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Code of Federal Regulations Pertaining to U.S. Department of Labor |
| Labor |
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| Wage and Hour Division, Department of Labor |
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| Overtime Compensation |
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| Pay Plans Which Circumvent the Act |
29 CFR 778.503 - Pseudo ``percentage bonuses.''
- Section Number: 778.503
- Section Name: Pseudo ``percentage bonuses.''
As explained in Sec. 778.210 of this part, a true bonus based on a
percentage of total wages--both straight time and overtime wages--
satisfies the Act's overtime requirements, if it is paid
unconditionally. Such a bonus increases both straight time and overtime
wages by the same percentage, and thereby includes proper overtime
compensation as an arithmetic fact. Some bonuses, however, although
expressed as a percentage of both straight time and overtime wages, are
in fact a sham. Such bonuses, like the bonuses described in Sec. 778.502
of this part, are generally separated out of a fixed weekly wage and
usually decrease in amount in direct proportion to increases in the
number of hours worked in a week in excess of 40. The hourly rate
purportedly paid under such a scheme is artificially low, and the
difference between the wages paid at the hourly rate and the fixed
weekly compensation is labeled a percentage of wage ``bonus.''
Example: An employer's wage records show an hourly rate of $5.62 per
hour, and an overtime rate of one and one-half times that amount, or
$8.43 per hour. In addition, the employer pays an alleged percentage of
wage bonus on which no additional overtime compensation is paid:
Week 1--40 hours worked:
40 hours at $5.62 per hour.................................. $224.80
Percentage of total earnings bonus at 33.45% of $224.80..... 75.20
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Total................................................. 300.00
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Week 2--43 hours worked:
40 hours at $5.62 per hour.................................. 224.80
3 hours at $8.43 per hour................................... 25.29
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Subtotal.............................................. 250.09
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Percentage of total earnings bonus at 19.96% of $250.09....... 49.91
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Total................................................. 300.00
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Week 3--48 hours worked:
40 hours at $5.62 per hour.................................. 224.80
8 hours at $8.43 per hour................................... 67.44
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Subtotal.............................................. 292.24
Percentage of total earnings bonus at 2.66% of $292.24........ 7.76
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Total................................................. 300.00
This employee is in fact being paid no overtime compensation at all. The
records in fact reveal that the employer pays exactly $300 per week, no
matter how many hours the employee works. The employee's regular rate is
$300 divided by the number of hours worked in the particular week, and
his overtime compensation due must be computed as shown in Sec. 778.114.
[46 FR 7319, Jan. 23, 1981]
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