(a) Section 548.3(e) authorizes as established basic rates: ``The
rate or rates (not less than the rates required by section 6 (a) and (b)
of the Act) which may be used under the Act to compute overtime
compensation of the employee but excluding additional payments in cash
or in kind which, if included in the computation of overtime under the
Act, would not increase the total compensation of the employee by more
than 50 cents a week on the average for all overtime weeks (in excess of
the number of hours applicable under section 7(a) of the Act) in the
period for which such additional payments are made.''
(b) Section 548.3(e) permits the employer, upon agreement or
understanding with the employee, to omit from the computation of
overtime certain
incidental payments which have a trivial effect on the overtime
compensation due. Examples of payments which may be excluded are: modest
housing, bonuses or prizes of various sorts, tuition paid by the
employer for the employee's attendance at a school, and cash payments or
merchandise awards for soliciting or obtaining new business. It may also
include such things as payment by the employer of the employee's social
security tax.
(c) The exclusion of one or more additional payments under
Sec. 548.3(e) must not affect the overtime compensation of the employee
by more than 50 cents a week on the average for the overtime weeks.
Example. An employee, who normally would come within the 40-hour
provision of section 7(a) of the Act, is paid a cost-of-living bonus of
$260 each calendar quarter, or $20 per week. The employee works overtime
in only 2 weeks in the 13-week period, and in each of these overtime
weeks he works 50 hours. He is therefore entitled to $2 as overtime
compensation on the bonus for each week in which overtime was worked
(i.e., $20 bonus divided by 50 hours equals 40 cents an hour; 10
overtime hours, times one-half, times 40 cents an hour, equals $2 per
week). Since the overtime on the bonus is more than 50 cents on the
average for the 2 overtime weeks, this cost-of-living bonus would not be
excluded from the overtime computation under Sec. 548.3(e).
(d) It is not always necessary to make elaborate computations to
determine whether the effect of the exclusion of a bonus or other
incidental payment on the employee's total compensation will exceed 50
cents a week on the average. Frequently the addition to regular wages is
so small or the number of overtime hours is so limited that under any
conceivable circumstances exclusion of the additional payments from the
rate used to compute the employee's overtime compensation would not
affect the employee's total earnings by more than 50 cents a week. The
determination that this is so may be made by inspection of the payroll
records or knowledge of the normal working hours.
Example. An employer has a policy of giving employees who have a
perfect attendance record during a 4-week period a bonus of $10. The
employee never works more than 50 hours a week. It is obvious that
exclusion of this attendance bonus from the rate of pay used to compute
overtime compensation could not affect the employee's total earnings by
more than 50 cents a week. 14
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14 For a 50-hour week, an employee's bonus would have to
amount to $5 a week to affect his overtime compensation by 50 cents.
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(e) There are many situations in which the employer and employee
cannot predict with any degree of certainty the amount of bonus to be
paid at the end of the bonus period. They may not be able to anticipate
with any degree of certainty the number of hours an employee might work
each week during the bonus period. In such situations the employer and
employee may agree prior to the performance of the work that a bonus
will be disregarded in the computation of overtime pay if the employee's
total earnings are not affected by more than 50 cents a week on the
average for all overtime weeks during the bonus period. If it turns out
at the end of the bonus period that the effect on the employee's total
compensation would not exceed 50 cents a week on the average, then
additional overtime compensation must be paid on the bonus. (See
Sec. 778.209 of this chapter, for an explanation of how to compute
overtime on the bonus.)
(f) In order to determine whether the exclusion of a bonus or other
incidental payment would affect the total compensation of the employee
by not more than 50 cents a week on the average, a comparison is made
between his total compensation computed under the employment agreement
and his total compensation computed in accordance with the applicable
overtime provisions of the Act.
Example. An employee, who normally would come within the 40-hour
provision of section 7(a) of the Act, is paid at piece rates and at one
and one-half times the applicable piece rates for work performed during
hours in excess of 40 in the workweek. The employee is also paid a
bonus, which when apportioned over the bonus period, amounts to $2 a
week. He never works more than 50 hours a week. The piece rates could be
established as basic rates under the employment agreement and no
additional overtime compensation paid on the bonus. The employee's total
compensation computed in accordance with the applicable overtime
provision of the
Act, section 7(g)(1) 15 would be affected by not more than
20 cents in any week by not paying overtime compensation on the bonus.
16
15 Section 7(g)(1) of the Act provides that overtime
compensation may be paid at one and one-half times the applicable piece
rate but extra overtime compensation must be properly computed and paid
on additional pay required to be included in computing the regular rate.
16 Bonus of $2 divided by fifty hours equals 4 cents an
hour. Half of this hourly rate multiplied by ten overtime hours equals
20 cents.
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(g) Section 548.3(e) is not applicable to employees employed at
subminimum wage rates under learner certificates, or special
certificates for handicapped workers, or in the case of employees in
Puerto Rico or the Virgin Islands employed at special minimum rates
authorized by wage orders issued pursuant to the Act.
[31 FR 6769, May 6, 1966]
