fringe benefit payments are being made in contemplation of DBA work), the matter shall be
referred through channels to the regional administrator (RA) for an opinion.
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32d10 Piece rate premium pay under section 7(e)(5).
(a) Premium piece rate payments which are clearly allocable exclusively to hours worked in
excess of 8 per day or 40 per week or normal or regular working hours, as the case may be,
may be excluded from an employee’s regular rate of pay pursuant to section 7(e)(5). Such
premium rate payments may be in any amount in excess of the regular piece rate; they do not
have to be at a rate, for instance, of not less than one and one-half times the regular piece rate.
(b) An example of a piece rate payment plan which does not include any premium payments
excludable pursuant to section 7(e)(5) is one where the employee is paid a piece rate of $0.15
per unit for a workday up to 9 hours a day, $0.17 per unit for a workday of between 9 and 10
hours, $0.18 per unit for a workday of between 10 and 11 hours, $0.19 per unit for a workday
of between 11 and 12 hours, $0.21 per unit for a workday of 12 or more hours, and $0.21 per
unit for Saturday and Sunday work, as such. Since the foregoing rates are paid for all hours
worked in the workday and not for work performed outside of a standard specified in section
7(e)(5), no part of the compensation paid may be excluded from the employee’s regular rate.
32e PREMIUM RATES FOR EXCESSIVE HOURS
32e00 Premium payments for excessive hours.
Extra compensation provided by a premium rate paid for certain hours worked by an
employee in any day or workweek because such hours are hours worked in excess of 8 in a
day or the applicable statutory maximum workweek, or in excess of the employee’s normal or
regular working hours, need not be included in the computation of the employee’s rate of pay
and may be credited toward overtime compensation due under the FLSA or PCA.
32e01 Valid hours standards.
(a) Where the payment of a premium rate for work is made contingent upon prior work for a
specified number of hours in the day, or hours or days in the workweek, that daily or weekly
standard will be accepted as meeting the requirements of FLSA section 7(e)(5), if it qualifies
as any one of the following standards:
(1) Statutory standard:
A standard working day of 8 hours or a standard workweek of the applicable
statutory maximum workweek. Overtime payments for standards in excess of 8 a
day or the applicable statutory maximum workweek will also be recognized; for
example, overtime payments after 9 actual working hours a day are recognized as
overtime payments under section 7(e)(5) even though 9 hours are not the employee’s
normal or regular working hours.
(2) Regular working hours standard:
A standard which coincides with the employee’s regular hours or days of work
during the period covered by the investigation.
(3) Normal working hours standard
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A standard which coincides with the employee’s normal hours or days of work as
established by agreement or practice, even though abnormal conditions have resulted
in the employee regularly working for some time hours in excess of the standard.
The standard will be considered to coincide with the employee’s normal hours or
days of work where:
a. the facts indicate that the standard coincided with the employee’s regular
working hours or days in the past, that the regular working of excess hours or
days at present is due to emergency or transitory conditions that are not
expected to be permanent and that the parties intend again to observe the
specified standard as the normal working hours or days as soon as conditions
permit, there being no inconsistent guarantee of employment or pay for hours
or days in excess of the standard; or
b. the employee’s regular working hours or days have in the past exceeded the
standard but it appears certain, after considering all of the available evidence,
that the standard was adopted and is being applied with the bona fide
intention of establishing it as the normal daily or weekly working period to
which the regular hours or days will be conformed as soon as the necessary
adjustments can practicably be made, there being no inconsistent guarantee
of employment or pay for hours or days in excess of the standard.
32e02 Questionable hours standard.
Where alleged daily or weekly hours standards differ from the applicable statutory standard,
they shall be carefully scrutinized to determine whether they are in fact bona fide standards
within the criteria outlined in FOH 32e01. This is especially true of alleged daily standards
of less than 8 hours and alleged weekly standards of less than the applicable statutory
maximum workweek where the investigation discloses that the regular working hours per day
or per week are in excess of the alleged standard. Where there is any doubt concerning the
validity of the standard, the matter shall be referred to the RA for a determination on the basis
of the facts submitted by the WHI and his/her DD, and any other facts relating to the
particular establishment or industry which may be available to the RA.
32e03 Offset of premium payments for excessive hours.
Where premium rates are paid for hours in excess of a valid hours standard, the amount of the
premium payment may be offset against statutory overtime compensation due, regardless of
whether such extra compensation is provided by a premium rate of 1 ⅓, 1 ½, double, or some
other multiple of the non-overtime rate of pay.
32e04 Premium rates for specified days.
(a) Extra compensation provided by a premium rate paid for work by an employee on Saturdays,
Sundays, holidays, or regular days of rest, or on the sixth or seventh day of the workweek,
where the premium rate is not less than one and one-half times the rate established in good
faith for like work performed in non-overtime hours on other days, need not be included in
computing the regular rate of pay and may be offset against overtime compensation due
under the FLSA or PCA.
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(b) Where the premium rates paid for work on Saturdays, Sundays, holidays, or regular days of
rest, or on the sixth or seventh day of the workweek are at less than time and one-half, the
extra compensation may be excluded from the regular rate only if the premium rates meet the
tests of an excessivity premium.
32f PREMIUM RATES FOR WORK OUTSIDE THE BASIC WORKDAY OR BASIC
WORKWEEK
32f00 General rule.
Extra compensation provided by a premium rate paid to an employee pursuant to an
applicable employment contract or collective bargaining agreement for work outside of the
hours established in good faith by the contract or agreement as the basic, normal, or regular
workday (not exceeding 8 hours) or workweek (not exceeding the applicable statutory
maximum workweek), where that premium rate is not less than one and one-half times the
rate established in good faith by the contract or agreement for like work performed during the
workday or workweek, need not be included in computing the regular rate of pay and may be
offset against overtime compensation due under the FLSA. The basic workday or workweek,
if established in good faith by contract or agreement, need not coincide with the normal or
regular workday or workweek. Such a basic workday or workweek may be established in
situations where there is no normal or regular workday or workweek.
32f01 Effect of regular practice where agreement does not specifically designate an hours
standard workday.
The fact that a collective bargaining or employment agreement does not specify the exact
hours that are to constitute the workday does not preclude application of FLSA section
7(e)(7), nor is it necessary that the contract or agreement specifically provide for premium
pay for hours outside the workday. If in practice the parties have arranged for payment of not
less than time and one-half a bona fide rate for hours outside of a workday, the practice will
be deemed to modify the terms of the original contract or agreement. For example, if a
contract provides for payment of time and one-half for hours beyond 8 in a day or 40 in a
week, but in practice the employees normally work from 8 a.m. to 5 p.m. with 1 hour for
lunch, the payment of time and one-half for the hours before 8 a.m. and after 5 p.m. will be
accepted as compliance with FLSA section 7(e)(7). Furthermore, where the scheduled hours
of the workday vary from time to time because of unforeseen contingencies, this fact does not
preclude the acceptance of such a workday as an established workday under section 7(e)(7).
Where the above conditions are met, the overtime premiums are valid under section 7(e)(7)
regardless of the number of hours during the basic, normal workday or workweek.
32f02 Employment contract.
(a) Whereas a collective bargaining agreement is generally a formal agreement which has been
reduced to writing, an employment contract may be either written or oral.
(b) Where there is a written employment contract and the practices of the parties differ from its
provisions, it must be determined whether the practices of the parties have modified the
contract. If the practices of the parties have modified the written provisions of the contract,
the practices of the parties will be controlling.
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(c) The determination as to the existence of an applicable oral employment contract will be based
on all of the facts, including the terms of the oral contract and the actual employment and pay
practices.
32g GUARANTEED WEEKLY WAGE PLANS (FLSA SECTION 7(f))
32g00 FLSA section 7(f).
(a) FLSA section 7(f) provides that no employer shall be deemed to have violated the overtime
provisions of the FLSA by employing an employee for a workweek in excess of the
applicable statutory overtime standard:
(1) if the employee is employed pursuant to a bona fide individual contract, or pursuant
to an agreement made as a result of collective bargaining by representatives of
employees;
(2) if the duties of such employees necessitate irregular hours of work; and
(3) if the contract or agreement:
a. specifies a regular rate of pay which is not less than the applicable legal
minimum;
b. provides for compensation at an overtime rate which is not less than one and
one-half times the specified rate for all hours worked in excess of the
applicable statutory overtime standard in any workweek; and
c. provides a weekly guaranty of pay covering compensation based on the
specified regular and overtime rates for not more than 60 hours.
32g01 Contract or agreement.
(a) Employers should be encouraged to reduce FLSA section 7(f) contracts to writing, since a
contract of this nature is complicated and proof both of its existence and of its compliance
with the requirement of section 7(f) may be difficult if it is an oral contract. It should be kept
in mind that 29 CFR 516.24(c) requires, in the case of an oral agreement, that a written
memorandum summarizing the terms of the 7(f) agreement be made by the employer. Failure
to maintain such a written memorandum would result in a recordkeeping violation but would
not of itself invalidate an otherwise valid 7(f) contract or agreement. It may, however, in
conjunction with other factors point toward either the invalidity or nonexistence of such an
agreement.
(b) A contract cannot be a one-sided affair. Therefore, the employee must not only be aware of,
but must have agreed to, the method of compensation in advance of his/her performance of
the work.
(c) The contract whether oral or written must provide for compliance with all of the requirements
of FLSA section 7(f), and where there is a change in the specified rate or the number of hours
for which pay is guaranteed, the contract must be amended accordingly.
32g02 Irregular hours.
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(a) Contracts under FLSA section 7(f) may be made only with, or by their representatives on
behalf of, employees whose duties necessitate irregular hours of work. In this connection,
there is nothing in the FLSA which makes the section 7(f) exemption inapplicable to any
class of employees. Whether or not the duties of employees necessitate irregular hours of
work must be decided on the facts of employment as to such employees.
(b) The following situations do not permit a finding that the employee’s hours are in fact
irregular:
(1) The fluctuation results entirely from absences of the employee for reasons other than
the nature of his duties, such as absences due to illness, vacation, holidays, and the
like.
(2) The fluctuation results because the employee works fixed workweeks of different
lengths. This would include situations where the fixed workweeks of longer length
occur during seasonal peaks.
(3) The only fluctuation is minor or insignificant. The terms minor and insignificant
shall be understood to mean fluctuations of 4 or less hours between the lowest
number of hours worked and the highest number of hours worked in any year or
where the fluctuations, even though beyond this range are only occasional.
(4) The fluctuation (even though more than occasional, minor, or insignificant) occurs
exclusively or nearly so in the hours above the applicable statutory overtime
standard.
(c) Where irregular hours are worked during most of the contract period, the irregular hours of
work criterion will be met even though there are periods in which regular hours are worked.
Likewise, where irregular hours are worked during the entire period, a single section 7(f)
contract or agreement covering the entire period may be proper even though hours fluctuated
at a low level during the slack season and at a high level during the busy season. In the latter
case, it is possible also to have two section 7(f) contracts, one for the busy season and one for
the slack season. A further discussion with reference to irregular hours is contained in 29
CFR 778.405.
32g03 Agreements covering more than one employee.
(a) In the case of a group of employees similarly situated with respect to the kind or nature of the
work they do, a contract may be set up with the same provisions for all individuals in the
group.
(b) In determining the validity of the agreement with respect to any individual employee in a
group, the experience of the group as a whole should be considered together with the
experience of the individual employee. Where the experience of the individual is found to
meet all the tests of a valid section 7(f) contract, the contract will be considered valid for
him/her. However, the fact that an individual, who is a member of a group failed for a
particular period to work hours which in fact are irregular does not necessarily invalidate
his/her contract if it can be concluded that, on the basis of the experience of the group, it can
be reasonably expected that he/she will meet this test.
32g04 Payment of the guaranty and for hours in excess of guaranty deductions.
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(a) To meet the requirement for the payment of not less than time and one-half for hours over the
applicable statutory overtime standard in the workweek, the employee must be paid the full
amount of the guaranty (except as provided in FOH 32g04(b) below) for every workweek,
however short, in which he/she performs any amount of work for the employer. In addition,
the employee must be paid time and one-half the specified rate for all hours actually worked
in excess of the number of hours covered by the guaranty. As a general rule, failure to pay
such additional overtime for excess hours will preclude the application of FLSA section 7(f).
(b) The following types of deductions may be made without affecting the validity of a section
7(f) plan. In each case, however, it will be necessary to review the circumstances carefully.
(1) Deductions to cover the cost to the employer of furnishing board, lodging, and other
facilities within the meaning of FLSA section 3(m)
(2) Deductions authorized by the employee, such as union dues, or required by law, such
as taxes and garnishments
(3) Disciplinary deductions for time during which an employee willfully refuses to
perform available work
32g05 Regular rate in relation to guaranty: excessivity standard not controlling.
As a result of judicial decisions, the failure of the pay arrangement to meet the excessivity
standard referred to in 29 CFR 778.408 and .410 -.414 is no longer considered sufficient in
itself to be a controlling criterion in testing the validity of a section 7(f) contract. In
substance, the excessivity standard contemplated that the relationship between the hourly rate
specified in the contract and the amount of the guaranty must be such that the employee
would have worked or could reasonably have been expected to work sufficient hours to earn
in excess of the guaranty in a significant number of weeks and thus demonstrate that the
regular rate was designed to be operative in controlling the compensation. The weight to be
given to a failure to meet this standard will depend on all the facts and the total situation.
While the courts have declined to accept the view that validity of a pay arrangement under
section 7(f) may be tested by this standard alone, the factors involved still may have
evidential bearing, at least in conjunction with other pertinent considerations, on the bona
fides of the contract. In situations where the fluctuations in weekly hours seem plainly
unrelated to the guaranteed contract hours (e.g., the employee’s hours ordinarily fluctuate
between 35 and 45 or 50 but the contract guaranty covers 60 hours), the bona fides of the
contract are subject to doubt. It is unlikely that under a bona fide contract an employer will
pay week after week for more hours than actually worked.
32g06 Guaranty of pay for not more than 60 hours in a workweek.
(a) The guaranty must be a weekly guaranty. A guaranty of monthly, semi-monthly, or bi-
weekly pay does not qualify under FLSA section 7(f). However, the weekly guarantee may
be paid every 2 weeks, or at the end of a semi-monthly or monthly pay period for all
workweeks ending within the pay period. See FOH 32j11.
(b) The contract must provide a guaranty of pay, and the amount must be specified. A mere
guaranty to provide work for a particular number of hours is not sufficient. The pay
guaranteed must be for not more than 60 hours based on specified rates.
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32g07 Computations: invalid section 7(f) plans.
(a) Where it is found that a guaranteed weekly wage plan does not meet the requirements of
FLSA section 7(f) during a particular period of time for a particular employee, a violation
will exist for that employee and the total amount of his/her guaranteed wage as specified in
the contract or agreement determines his/her regular rate of pay during the period of
violation. In any week in the violation period for which it is necessary to compute his/her
regular rate of pay for overtime purposes, the rate shall be determined as follows:
(1) In workweeks not exceeding the guaranteed number of hours, the total amount of the
guaranty shall be divided by the number of hours actually worked.
(2) In workweeks exceeding the number of hours covered by the guaranty, the
guaranteed salary shall be divided by the guaranteed number of hours. Compensation
received by the employee for work in excess of the guaranty may, of course, be offset
against the amount found due by computing his/her earnings on the regular rate of
pay calculated as explained above.
(b) Illustration
A section 7(f) plan has been determined to be invalid for a particular employee. The rate
specified in the contract or agreement is $4.00 per hour and a guaranty of $220.00 to cover
straight-time and overtime compensation for 50 hours is provided. No bonuses or other
additions to wages are paid to the employee.
(1) In a week in which he/she worked 45 hours the employee’s regular rate of pay would
be $220.00 divided by 45 hours, or $4.88. In addition to the $220.00 already paid to
him/her under his/her guaranty, he/she would be entitled to receive half-time for the 5
overtime hours, or $12.20.
(2) In a week in which the employee worked 50 hours, the number of hours for which
pay was guaranteed, his/her regular rate would be $220.00 divided by 50 hours, or
$4.40. He/she would be entitled to receive an additional $22.00 for the 10 overtime
hours.
(3) In a week in which the employee worked 55 hours and received under his/her
contract or agreement the total amount of $250.00 ($220.00 under his/her guaranty
and $20.00 as straight-time pay and $10.00 as overtime premium for the 5 additional
hours) his/her regular rate of pay would still be determined by dividing the amount of
his/her guaranty, $220.00, by the number of hours for which pay was guaranteed, 50
hours. His/her regular rate for that week would thus again be $4.40 and total
compensation due would be ($220.00 + $22.00) + (5 × 1 ½ × $4.40) or $275.00.
Back wages due would be $275.00 - $250.00 or $25.00.
(c) The illustrations in FOH 32g07(b) above merely state the principle involved. The actual
computation should be made by use of the coefficient table as appropriate. See
“Transcription and Computation Short Cuts for Overtime.”
32g08 Section 7(f) plans and the PCA.
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A section 7(f) plan which is found to be valid may continue to operate during periods in
which the work of the employee is subject to the provisions of the PCA, provided that during
those periods the employer complies with the minimum wage and overtime provisions of the
PCA.
32g09 Exempt workweeks.
An otherwise valid section 7(f) contract will not be invalidated because of the failure to pay
time and a half for the hours in excess of the contract maximum hours in weeks in which the
employer has availed himself/herself of an applicable overtime exemption.
32h OVERTIME BASED ON RATE FOR SAME WORK WHEN PERFORMED DURING
NON-OVERTIME HOURS
32h00 General provisions of FLSA sections 7(g)(1) and (2).
(a) FLSA sections 7(g)(1) and (2) provide exceptions from the overtime requirements of FLSA
section 7(a) in the case of:
(1) an employee employed at piece rates; or
(2) an employee performing two or more kinds of work for which different hourly or
piece rates have been established, provided
a. the payments are made pursuant to an agreement or understanding arrived at
between the employer and the employee before performance of the work;
b. the overtime rate is not less than one and one-half times the bona fide rate
applicable to the same work when performed during non-overtime hours;
c. the number of daily or weekly overtime hours, for which such overtime
compensation is paid, equals or exceeds the number of hours worked in
excess of the applicable statutory maximum workweek by the employee in
the workweek;
d. the employee’s average hourly earnings for the workweek, exclusive of
payments described in clauses (1) through (7) of FLSA section 7(e), are not
less than the minimum hourly rate required by applicable law; and
e. extra overtime compensation is computed and paid on other forms of
additional pay required to be included in computing the regular rate.
32h01 Prior agreement or understanding.
The FLSA specifies that an agreement or understanding must be reached before the
performance of the work.
32h02 Two or more kinds of work for which different rates of pay have been established.
(a) Whether or not an employee is performing two or more different kinds of work for which
different straight-time piece rates or hourly rates have been established must be determined
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on the basis of all the facts in each instance. The following are considered to be different
rates of pay for different types of work for purposes of sections 7(g)(1) or (2):
(1) Differential rates for night shift and Sunday work
(2) Differential rates for hazardous work, such as differential rates in construction based
on height
(3) Different rates pursuant to a collective bargaining agreement for travel which is hours
worked between shop and job site and for travel during the workday between job
sites. (If such different rates are found in situations not arising from collective
bargaining agreements, the question shall be referred through channels to the RA for
opinion.)
32h03 Bona fide rates: FLSA section 7(g)(1) and (2).
29 CFR 778.418(a)(4) and 419(a)(3) provide that a piece rate or hourly rate will be regarded
as a bona fide rate for overtime purposes if it meets the minimum wage requirements and is
the rate actually paid for the particular kind of work during non-overtime hours. However,
situations may arise where the particular kind of work for which the rate has been established
is performed only during overtime hours. In such cases, and if the minimum wage
requirement is met, the rate established for this work will be considered bona fide for
overtime purposes provided it is the rate which would be paid for the particular kind of work
should it be performed during non-overtime hours. For example, a rate of $2 an hour (which
is equal to or in excess of the rate normally paid) may be established for janitorial work in a
welding shop under an arrangement whereby the work will be done by certain of the shop
welders, whose welding rate is $3 an hour. (The prior understanding of the parties is that this
different kind of work will be performed by the welders at the $2 rate and overtime paid at
1½ the rate which is applicable to the work performed during overtime hours.) If the
circumstances are such that the welders perform the janitorial work only in their overtime
hours, the $2 rate shall be considered a bona fide rate for overtime purposes provided it is the
rate which would have been paid to the welders had they performed the janitorial work in
non-overtime hours. The fact that the janitorial rate in this instance is ⅔ of the welding rate
(thus making the time and one-half overtime rate for janitorial work equal to the straight-time
rate for welding work) is not material so long as the janitorial rate is a bona fide rate.
32h04 Overtime compensation on other forms of pay.
Where the FLSA sections 7(g)(1) and (2) methods of compensating for overtime are used,
extra overtime compensation must be properly computed and paid on other forms of
additional compensation required to be included in computing the regular rate.
32h05 Number of hours for which compensation is due.
Where the hours, for which overtime is paid under FLSA sections 7(g)(1) and (2), qualify as
overtime hours under FLSA sections 7(e)(5), (6), or (7), the requirements of FLSA section 7
will be met if the number of those hours equals or exceeds the number of hours worked in
excess of the applicable statutory maximum in the workweek. It is not necessary to
determine whether the total amount of compensation paid for such hours equals or exceeds
the amount of compensation which would be due at the applicable rates for work performed
during the hours after the applicable statutory maximum in any workweek.
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32h06 Computation under FLSA section 7(g)(2) when one of the rates is averaged.
The computation of overtime under FLSA section 7(g)(2) when one of the rates is averaged
may best be shown by an illustration. Assume that an employee works 42 hours at a piece
rate and 4 hours at an hourly rate. Payment of overtime for the 2 piece rate overtime hours at
one-half the employee‘s average piece rate earnings for the workweek and 4 hours at time
and one-half the hourly rate will be acceptable as a proper payment of overtime.
32i OVERTIME BASED ON RATE ESTABLISHED AS OVERTIME RATE BY
AGREEMENT OR UNDERSTANDING
32i00 General provisions of FLSA section 7(g)(3).
Section 7(g)(3) permits the payment of overtime compensation based on a rate not less than
one and one-half times the rate established by agreement or understanding arrived at between
the employer and the employee before performance of the work, if the rate is authorized by
29 CFR 548.
32i01 Payments under 29 CFR 548.
(a) 29 CFR 548 provides for the exclusion of certain additional payments in cash or in kind
which would have a trivial effect on overtime compensation and which would otherwise
require prorating over a retroactive period to compute the overtime due. Exclusions are
limited to additional or incidental payments; payments which are an integral part of the
employee’s regular wages may not be excluded.
(b) As a general rule, payments which are regularly paid on every payday are not excludable as
they are not additional, but an integral part of the employee’s regular wages. Furthermore,
the mere fact that payments are deferred to a future time will not make them excludable as
additional payments if they amount to nothing more than an increase in the rate per hour or
per piece. An exception is made for payments in kind and certain cash payments, such as
Social Security taxes which are excludable even if paid every payday.
(c) An additional payment within the meaning of the regulations generally is one which is made
on a different basis from that which determines the wages to which the employee is regularly
entitled and is not regularly made every payday.
(d) The following types of payment may be excluded if the 50 cents condition and the
requirements of 29 CFR 548.2 are met:
(1) Prizes
(2) Merchandise awards
(3) Housing of nominal value
(4) Lunches
(5) Social Security taxes
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(6) Flat sum payments or retroactive rate increase made as the result of an increase in the
cost of living
(7) Retroactive wage increases
(8) Payments made as a reward for attendance paid periodically
(9) Individual or group production bonuses that are not earned every payday and are paid
on a basis other than the employee’s regular wages
(e) The following types of payment are not excludable even if the other conditions are met:
(1) Night shift differentials
(2) Higher rates paid as premium pay for non-overtime hours
(3) Rate increases which become effective after a rise in the cost of living
(4) Commissions and incentive or production bonuses earned regularly every payday
which are an integral part of the employee’s wage structure
32i02 Public agencies may utilize section 7(g).
Public agencies, including public agencies engaged in fire protection or law enforcement
activities, may utilize section 7(g) in the same manner as employers in the private sector.
See 29 CFR 778.400, .401, and .415 -.421; and 29 CFR 548.
32j SPECIAL OVERTIME PROBLEMS
32j00 Multiple minima where records do not show segregation.
In those cases where different wage rates are applicable under the FLSA, PCA, and
McNamara-O’Hara Service Contract Act (SCA), and records are not kept showing the time
worked at each rate, for the purpose of computing overtime payments under the FLSA and
PCA, the regular rate of pay under the FLSA, or the basic hourly rate under the PCA cannot
be lower than the highest minimum wage rate applicable.
32j01 Multiple minima under state, territorial, and U.S. laws.
If no overtime has been worked in a workweek, no attempt shall be made to enforce any other
state, territorial, or federal minimum wage higher than that provided under the FLSA, PCA,
and SCA. If overtime has been worked, the regular rate of pay for overtime purposes under
the FLSA and PCA cannot be lower than the applicable state, territorial, or federal minimum
wage, whichever is higher. However, WHIs shall not interpret any law other than that
administered by the WHD. Thus, if it is not clear that such a higher minimum wage rate
applies, the WHI shall accept the payroll rate shown (if it is at least that required by the
FLSA, PCA, and SCA) in determining overtime compensation due. Any question as to a
possible violation of some other statutes should be referred to the appropriate authorities in
accordance with regular procedures.
32j02 Straight-time compensation to be paid in full.
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If an employee who is paid an hourly rate works statutory overtime hours (whether or not the
employer recognized them as overtime hours), the employer must pay the employee for all
hours worked at the agreed rate plus at least an extra half-time that rate for all overtime hours
less the total wages actually paid. Before an employee can be said to be paid overtime
compensation due, he/she must be paid his/her straight-time compensation due for all hours
worked under any express or implied contract or under any applicable statute. See 29 CFR
778.315. Where an employer has an express or implied agreement with an employee over a
deduction policy covering particular items, then bona fide deductions pursuant to the policy
will be allowed during overtime workweeks if the requirements of FOH 32j08 are met.
32j03 Owner-operators of equipment.
(a) In the case of non-exempt operators who own and operate their own equipment (e.g., trucks,
scrapers, mules, horses, etc.) as employees of the persons or companies for whom they
perform the work, whenever separate rates have not been established for the rental of
equipment and for the labor, or when such separate rates, if made, appear to be unreasonable
or disproportionate, the following rates shall be deemed to have been paid as wages:
(1) the regular hourly rate being paid by the same employer to operators of similar
company- owned equipment; or
(2) where the regular hourly rate noted in the foregoing clause FOH 32j03(a)(1) is not
available the rate usually paid in the area to operators of similar company-owned
equipment; or
(3) when rates noted in foregoing clauses FOH 32j03(a)(1) or (2) are not available, a
percentage formula such as 80 percent rent and 20 percent wages, or 75 percent and
25 percent, or some similar formula should be used. When it is necessary to use a
formula of this type, one should be selected which will result in a reasonable relation
between the cost of renting equipment and the wages paid to operators.
(b) Wherever possible, clause FOH 32j03(a)(1) above shall be followed. Clause FOH
32j03(a)(2) shall be followed only when clause FOH 32j03(a)(1) cannot be used, and clause
FOH 32j03(a)(3) shall be used only as a last resort.
(c) In order to be in compliance in the future, particularly as to the recordkeeping regulations,
employers shall be required to break down the compensation paid into labor rates and
equipment rental. By agreement with the employees involved, separate rates shall be
established for the rental of the equipment and for the labor.
(d) The separate rates for labor and equipment rentals thus established, wherever they appear
unreasonable or disproportionate, shall be scrutinized for possible evasion of the overtime
requirements of the FLSA or PCA. Such evasions might be evident, for example, if the rates
set up for labor of an owner-operator are grossly out-of-line with the rate paid by the same
employer to operators of similar company-owned equipment or with the prevailing rate in the
area for such operators. It may be found that in breaking down the rates which covered both
the equipment and labor, the employer has allocated an unreasonable or disproportionate part
of the rate to the equipment rental with the intent of diminishing the regular rate of pay on
which overtime has to be computed.
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(e) The half-time overtime premium on a regular rate determined as above shall be paid in
addition to the total contract earnings and may not be charged to or deducted from equipment
earnings.
32j04 Wage raises cannot cover overtime.
Payments made to employees cannot be wage or salary increases and extra compensation for
overtime at the same time. Where additional amounts are paid without any understanding
that they are overtime compensation, and the payment of such amounts remains constant even
during weeks in which the employee works no overtime, the payments are in fact wage or
salary increases and must necessarily be reflected in an increase in the employee’s regular
hourly rate of pay rather than as an offset against extra compensation due for overtime.
32j05 Changes in scheduled hours without change in pay.
(a) Permanent reduction
(1) A permanent reduction in a fixed schedule of workweek hours without a reduction in
the salary or take-home pay results in an increased regular rate. Where the employer
has continued to use the original rate in computing overtime, a violation shall be
charged. However, where such a violation resulted from a genuine misunderstanding
of the overtime requirements, no request for payment of back wages shall be made.
The employees involved and the amount of beck wages shall not be reported on Form
WH-51. A brief explanation shall be made in the narrative. The employer shall be
advised of the rights of employees under section 16(b).
(2) The following conditions will be indicative of a genuine misunderstanding:
a. It is clear that there was compliance before the change, that is, the rates then
used for straight-time and overtime purposes were bona fide and properly
paid.
b. The reduction in hours without a reduction in take-home pay was intended to
and did benefit the employees.
c. There was no intention to evade the payment of the overtime premium
required by the act.
(3) The employer shall be advised that the payment of the same take-home pay for the
reduced workweek establishes an increased regular rate of pay which must be used to
compute overtime compensation for all statutory overtime hours.
(b) Temporary or seasonal-reduction
(1) As a general rule, a reduction in a fixed schedule of workweek hours without
reduction in salary or take-home pay for all weeks of a specified period of definite
and reasonably long duration, such as a seasonal slack period, will result in an
increased regular rate, as in the case of a permanent reduction. The policy set forth in
FOH 32j05(a) above will be followed as to the requirements for future compliance
and in making the determination as to whether to request payment of back wages in
such cases.
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(2) Where employees are given time off on a temporary basis such as all Saturdays or
some part of them in the summer months, or other bona fide seasonal vacation
periods, without reduction of salary or take-home pay, the time off will be regarded
as vacation time within the meaning of section 7(e)(2). Thus, the pay for such time
off will not affect the regular rate of pay. Likewise, there would be no violation of
the act if the employer required the employees to work those hours which were
scheduled as vacation time off, without paying them additional compensation. The
same result would follow if a half day off was given every other Saturday during the
period of Daylight Saving Time.
(c) Permanent schedule of alternating workweek, of different fixed lengths
Where an employer has established a permanent schedule of alternating workweeks of
different fixed lengths he/she may, by agreement or understanding with the employee, pay the
same straight-time compensation for the scheduled hours of the long and short workweeks,
but he/she may not pay the same fixed salary for the long and short schedules of hours to
cover total compensation including the overtime pay. The payment of the same straight-time
compensation for the scheduled long and short workweeks establishes different rates of pay
for the long and short scheduled workweek. If in such a case the employer has paid the same
total compensation for both the long and short scheduled workweeks the policy expressed in
FOH 32j05(a) above will be followed.
32j06 Lump-sum overtime payment.
Under appropriate circumstances, and where close scrutiny reveals there is a clear
understanding between the employer and the employee that a lump-sum payment is
predicated on at least time and one-half the established rate, and that overtime payment is
clearly intended, the fact that the payment is a lump sum will not result in a violation if it
equals or exceeds the proper overtime payment due. For example, during a limited period
each year hourly-rated employees worked after regular hours on a special job for their
employer. Under a clearly understood agreement with his/her employees, the employer,
based on experience paid for this special job in a lump sum arrived at by computing time and
one-half the regular rate for the estimated special job hours, and then adding an additional
bonus amount. This policy shall be applied very narrowly and shall not be applied to lump-
sum payments which are nothing more than bonuses for working undesirable hours.
32j07 Retroactive increases.
(a) If retroactive increases are given as compensation for services, they must be included in
determining the employee’s regular rate of pay and must be prorated over the previous weeks
in which the work, to which the compensation is attributed, was performed.
(b) If it is not feasible to allocate the retroactive increases among the workweeks of the period in
proportion to the amount of the increases actually applicable to each week, some other
reasonable and equitable method of allocation must be adopted. For example, it may be
assumed that the employee earned an equal amount of the increase each hour of the pay
period and so the resultant hourly increase may be determined by dividing the total amount of
increase by the number of hours worked by the employee during the period for which it is
paid.
32j08 Deductions in overtime weeks.
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(a) FLSA section 7(a) requires that an employee receive compensation for overtime hours at “a
rate not less than one and one-half times the regular rate at which he/she is employed.”
Where board, lodging, and facilities are charged to the employee and the employer recovers
the amount by deductions from the employee’s cash wages, the regular rate is determined
before the deductions are made. There is no limit to the amount which may be deducted for
these items, provided that the deductions are confined to the reasonable cost of the board and
lodging furnished. Where such deductions are in amounts that exceed the reasonable cost,
the excess amount shall be handled the same as deductions for items other than “board,
lodging, or other facilities.” The term “other facilities” means such items as meals furnished
at company restaurants; housing furnished; general merchandise bought at company stores
(including food, clothing, and household effects); and fuel, electricity, water, and gas
furnished for the personal use of the employee.
(b) Employers must pay statutorily-required minimum wage and overtime premium pay finally
and unconditionally, or free and clear. The cost of furnishing items that are primarily for the
benefit or convenience of the employer do not qualify as facilities under FLSA section 3(m);
thus they may not be included as part of wages due. Further, deductions for articles that do
not qualify as “board, lodging, or other facilities” under FLSA section 3(m), such as tools,
equipment, cash register shortages, and other similar items, may not be made if they cut into
required minimum wage or overtime premium pay. Deductions that reduce an employee’s
average hourly earnings for the workweek after the deductions to less than the highest
applicable minimum wage rate are illegal in an overtime week unless the law establishing
that minimum wage (e.g., state law; the Davis-Bacon and Related Acts; SCA; H-2A, H-1B,
and H-2B visa programs; or a MSPA contracted promised wage) allows the particular
deduction. (Note: if a MSPA contract specifically discloses that the employer will make
certain particularized deductions not otherwise prohibited by other law, those deductions
would be permitted. For example, if a MSPA-covered employer disclosed a wage rate of
$8.00 per hour and fully disclosed in writing at the time of recruitment that $1.50 per hour
would be deducted for non-3(m) items, and the deductions are otherwise legal and not
prohibited by other applicable laws, then those fully-disclosed deductions are permitted to
reduce the hourly wage to below the $8.00 per hour contracted promised wage (i.e. to $6.50
per hour). Deductions for non-3(m) items may be made in an overtime workweek to the
same extent as permitted in a non-overtime workweek if their purpose and effect are not to
evade the overtime requirements of the FLSA or other law, and if they are bona fide
deductions made for particular items according to a prior agreement or understanding
between the employer and the employee before the work is performed (29 CFR 531.37(a) and
29 CFR 778.315).
(c) If an employer and an employee have an express or implied agreement about a deduction
policy for particular items, then bona fide deductions pursuant to the policy will be allowed
during an overtime workweek to the extent that they would be allowed in a non-overtime
workweek, provided that the deductions do not violate other applicable laws (e.g., state law),
the employee receives free and clear the highest applicable minimum wage (including
prevailing wages) required by any federal, state or local law for the non-overtime hours, and
the employee receives time and one-half the regular rate of pay based on the stipulated wage,
before any deductions are made, for all the overtime hours. For example, if a forestry worker
subject to a $9.00 per hour SCA prevailing wage rate is paid $10.00 per hour ($1.00 above
the legally-required SCA prevailing wage rate of $9.00) and works 50 hours in a particular
workweek, the most that may be deducted from this worker’s wages for that week pursuant to
a prior agreement covering specific deductions (e.g., purchase of a saw) is 40 times $1.00
($40.00). Statutory wages due net after deductions = [40 x $9.00 ($360.00 minimum
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wage]+[(10 x 1.50 x $10.00 ($150.00 overtime)] or $510.00 total minimum wage and
overtime.)
(d) Unless there is an agreement as to deductions for particular items, or if the employer reduces
an employee’s wages for a reason not addressed in the contractual arrangement or for no
legitimate reason, the deductions will be considered illegal and will not be allowed during
overtime workweeks. To determine if these criteria are met, apply the following standards:
(1) Deductions must be made for particular items according to an agreement or
understanding between the parties
The agreement must be reached before the employee performs the work that becomes
subject to the deductions. The agreement must be specific concerning the particular
items for which the deductions will be made, and the employee must know how the
amount of the deductions will be determined that are included in the agreement (e.g.,
cash register shortages). The employee must affirmatively agree or assent to the
employer’s deduction policy. While the employee’s assent to the policy may be
written or unwritten, the employer bears the burden of proof that an employee has
agreed to the deduction policy.
(2) Only bona fide deductions, made for particular items, are permitted
Deductions that are otherwise prohibited by other laws or authority (federal, state or
local) are not bona fide (e.g., if a state law prohibits any deductions from employees’
wages for tools and similar items or equipment that are business expenses of the
employer, the WHD would not allow any deductions in that state in an overtime
workweek, regardless of whether the highest WHD-enforced minimum wage was
paid (net) after the deductions). Deductions for amounts above the reasonable cost to
the employer of furnishing a particular item to an employee are also not bona fide
(e.g., furnishing items to employees at a profit; deductions for substandard housing).
Deductions from wages where no prior agreement exists as to particular items are
never permitted in an overtime workweek.
(3) The regular rate of pay is based on the stipulated wage before any deductions are
made
Deductions for non-3(m) items that reduce an employee’s rate of pay to below the
highest applicable legally-required minimum wage are illegal unless the law
establishing that minimum wage allows the particular deductions. In overtime
workweeks (where overtime requirements apply), deductions may be made according
to an agreement that reduce the effective hourly rate down to the highest required
minimum wage, but only from the non-overtime hours (first 40 hours in the week).
Proper time and one-half the full regular rate (pre-deductions) must be paid for all
statutory overtime hours.
(4) The purpose and effect of the deductions are not to evade the overtime requirements
or other laws
Deductions made only in overtime workweeks, or increases in prices charged during
overtime workweeks compared to non-overtime workweeks, will be considered
manipulations to evade statutory overtime requirements which are prohibited.
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Deductions that violate other applicable laws are prohibited in an overtime
workweek. See 29 CFR 531.37(a) and 29 CFR 778.315.
32j09 Payments for activities not normally hours worked.
Payments for those voluntary clothes-changing and wash-up periods and bona fide lunch
periods which need not be regarded as hours worked, but which take place at the
establishment or work site either during or at the beginning or end of the workday, shall be
treated as follows:
(1) Where the activity has been paid for and the time has been included in computing the
hours worked, in the absence of evidence of an attempt to evade the overtime
requirements, the time shall be accepted as hours worked for the purpose of
determining whether the overtime provisions have been met.
(2) 29 CFR 778.320(b) indicates that the conversion of certain activities into hours
worked by virtue of the employer’s payment for such time depends on “whether or
not it appears from all the pertinent facts that the parties have agreed to treat such
time as hours worked.” It is explained in this section of the 29 CFR 778 that the
parties may agree to exclude from hours worked those activities, such as eating meals
between working hours, which would not be hours worked even if they were paid for
pursuant to a contract, custom, or practice. 29 CFR 778.320(b) states further that
where “the parties have agreed to exclude such activities from hours worked,
payments for such time will be regarded as qualifying for exclusion from the regular
rate under the provisions of section 7(e)(2)” of the FLSA.
32j10 Delayed payment of overtime compensation.
In the ordinary case, the FLSA and the PCA require the payment of both minimum wage and
overtime compensation earned in a given workweek at the regular payday for that workweek
or, where the pay period covers more than a single week, at the regular payday for the pay
period in which the particular workweek ends. However, if the correct overtime
compensation cannot be determined until sometime after the regular pay period, the
requirements of the FLSA or the PCA will be satisfied if the employee is paid the excess
overtime compensation as soon after the regular payday as is practicable, but not later than
the next payday after the computation can be made. Where bonuses are paid, any extra
overtime pay due upon the increase in the regular rate resulting from the bonus payment is
due only at the time the bonus itself is paid, not earlier.
32j11 Semi-monthly or monthly payments which include overtime.
Where the wages due an employee are properly computed on a workweek basis, an employer
may pay the determinable portion of such wages in semi-monthly or monthly installments
without destroying time validity of the regular rate of pay or violating the provisions of the
FLSA or PCA. For example, where an employee is hired to work a regularly scheduled
workweek of 44 hours at a rate of $2.00 per hour with time and one-half that rate ($3.00) for
hours in excess of 40 in the workweek, which equals $92.00, it is permissible for the
employer to make semi-monthly wage installments to him/her of $199.33 ($92.00 x 52 weeks
in a year divided by 24 semi-monthly payments in a year), provided additional compensation
at time and one-half pay day for any workweek in which hours in excess of 44 are worked, or
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the proper reduction in pay is made where other than excused absences occur. Likewise,
payment on this basis will not of itself destroy an otherwise valid section 7(f) plan.
32j12 Concurrently working for more than one employer.
Where two or more employers arrange to, and do, jointly employ an employee, the total hours
worked by the employee for the employers shall be added together to determine the total
number of hours worked in the workweek by the employee for which straight-time and
overtime should be paid.
32j13 Change of workweek.
(a) A change of the workweek from one period of 7 consecutive days to another period of 7
consecutive days necessarily creates an overlap between the last workweek in the old
schedule and the first workweek in the new; that is, certain hours fall within both workweeks.
(b) If the hours which fall within both workweeks are hours in which the employee does no
work, his/her statutory compensation for each workweek is, of course, determined as it would
be if no overlap existed.
(c) If, on the other hand, some of the employee’s work time falls within hours which are included
in both workweeks, the employee’s straight-time and overtime compensation shall be
computed by counting such work time as hours worked in whichever of the 2 workweeks its
inclusion will yield the higher total compensation for both workweeks. After thus
determining the workweek to which the overlapping work time shall be allocated, the
remaining workweek shall be treated as one in which the only compensable worktime is that
falling exclusively within that workweek and outside the portion which overlaps the other
workweek. Subject to this modification, the compensation due an employee for straight-time
and for overtime on a daily or weekly basis shall be computed and paid for each workweek as
in workweeks when no overlap occurs.
32j14 Stint or task system.
32j14a Characteristics.
A predetermined amount of work is regarded as a day’s work. Upon completion of this stint
the employee is credited with 8 hours of work. The stint system is a piecework system.
Instead of setting a price per number of units of work produced, as is done in most piecework
systems, the number of hours allowed to complete a quantity of work is predetermined and
paid for at the agreed hourly rate. Payment of one and one-half times the agreed hourly rate
for stint work is equivalent to paying one and one-half times an established piecework rate.
Payment of one and one-half times the agreed hourly rate for stint work or hourly rated work
in excess of 8 credited hours per day will comply with the FLSA overtime requirement and
be in accordance with FLSA section 7(g)(1) or (2), if the hours for which the overtime rate is
paid qualify as overtime hours under FLSA section 7(e)(5), (6), or (7).
32j14b The stint as an hours standard.
The number of hours necessary to complete a predetermined daily stint can be considered the
employees normal working hours for the purpose of determining overtime hours under FLSA
section 7(e)(5) even though the time necessary to complete the stint varies somewhat from
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day to day, if the stint reasonably approximates a normal day’s work and the employees
normally work only these hours. This will also be true even though the employees are
working longer hours, if the stint reasonably approximates a normal day’s work and the
regular working of excess hours at present is due to emergency or transitory conditions which
are not expected to be permanent and the parties intend again to observe the standard as the
normal working hours as soon as conditions permit. In the same circumstances, the number
of hours necessary to complete five predetermined daily stints can be considered the
employees’ normal working hours weekly. Of course, hours worked on the sixth day worked
in the week may qualify as overtime hours under section 7(e)(5) and hours worked on
Saturday as such may qualify as overtime hours under section 7(e)(6).
32j14c Application of section 7(g)(1) or (2).
In any establishment in the brick manufacturing industry where the time necessary to
complete a stint is the employees’ normal working hours (daily) and the time necessary to
complete five stints is the employees’ normal working hours (weekly), payment of one and
one-half times the agreed rate for hours worked each day on stint work or hourly rated work
after the completion of the daily stint, or for work performed each workweek after the
completion of five daily stints, is in compliance with the FLSA overtime provisions in
accordance with section 7(g)(1) or (2). Payment of one and one-half times the agreed rate for
hours worked on the sixth day worked in the workweek or for hours worked on Saturday as
such is true overtime compensation under the FLSA in accordance with section 7(g)(1) or (2).
32j14d 29 CFR 778.312 distinguished.
This situation is distinguished from that described in 29 CFR 778.312 in that, in the latter
situation, the time necessary to complete the task varied without any relationship to the
employee’s normal working hours and premium payments were made for hours worked
within the employee’s normal working hours, and not because the hours worked were in
excess of the employee’s normal working hours. If the employees normally work after
completion of the daily stint and this is not an emergency or transitory condition, the number
of hours necessary to complete the stint cannot be said to be the employee’s normal working
hours within the meaning of FLSA section 7(e)(5). If the time it normally take to complete
the stint is of such short duration that it does not approximate a normal day’s work, the
working of excess hours cannot be considered an emergency or transitory condition, and
premium payments for work performed after completion of the stint cannot be considered
true overtime compensation under the FLSA. The situation would then be the same as that
described in 29 CFR 778.312.
32j14e Variations in plans.
There are a number of variations in plans but the principle is the same. For example, not all
employers using the stint or task system pay daily overtime compensation. They simply
credit the employees with so many hours of work for so much production in accordance with
a pre-determined formula. They pay one and one-half the agreed hourly rate for stint work or
hourly rated work in excess of 40 credited hours. In this case there is no daily stint and no
need to determine the employees’ normal working hours on a daily basis. The sole question
is whether the number of hours necessary to complete the weekly stint beyond which time
and one-half is paid, is the employees’ normal working hours weekly (see FOH 32e01). If so,
the excess hours of work are true overtime hours under FLSA section 7(e)(5) and the extra
compensation paid for those hours is true overtime compensation.
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32j14f Stint or task basis of payment in other industries.
(a) The stint or task basis of payment is also used to some extent in industries other than the
brick industry. In the meat packing industry, the hours paid for at the agreed rate for the
completion of a pre-determined amount of work are called “cow hours” or “kill time.” In the
smelters of the metal refining industry the predetermined day’s work is called the heat.
(b) Where investigations in other industries disclose that the stint or task basis of payment has
been used to compensate employees for overtime and where that method would appear to fall
within the principles outlined above, enforcement action shall not be taken until an opinion is
secured as to the validity of the method of payment. All of the facts concerning the stint or
task basis of payment shall be obtained and the investigation referred to the regional office
for discussion with, or referral to, the regional solicitor of labor. The facts shall include
information as to:
(1) whether the hours necessary to complete the predetermined amount of work, after
which extra compensation of at least 50 percent is paid, are the employees’ normal
working hours;
(2) whether the employees are presently working more hours;
(3) how long they have been regularly working excess hours;
(4) whether the excess hours of work are due to seasonal factors or emergency or
transitory conditions which are not expected to be permanent;
(5) if the employees have always regularly worked excess hours, whether the overtime
standard adopted and applied was with the bona fide intention of establishing it as the
normal working period to which the regular working hours will be conformed as soon
as the necessary adjustments can practicably be made;
(6) whether the hours of work are different for different groups of employees or different
departments where the same overtime standard is used;
(7) whether there is any information available as to hours of work and overtime
standards used in other establishments in the same industry and area; and
(8) the extent of compliance with other requirements of section 7(g)(1) or (2), as
explained in 29 CFR 778.415 -.423, such as payment of extra overtime compensation
on other forms of additional pay required to be included in computing the regular
rate, or payment of extra compensation of at least 50 percent for at least the number
of hours actually worked in excess of the applicable statutory maximum workweek.
32j15 Wage pool arrangement.
(a) A bona fide wage pool arrangement will be in compliance with FLSA section 7 and the
average rate for the group will be a proper regular rate of pay if:
(1) a group of employees work interchangeably at various occupations carrying different
rates;
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(2) the employees in the group are not paid individually the rates assigned to each
occupation;
(3) all straight-time earnings of the group, computed at the assigned rates, are totaled and
divided by the total straight-time hours worked by the group;
(4) all overtime earnings, at one and one-half times the assigned rates, are separately
totaled and divided by the total overtime hours worked by the group;
(5) the daily or weekly earnings of each employee for each day or workweek are then
computed by multiplying the average straight-time rate for the group by the
employee’s straight-time hours, and the average overtime rate for the group by the
number of hours the employee worked in excess of 8 a day or the applicable statutory
maximum workweek.
32j16 Time off and prepayment plans.
32j16a Basic requirements to be considered.
(a) Two ways have been proposed by employers by which they may continue to pay their
employees a constant wage or salary from pay period to pay period even though overtime is
worked in some weeks. The first has been termed the time off plan and the second the
prepayment plan. The time off plan, however, is inappropriate for employees who are
compensated for overtime pursuant to FLSA section 7(e)(7) or any of the subsections of
FLSA section 7(g).
(b) Before explaining the operation of the time off and prepayment plans, certain basic
requirements of the FLSA will be outlined that are material in determining the legality of any
proposed plan. It must be remembered that the FLSA takes a single workweek as its standard
and permits no averaging of hours over two or more weeks. Each week stands alone. Time
and one-half overtime compensation must be paid the employee for all hours which he/she
works in a single workweek in excess of the applicable statutory maximum workweek. The
pay period need not, however, coincide with the workweek. Thus, there is no objection if the
pay period is bi-weekly, semi-monthly, or monthly, but the amount of compensation due the
employee at each pay period must be computed on the basis of a single workweek. It must
also be remembered that overtime compensation due an employee must be paid in cash and
normally at the time of the regular pay period, that is, when the employee customarily
receives his/her straight-time compensation. It may not be accumulated to be paid at any
time subsequent thereto.
32j16b The time off plan.
To comply with the FLSA and to continue to pay a fixed wage or salary each pay period even
though the employee works overtime in some week or weeks within the pay period, the
employer lays off the employee a sufficient number of hours during some other week or
weeks of the pay period to offset the amount of overtime worked so that the desired wage or
salary for the pay period covers the total amount of compensation, including overtime
compensation, due the employee under the FLSA for each workweek taken separately. The
plan may use a standard number of hours more or less than the applicable statutory maximum
workweek. The employer does not pay for overtime work in time off, nor does he/she
average hours over a period longer than a week. Control of earnings by control of the
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number of hours an employee is permitted to work, not payment for overtime in time off, is
the essential principle of the time off plan. For this reason, a time off plan cannot be applied
to a salaried employee who is paid a fixed salary to cover all hours he/she may work in any
particular workweek or pay period.
32j16c Prepayment plans.
(a) Though overtime compensation due an employee must normally be paid at the time of the
employee’s regular pay period, there is no objection if the employer pays in advance overtime
compensation to become due to an employee. This is the basic principle of the prepayment
plan. Thus some employers, in an attempt to keep the wage or salary constant from pay
period to pay period, have resorted to paying their employees a sum in excess of what they
earn or are entitled to in a particular week or weeks, which sum is considered to be a
prepayment or advance payment of compensation for overtime to be subsequently worked.
In other words, the employer and the employee agree that in any week in which the employee
works less than the applicable statutory maximum workweek the employer will advance to
the employee the difference between the amount equal to his/her regular rate of pay for the
applicable statutory maximum workweek and the amount he/she would have received if
he/she had been paid only for the number of hours he/she worked. Bona fide plans of this
type require the use of a record system whereby the employer can maintain a running
account.
(b) The question sometimes arises as to whether the loan or advance is really a loan or advance
and not a salary arrangement. The determination of this question may depend upon what the
parties understand will happen when an employee severs his/her relationship with the
employer. If the employer still has some accumulated credits at that time, will some attempt
be made to get back the amount of the loan or advance from the employee since there is no
further possibility that it will be worked out by subsequent overtime? The fact that no
attempt will be made by the employer to collect the amount due him/her either by deducting
such amount from the employee’s last check or by some other way is one indication that the
loan or advance may simply be a fictitious bookkeeping device.
(c) Similarly, the fact that at the end of the year, or at the end of some shorter period, credits
accumulated by the employer are simply wiped out and a new start is made, is one indication
that there may be no loan or advance in fact but simply a bookkeeping device. If there is no
prepayment in fact and the plan is nothing but a bookkeeping device, the FLSA will have
been violated.
(d) There is an additional consideration with respect to the salaried employee who works a
regular number of hours. If the employer, who contemplates adopting a prepayment plan, is
required by an express or implied contract or agreement with the employee to pay him/her the
fixed wage or salary, even when the employee works less than the regular number of hours in
some week or weeks, it cannot be said that the employee is paid in excess of what he/she
earns, or to which he/she is entitled, when he/she receives the fixed wage or salary in those
weeks. He/she has received no loan or advance, and no amount therefore may be credited to
the employer as a prepayment of compensation for overtime to be subsequently worked.
(e) For the same reason, a prepayment plan cannot be applied to a salaried employee who works
a fluctuating number of hours. Since the nature of such an employee’s employment is that
he/she will receive the fixed basic salary regardless of the number of hours worked, it cannot
be said that such an employee is paid in excess of what he/she earns, or to which he/she is
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entitled, in any week in which he/she receives his/her fixed salary, even though such weeks
may have been short weeks.
(f) Only credits to the employer may be carried over beyond the pay period. Credits to the
employee, that is, overtime compensation due the employee, may not be carried over beyond
the pay period to be consumed by subsequent employer advances, but must be paid in cash at
the pay period. In this way the employer will never owe the employee overtime
compensation.
(g) Amounts paid to an employee while absent from work for a vacation, for holiday or sick
leave, or for other miscellaneous periods of leave, may not be considered by the employer as
prepaid overtime compensation, just as the time off during such periods may not be used to
balance overtime worked within the pay period. Payment for idle holidays, vacations, etc., is
not payment for overtime and may not be considered by the employer as compensation for
the employee’s overtime work under the FLSA.
32j16d Comparison of the time off and prepayment plans.
(a) In two respects, a prepayment plan, if it may be properly applied to salaried employees, is not
subject to the same restrictions as a time off plan. It is not confined, in its operations, to the
pay period. Credits to the employer, that is, amounts paid by him/her in excess of the
amounts earned by the employee or to which the employee is entitled, may be carried over
beyond the pay period until they are consumed by the overtime work of the employee.
Secondly a prepayment plan may be applied to employees who are paid weekly.
(b) Where applicable, a time off and prepayment plan may be applied together.
(c) These two plans are rarely used. When a WHI finds one in operation, he/she should
communicate with his/her DD and obtain instructions as to how he/she should proceed.
32j17 Domestic service employees.
(a) Effective 05/01/1974, section 7(l) provides that:
“No employer shall employ any employee in domestic service in one or more households for
a workweek longer than 40 hours unless such employee receives compensation for such
employment in accordance with subsection (a).”
(b) The language of Sec 7(l) places the overtime penalty on employment by an employer. The
overtime provisions become applicable when a single employer employs a domestic worker
for more than 40 hours in any workweek in that employer’s service. Such employer shall be
required to pay that employee in accordance with the overtime provisions of section 7(a),
unless the exemptions in section 13(a)(15) or section 13(b)(21) are applicable.
32j18 Tipped employees.
(a) FLSA 3(m) tip credit in an overtime workweek
Section 3(m) of the FLSA (see 29 USC 203(m)), permits an employer meeting all of the
requirements of that section to take a tip credit against the section 6(a)(1) wage it is required
to pay its tipped employees. Section 3(m) further provides that this FLSA 3(m) tip credit
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cannot exceed the difference between the minimum wage specified in section 6(a)(1) of the
FLSA and the direct or cash wage paid by the employer, which cannot be less than $2.13 per
hour. See FOH 30d for a full discussion of the FLSA 3(m) tip credit an employer may take
against its minimum wage obligations. An employer may not take a higher FLSA 3(m) tip
credit against its minimum wage obligations during overtime hours than during non-overtime
hours. The terms “direct wage” and “cash wage” are used interchangeably in the FOH when
discussing the tip credit.
(b) Definitions
The following terms will be used in this section:
(1) FLSA 3(m) tip credit
The “FLSA 3(m) tip credit” is the tip credit an employer is permitted to claim against
its minimum wage obligations as determined by section 3(m). Under section 3(m),
the sum of the cash wage paid and the FLSA 3(m) tip credit will always equal the
section 6(a)(1) minimum wage.
(2) State tip credit
The “state tip credit” is the tip credit amount an employer is permitted to claim
against its wage payment obligations under state law. Some states do not permit an
employer to claim a tip credit.
(3) Additional overtime tip credit
Under certain circumstances, where the state minimum wage exceeds the section
6(a)(1) minimum wage and the state permits a higher tip credit than the FLSA 3(m)
tip credit, the employer may claim an additional overtime tip credit. This additional
overtime tip credit is equal to the difference between the FLSA 3(m) tip credit and
the state tip credit.
(4) Total tip credit in an overtime workweek (i.e., “total tip credit”)
Where an employer is able to claim an additional overtime tip credit, the total tip
credit that will be counted toward satisfying the employer’s FLSA overtime
compensation obligation will consist of the FLSA 3(m) tip credit and the additional
overtime tip credit; the sum of these will total the state tip credit.
(c) Deductions
(1) Non-3(m) deductions when employer claims an FLSA 3(m) tip credit
When an employer claims an FLSA 3(m) tip credit, the tipped employee is
considered to have been paid only the section 6(a)(1) minimum wage for all non-
overtime hours worked in a tipped occupation. See FOH 30d06. Therefore, an
employer that claims an FLSA 3(m) tip credit may not take deductions in a
workweek of 40 hours or less for non-3(m) costs such as walkouts, cash register
shortages, breakage, cost of uniforms, etc., because any such deduction would reduce
the tipped employee’s wages below the minimum wage. See Updating Regulations
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Issued Under the Fair Labor Standards Act; Final Rule, 76 FR 18839, 04/05/2011;
and 29 CFR 531.36. Because non-3(m) deductions cannot be made in a workweek of
40 hours or less when an employer claims an FLSA 3(m) tip credit, employers are
also prohibited from taking such deductions in overtime weeks, even when the
regular rate is higher than the section 6(a)(1) minimum wage (e.g., when a higher
state minimum wage is the regular rate). See 29 CFR 531.37 and FOH 32j08(b).
(2) Non-3(m) deductions when employer does not claim an FLSA 3(m) tip credit
An employer may only take non-3(m) deductions from the wages of a tipped
employee when the employer does not claim an FLSA 3(m) tip credit and the direct
or cash wage paid is greater than the section 6(a)(1) minimum wage. For example, if
an employee receives $10.00 per hour in cash wages, the employer cannot claim an
FLSA 3(m) tip credit, and the employer may take up to $2.75 ($10.00 - $7.25 =
$2.75) in non-3(m) deductions from the employee’s hourly wage in non-overtime
workweeks. See FOH 30d00(e)(4)(b). For discussion of deductions in overtime
workweeks, see FOH 32j08.
(d) Overtime obligation for tipped employees
FLSA overtime principles apply to tipped employees in the same manner as they apply to all
covered, non-exempt employees. In an overtime workweek a tipped employee is entitled to
overtime compensation under section 7(a)(1) at the rate of not less than time and one-half the
regular rate. Where an employer takes a tip credit, the tip credit amount must be included in
determining the regular rate.
Common FLSA overtime violations for tipped employees include paying the same direct cash
wage for overtime hours, or time-and-one-half the direct cash wage as the overtime premium,
instead of paying time and one half the regular rate of pay for overtime hours.
(e) Determining the regular rate for tipped employees
The regular rate for a tipped employee is determined by dividing the total remuneration in
any workweek, minus statutory exclusions, by the total hours worked. See 29 CFR 778.109.
The regular rate can never be less than the highest applicable minimum wage. See 29 CFR
778.5. For example, in a state with a state minimum wage of $9.00, the regular rate cannot be
less than $9.00 per hour.
An employer may claim a tip credit and also provide board, lodging, or other facilities. See
29 CFR 531 and FOH 30c. In determining the regular rate for a tipped employee, all
components of the employee’s wages must be considered (i.e., cash, board, lodging, facilities,
and tip credit). Tips in excess of the allowable tip credit are not considered wages and are not
considered in determining the regular rate. See 29 CFR 531.60.
In determining the regular rate for a tipped employee, both the direct wage and any tip credit
must be included. For example, if the employee is paid a direct wage of $2.13 and the
employer claims an FLSA 3(m) tip credit of $5.12, the regular rate will be $7.25 ($2.13 +
$5.12 = $7.25) and the overtime rate will be $10.88 ($7.25 × 1.5 = $10.88). The direct wage
payment in overtime hours would be $5.76 ($10.88 - $5.12 = $5.76); the overtime direct
wage payment is not one and one-half times the non-overtime direct wage payment of $2.13.
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Scenario 1:
The employer pays a cash wage of $2.13 per hour, claims an FLSA 3(m) tip credit of $5.12,
and the employee works 45 hours in a tipped occupation. The employer complies with the
requirements in 29 CFR 531.59(b) to inform its employees about the tip credit and the
employee receives at least $5.12 per hour in tips.
$2.13 (cash wage) + $5.12 (tip credit) = $7.25 (regular rate)
45 hours (total hours worked) × $7.25 (regular rate) = $326.25 (straight time wages due)
5 hours (overtime hours) × .5 × $7.25 (regular rate) = $18.13 (overtime wages due)
$326.25 (straight time wages due) + $18.13 (overtime wages due) = $344.38 (total wages
due)
45 hours (total hours worked) × $5.12 (tip credit) = $230.40 (total FLSA 3(m) tip credit)
$344.38 (total wages due) - $230.40 (total FLSA 3(m) tip credit) = $113.98 (direct or cash
wage due)
Scenario 2:
The employer pays a cash wage of $3.00 per hour, claims an FLSA 3(m) tip credit of $4.25,
and the employee works 45 hours in a tipped occupation. The employer complies with the
requirements in 29 CFR 531.59(b) to inform its employees about the tip credit, and the
employee receives at least $4.25 per hour in tips.
$3.00 (cash wage) + $4.25 (tip credit) = $7.25 (regular rate)
45 hours (total hours worked) × $7.25 (regular rate) = $326.25 (straight time wages due)
5 hours (overtime hours) × .5 × $7.25 (regular rate) = $18.13 (overtime wages due)
$326.25 (straight time wages due) + $18.13 (overtime wages due) = $344.38 (total wages
due)
45 hours (total hours worked) × $4.25 (tip credit) = $191.25 (total FLSA 3(m) tip credit)
$344.38 (total wages due) - $191.25 (total FLSA 3(m) tip credit) = $153.13 (direct or cash
wage due)
(f) Higher state minimum wage and higher state tip credit
Questions regarding the proper calculation of overtime pay often arise in situations where
state law requires an employer to pay a higher minimum wage than required by the FLSA and
permits the employer to claim a higher tip credit than permitted under the FLSA. In an
overtime workweek where a tipped employee’s regular rate is determined based on a state
minimum wage that exceeds the FLSA section 6(a)(1) minimum wage (see 29 CFR 778.5),
and the state permits a higher tip credit than the FLSA 3(m) tip credit, the employer may
claim an additional overtime tip credit toward satisfying its overtime compensation obligation
under the FLSA. This additional overtime tip credit is equal to the difference between the
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FLSA 3(m) tip credit and the state tip credit. In such situations, the total tip credit that will be
counted toward satisfying the employer’s FLSA overtime compensation obligation will
consist of the FLSA 3(m) tip credit and the additional overtime tip credit, the sum of which
will total the state tip credit. The WHD will not permit a total tip credit that exceeds the
amount of tips received and retained by the employee.
(g) Examples of how to compute overtime for tipped employees
For purposes of these examples, assume the following: that the FLSA section 6(a)(1)
minimum wage rate is $7.25 per hour, the employee worked 45 hours in the workweek, all
hours worked were in a tipped occupation, the employee meets the section 3(t) definition of a
tipped employee, the employer complied with the requirements in 29 CFR 531.59(b) to
inform employees about the tip credit, and the payroll records are accurate.
Scenario 1:
The state minimum wage is $7.25 per hour, and the employer pays a cash wage of $2.13 per
hour as required under state law and claims a tip credit of $5.12 per hour in compliance with
federal and state law. The FLSA 3(m) tip credit is $5.12 ($7.25 (FLSA minimum wage) -
$2.13 (cash wage paid) = $5.12. The employee’s regular rate is $7.25 per hour.
45 hours (straight time hours) × $7.25 (regular rate) = $326.25 (straight time wages due)
5 hours (overtime hours) × .5 × $7.25 (regular rate) = $18.13 (overtime wages due)
$326.25 (straight time wages due) + $18.13 (overtime wages due) = $344.38 (total wages
due)
45 hours (total hours worked) × $5.12 (FLSA 3(m) tip credit) = $230.40 (total FLSA 3(m) tip
credit)
$344.38 (total wages due) - $230.40 (total FLSA 3(m) tip credit) = $113.98 (direct or cash
wage due)
Scenario 2:
The state minimum wage is $10.00 per hour, and the employer pays a cash wage of $7.00 per
hour as required under state law and claims a state tip credit of $3.00 in compliance with state
law. The employee’s regular rate is $10.00 per hour. The employer takes an FLSA 3(m) tip
credit of $0.25 per hour ($7.25 (FLSA minimum wage) - $7.00 (cash wage paid) = $0.25) and
an additional overtime tip credit of $2.75 per hour ($3.00 (state tip credit) - $0.25 (FLSA
3(m) tip credit) = $2.75 (additional overtime tip credit)).
45 hours (straight time hours) × $10.00 (regular rate) = $450.00 (straight time wages due)
5 hours (overtime hours) × .5 × $10.00 (regular rate) = $25.00 (overtime wages due)
$450.00 (straight time wages due) + $25.00 (overtime wages due) = $475.00 (total wages
due)
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45 hours (total hours worked) × $0.25 (FLSA 3(m) tip credit) = $11.25 (total FLSA 3(m) tip
credit)
45 hours (total hours worked) × $2.75 (additional overtime tip credit) = $123.75 (total
additional overtime tip credit)
$475.00 (total wages due) - $11.25 (total FLSA 3(m) tip credit) - $123.75 (total additional
overtime tip credit) = $340.00 (direct or cash wage due)
Scenario 3:
The state minimum wage is $7.50, and the employer pays a cash wage of $3.75 per hour as
required by state law and claims a state tip credit of $3.75 in compliance with state law. The
employee’s regular rate is $7.50 per hour. The employer takes an FLSA 3(m) tip credit of
$3.50 per hour ($7.25 (FLSA minimum wage) - $3.75 (cash wage paid) = $3.50) and an
additional overtime tip credit of $0.25 per hour ($3.75 (state tip credit) - $3.50 (FLSA 3(m)
tip credit) = $0.25 (additional overtime tip credit)).
45 hours (straight time hours) × $7.50 (regular rate) = $337.50 (straight time wages due)
5 hours (overtime hours) × .5 × $7.50 (regular rate) = $18.75 (overtime wages due)
$337.50 (straight time wages due) + $18.75 (overtime wages due) = $356.25 (total wages
due)
45 hours (total hours worked) × $3.50 (FLSA 3(m) tip credit) = $157.50 (total FLSA 3(m) tip
credit)
45 hours (total hours worked) × $0.25 (additional overtime tip credit) = $11.25 (total
additional overtime tip credit)
$356.25 (total wages due) - $157.50 (total FLSA 3(m) tip credit) - $11.25 (total additional
overtime tip credit) = $187.50 (direct or cash wage due)
Scenario 4:
The state minimum wage is $10.00, and the employer pays a cash wage of $3.35 per hour as
required by state law and claims a tip credit of $6.65 in compliance with state law. The
employee’s regular rate is $10.00 per hour. The employer takes an FLSA 3(m) tip credit of
$3.90 per hour ($7.25 (FLSA minimum wage) - $3.35 (cash wage paid) = $3.90) and an
additional overtime tip credit of $2.75 per hour ($6.65 (state tip credit) - $3.90 (FLSA 3(m)
tip credit) = $2.75 (additional overtime tip credit)).
45 hours (straight time hours) × $10.00 (regular rate) = $450.00 (straight time wages due)
5 hours (overtime hours) × .5 × $10.00 (regular rate) = $25.00 (overtime wages due)
$450.00 (straight time wages due) + $25.00 (overtime wages due) = $475.00 (total wages
due)
45 hours (total hours worked) × $3.90 (FLSA 3(m) tip credit) = $175.50 (total FLSA 3(m) tip
credit)
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45 hours (total hours worked) × $2.75 (additional overtime tip credit) = $123.75 (total
additional overtime tip credit)
$475.00 (total wages due) - $175.50 (total FLSA 3(m) tip credit) - $123.75 (total additional
overtime tip credit) = $175.75 (direct or cash wage due)
Scenario 5:
The state minimum wage is $8.50; the employer pays a cash wage of $7.75 per hour as
required by state law and claims a state tip credit of $0.75 in compliance with state law. The
employee’s regular rate of pay is $8.50 per hour. The employer takes a FLSA 3(m) tip credit
of $0.00 per hour ($7.25 (FLSA minimum wage) - $7.75 (cash wage paid) = $0.00; there is
no FLSA 3(m) tip credit where cash wage paid equals or exceeds the FLSA minimum wage)
and a state tip credit of $0.75 per hour ($0.75 (state tip credit) - $0.00 (FLSA 3(m) tip credit)
= $0.75 (additional overtime tip credit)).
45 hours (straight time hours) × $8.50 (regular rate) = $382.50 (straight time wages due)
5 hours (overtime hours) × .5 × $8.50 (regular rate) = $21.25 (overtime wages due)
$382.50 (straight time wages due) + $21.25 (overtime wages due) = $403.75 (total wages
due)
45 hours (total hours worked) × $0.00 (FLSA 3(m) tip credit) = $0.00 (total FLSA 3(m) tip
credit)
45 hours (total hours worked) × $0.75 (additional overtime tip credit) = $33.75 (total
additional overtime tip credit)
$403.75 (total wages due) - $0.00 (total FLSA 3(m) tip credit) - $33.75 (total additional
overtime tip credit) = $370.00 (direct or cash wage due)
Scenario 6:
The state does not permit an employer to claim a tip credit and the employer is subject to
state minimum wage of $9.50. The employer pays a cash wage of $9.50 per hour as required
by state law and does not claim a state tip credit. The employer does not claim a FLSA 3(m)
tip credit because the cash wage paid exceeds the FLSA minimum wage. The employee’s
regular rate is $9.50 per hour.
45 hours (straight time hours) × $9.50 (regular rate) = $427.50 (straight time wages due)
5 hours (overtime hours) × .5 × $9.50 (regular rate) = $23.75 (overtime wages due)
$427.50 (straight time wages due) + $23.75 (overtime wages due) = $451.25 (total wages
due)
(h) Dual jobs
Where an employee works in both a tipped occupation and a non-tipped occupation in the
same workweek, a weighted average (i.e., blended rate) will generally be used to calculate the
regular rate. See 29 CFR 778.115. In calculating the blended rate, the rate for the hours
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worked in the tipped occupation must include both the direct wage and any tip credit. See
FOH 32j18(e). Under a blended rate, the earnings from the hourly rates for both occupations
are added together and the sum is divided by the total number of hours worked at both jobs.
See FOH 32j18(d). The employee’s earnings are the total of all straight time and overtime
pay for hours worked in excess of 40 based on one-half times the blended rate.
See 29 CFR 778.419 and FOH 32h00 for guidance on overtime pay based on the rate in
effect.
[12/15/2016]
32k PCA SPECIAL PROBLEMS
32k00 (Reserved.)
32k01 Exchanging shifts.
If overtime results from an employee exchanging shifts with another employee, he/she must
be paid time and one-half his/her basic rate for the overtime hours, even though the exchange
of shifts was made for the employees’ mutual convenience.
32k02 Making up lost time.
Where an employee works more than eight hours a day in order to make up time lost for any
reason other than tardiness, such as time lost because of a holiday, he/she must be paid time
and one-half his/her basic rate, even though the employee requested the arrangement or
acquiesced in it.
32L SECTIONS 7(b)(1) AND (2)
32L00 Public agency employment may qualify under section 7(b).
Sections 7(b)(1) and (2) provide partial overtime exemptions for employees employed “...in
pursuance of an agreement made as a result of collective bargaining by representatives of
employees certified as bona fide by the National Labor Relations Board [(NLRB)]...” under
the stated conditions. The NLRB concludes it has authority to process petitions from labor
organizations of government employees seeking certification as bona fide for purposes of
sections 7(b)(1) and (2) of the FLSA. Consequently, if the tests for exemption under section
7(b)(1) and (2) are met and the union receives such certification by the NLRB, the
government employees covered under the agreement may qualify for such exemption.
