29 C.F.R. § 778.503 Pseudo “percentage bonuses.”
Title 29 - Labor
As explained in §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 §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:
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 §778.114. [46 FR 7319, Jan. 23, 1981]
Title 29: Labor
PART 778—OVERTIME COMPENSATION
Subpart F—Pay Plans Which Circumvent the Act
Pseudo-Bonuses
§ 778.503 Pseudo “percentage bonuses.”
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 --------- Total........................................................ 300.00 =========Week 2_43 hours worked: 40 hours at $5.62 per hour.................................. 224.80 3 hours at $8.43 per hour................................... 25.29 --------- Subtotal..................................................... 250.09 =========Percentage of total earnings bonus at 19.96% of $250.09....... 49.91 --------- Total........................................................ 300.00 =========Week 3_48 hours worked: 40 hours at $5.62 per hour.................................. 224.80 8 hours at $8.43 per hour................................... 67.44 --------- Subtotal..................................................... 292.24Percentage of total earnings bonus at 2.66% of $292.24........ 7.76 --------- Total........................................................ 300.00
