(a) This subpart contains material explaining and illustrating the
terms used in subpart A of this part which were issued under section
7(g)(3) of the Fair Labor Standards Act. The purpose of section 7(g)(3)
of the Act, and subpart A of this part, is to provide an exception from
the requirements of computing overtime pay at the regular rate, 1
and to allow, under specific conditions, the use of an established
``basic'' rate 2 instead. Basic rates are alternatives to the
regular rate of pay under section 7(a), and their use is optional. The
use of basic rates is principally intended to simplify bookkeeping and
computation of overtime pay.
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1 The regular rate is the average hourly earnings of an
employee for a workweek. See Secs. 778.107 to 778.122 of this chapter on
overtime compensation. Sections 7(g)(1) and 7(g)(2) of the Act permit
overtime compensation to be computed, under specified conditions, at
time and one-half the bona fide hourly or piece rate applicable to the
work performed during the overtime hours. See Secs. 778.415 to 778.421
of this chapter.
2 The term ``basic'' rate as used in this part means the
rate authorized under section 7(g)(3) of the Fair Labor Standards Act.
Such a rate may be used to compute overtime compensation under the
Walsh-Healey Public Contracts Act. (See Rulings and Interpretations No.
3. section 42(e)(1)). However, the term ``basic'' rate in this part
should not be confused with the more general use of the term in the
Public Contracts Act to describe all rates which may be used to compute
overtime compensation or the use of the term in any other statute.
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(b) Section 7(g) of the Fair Labor Standards Act provides that an
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employer will comply with the overtime requirements of the Act if:
* * * pursuant to an agreement or understanding arrived at between
the employer and the employee before performance of the work, the amount
paid to the employee for the number of hours worked by him in such
workweek in excess of the maximum workweek applicable to such employee
under such subsection [7](a):
* * * * *
(3) is computed at a rate not less than one and one-half times the
rate established by such agreement or understanding as the basic rate to
be used in computing overtime compensation thereunder: Provided, That
the rate so established shall be authorized by regulation by the
Secretary of Labor as being substantially equivalent to the average
hourly earnings of the employee, exclusive of overtime premiums, in the
particular work over a representative period of time; and if (i) the
employee's average hourly earnings for the workweek exclusive of
payments described in paragraphs (1) through (7) of subsection (e) are
not less than the minimum hourly rate required by applicable law, and
(ii) extra overtime compensation is properly computed and paid on other
forms of additional pay required to be included in computing the regular
rate.
[20 FR 5680, Aug. 6, 1955, as amended at 26 FR 7731, Aug. 18, 1961]
