Some of the terms and phrases used in this Advisor have particular meanings that
are specific to the FLSA overtime regulations. These terms are defined
here for your convenience. As you run the Advisor, you will have the
opportunity to return to the Glossary when these terms are used.
Compensatory Time Off
Direct Cash Wages
Federal Minimum Wage
Salary for Fluctuating Hours
A bi-weekly pay period is one that occurs every two weeks (26 pay periods a
year). Its pay day is on the same day every other week (for example,
every other Friday). A bi-weekly pay period usually includes two full
A commission is a sum of money paid to an employee based on the sale of a
certain amount of goods or services. Commissions may be paid in the form of
compulsory (or mandatory) service charges expressed as a specific percentage of
the customer’s bill (for example, charges imposed when a hotel rents out
banquet facilities to a group). A commission may be paid in addition to
or instead of any other method of pay.
Some commission agreements include a "draw" on commissions. A draw is a fixed
sum of money paid in advance of the settlement date for the earned commission
pay. Draws usually bear a fixed relationship to the amount of commission
payments which, based on experience, the employee may be expected to earn for
the period. Draws are usually paid weekly, bi-weekly, or at some other fixed
Compensatory Time Off
Compensatory time off (comp time) is paid time off the job that is earned and
accrued by an employee instead of immediate cash payment for working overtime
hours. The use of comp time instead of overtime is limited by Section 7(o) of
the FLSA to a public agency that is a state, a political subdivision of a
state, or an interstate governmental agency.
A covered employee is one who is entitled to FLSA minimum wage, overtime pay, recordkeeping, and child labor protections. For more information see
Fact Sheet #14: Coverage Under the Fair Labor Standards Act or visit
the interactive FLSA
Coverage and Employment Status Advisor.
A day rate is a flat sum paid for a day’s work without regard to the number of
hours worked in that day.
Deferred compensation is pay that is delayed past the normal pay date and is
paid at a later time.
Direct Cash Wages
Direct cash wages are wages paid at an hourly rate by an employer directly to a
tipped employee. Tips are not part of an employee's direct cash wages.
The FLSA defines employee as "any individual employed by an employer."Employ"
is defined as including "to suffer or permit
to work." The concept of employment in the FLSA is very broad and is
tested by "economic reality." Factors such as the place where the work is
performed, the absence of a formal employment agreement, the time or method of
payment, and whether an individual is licensed by the state or local government
have no bearing on whether an individual is an employee under the FLSA.
For more information see
Fact Sheet # 13: Employment Relationship Under the Fair Labor Standards Act
or visit the interactive
FLSA Coverage and Employment Status Advisor
An exempt employee is one who is not entitled to the minimum wage and/or
overtime pay protections of the FLSA.
Federal Minimum Wage
The federal minimum wage provisions for covered, nonexempt employees are contained in the Fair Labor Standards Act (FLSA). The Fair Minimum Wage Act of 2007 included phased increases to the federal minimum wage.
For work performed prior to July 24, 2007, the federal minimum wage is $5.15 per hour.
For work performed from July 24, 2007 to July 23, 2008, the federal minimum
wage is $5.85 per hour.
For work performed from July 24, 2008 to July 23, 2009, the federal minimum
wage is $6.55 per hour.
For work performed on or after July 24, 2009, the federal minimum wage is $7.25 per hour.
In addition, the Fair Minimum Wage Act of 2007 brought about phased increases in the minimum wage in American Samoa and the Commonwealth of the Northern Mariana Islands (CNMI). For more information on the minimum wage in American Samoa or the CNMI, contact your local Wage and Hour Division office.
In general, hours worked includes all time an employee must be on duty, or on
the employer's premises or at any other prescribed place of work. Also
included is any additional time the employee is suffered or permitted (i.e.,
allowed) to work. For more information see
Fact Sheet #22: Hours Worked Under the Fair Labor Standards Act or
visit the interactive
FLSA Hours Worked Advisor.
A job rate is a flat sum paid for doing a particular job without regard to the
number of hours worked at that job.
A nonexempt employee is one who is entitled to the minimum wage and/or overtime
pay protections of the FLSA.
Overtime pay is the extra pay employers are required by the FLSA to pay to
covered, nonexempt employees for the hours they work in excess of 40 in a
workweek. Overtime pay must be computed at one and one-half times the
employee’s regular rate of pay. Extra pay for overtime hours worked may also be
called an "overtime premium" payment.
The pay period is the period of time in which compensation was earned for hours
A piece rate is a fixed amount paid per each item (dozen, gross, etc.) produced
(manufactured, sold, etc.).
Generally, the regular rate includes all payments made by the employer to or on
behalf of the employee (except certain statutory
). The regular rate is determined by adding together the employee’s pay for the
workweek and all other earnings and dividing the total by the number of hours
the employee worked in that week.
Remuneration includes all pay for employment and certain payments made in the
form of goods or facilities
customarily furnished by the employer.
Retroactive pay is pay that is related to a prior time period (for example, a
pay increase resulting from a collectively bargained or other agreement, that
was paid at a later time than the effective date of the pay increase).
A salary is a predetermined amount of pay and is generally expressed as an
amount paid weekly, bi-weekly, semi-monthly, monthly or yearly. A salary
may be intended to cover straight-time pay for a predetermined number of hours
worked during the period, or it may be intended to cover straight-time pay for
all hours worked during the period.
Salary for Fluctuating Hours
A salary for fluctuating hours is a predetermined amount of pay which, based on
an understanding between employer and employee, is intended to cover
straight-time pay for whatever hours the employee is called upon to work in a
workweek, whether few or many.
A semi-monthly pay period is a one that occurs twice a month (24 pay periods a
year). For example, Pay Period 1 may begin on the first of the month and
end on the 15th and Pay Period 2 begins on the 16th and ends on the
or 31st. A semi-monthly pay period will include full and partial
A shift differential is an additional amount of pay received for working
designated shifts. A shift differential is usually paid as an additional
amount per hour. For example, an employee may receive an additional $0.75
per hour for each hour worked on the midnight shift.
Straight-time pay is the employee's earnings before the overtime premium
payment is calculated.
A task rate is a flat sum paid for doing a particular task without regard to
the number of hours worked at that task.
Tipped employees are those who work in occupations in which they customarily
and regularly receive more than $30 a month in tips. An employer may count tips
actually received by tipped employees as wages when calculating wages for
purpose of FLSA minimum wage and overtime pay requirements. This is known as a
“tip credit.” However, the employer must pay not less than $2.13 an hour in
direct cash wages. Note that some states require direct wages of more
than $2.13 an hour. Please refer to the
Minimum Wages for Tipped Employees
chart for more information.
An employer who chooses to use the tip credit provision must inform each tipped
employee about the tip credit allowance; be able to show that the employee
receives at least the federal
minimum wage when direct wages and the tip credit allowance are
combined; and allow the tipped employee to retain all tips, except to the
extent the employee participates in a valid tip
pooling arrangement. If the employee’s tips, combined with the
employer’s direct wages, do not equal at least the federal minimum wage for
each hour worked in a tipped occupation, the employer must make up the
difference. The tip credit claimed during overtime hours may not be different
from the tip credit claimed for straight-time hours.
A compulsory, or mandatory charge for service (for example, 15 percent of the
customer’s bill) is not a tip. Such charges are part of the employer’s gross
receipts. Therefore, the employer has complete discretion in choosing the
manner in which the compulsory charge is used, including whether or not to use
it to pay his or her employees. When an employee is paid by the compulsory
service charge, the payment to the employee is considered a
payment and not a tip.
When tips are charged on a credit card and the employer must pay the credit
card company a percentage on each sale, the employer may pay the employee the
tip, less that percentage. The amount due to the employee must be paid no later
than the regular pay day and may not be held while the employer is awaiting
reimbursement from the credit card company.
For more information on tips, see
Fact Sheet #15: Tipped Employees under he Fair Labor Standards Act.
Tip pooling is an arrangement among employees who customarily and regularly
receive tips to “pool” or share a customary and reasonable percentage of their
tips received with others in the pool. The following occupations have
been recognized as falling within the eligible category for tip pooling:
waiters and waitresses, bellhops, counter personnel who serve customers,
busboys/girls, and service bartenders. Tipped employees may not be
required to share their tips with employees in occupations which have not
customarily and regularly participated in tip pooling arrangements, such as
janitors, dishwashers, chefs or cooks, and laundry room attendants.
A workweek is a fixed and regularly recurring period of 168 hours, or
seven consecutive 24-hour periods. The workweek does not have to coincide with
the calendar week, but instead it may begin on any day of the week and at any
hour of the day. The workweek is the basis on which determinations of
employee coverage, the application of most exemptions, and compliance with the
wage payment requirements of the FLSA are made. Once the beginning time
of an employee’s workweek is established, it remains fixed regardless of the
hours the employee is scheduled to work. However, the beginning of the
workweek may be changed if the change is intended to be permanent and is not
designed to evade the overtime requirements.