(a) Since the term regular rate is defined to include all
remuneration for employment (except statutory exclusions) whether
derived from hourly rates, piece rates, production bonuses or other
sources, the overtime provisions of the act cannot be avoided by setting
an artificially low hourly rate upon which overtime pay is to be based
and making up the additional compensation due to employees by other
means. The established hourly rate is the ``regular rate'' to an
employee only if the hourly earnings are the sole source of his
compensation. Payment for overtime on the basis of an artificial
``regular'' rate will not result in compliance with the overtime
provisions of the Act.
(b) It may be helpful to describe a few schemes that have been
attempted and to indicate the pitfalls inherent in the adoption of such
schemes. The device of the varying rate which decreases as the length of
the workweek increases has already been discussed in Secs. 778.321
through 778.329. It might be well, however, to re-emphasize that the
hourly rate paid for the identical work during the hours in excess of
the applicable maximum hours standard cannot be
lower than the rate paid for the nonovertime hours nor can the hourly
rate vary from week to week inversely with the length of the workweek.
It has been pointed out that, except in limited situations under
contracts which qualify under section 7(f), it is not possible for an
employer lawfully to agree with his employees that they will receive the
same total sum, comprising both straight time and overtime compensation,
in all weeks without regard to the number of overtime hours (if any)
worked in any workweek. The result cannot be achieved by the payment of
a fixed salary or by the payment of a lump sum for overtime or by any
other method or device.
(c) Where the employee is hired at a low hourly rate supplemented by
facilities furnished by the employer, bonuses (other than those excluded
under section 7(e)), commissions, pay ostensibly (but not actually) made
for idle hours, or the like, his regular rate is not the hourly rate but
is the rate determined by dividing his total compensation from all these
sources in any workweek by the number of hours worked in the week.
Payment of overtime compensation based on the hourly rate alone in such
a situation would not meet the overtime requirements of the Act.
(d) One scheme to evade the full penalty of the Act was that of
setting an arbitrary low hourly rate upon which overtime compensation at
time and one-half would be computed for all hours worked in excess of
the applicable maximum hours standard; coupled with this arrangement was
a guarantee that if the employee's straight time and overtime
compensation, based on this rate, fell short, in any week, of the
compensation that would be due on a piece-rate basis of x cents per
piece, the employee would be paid on the piece-rate basis instead. The
hourly rate was set so low that it never (or seldom) was operative. This
scheme was found by the Supreme Court to be violative of the overtime
provisions of the Act in the case of Walling v. Youngerman-Reynolds
Hardwood Co., 325 U.S. 427. The regular rate of the employee involved
was found to be the quotient of total piece-rate earnings paid in any
week divided by the total hours worked in such week.
(e) The scheme is no better if the employer agrees to pay straight
time and overtime compensation on the arbitrary hourly rates and to make
up the difference between this total sum and the piece-rate total in the
form of a bonus to each employee. (For further discussion of the
refinements of this plan, see Secs. 778.502 and 778.503.)
