§ 778.503. Pseudo "percentage bonuses."
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/us/cfr/t29/s§ 778.503·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
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: 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 292.24 Percentage of total earnings bonus at 2.66% of \$292.24 7.76 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 § 778.114. \[46 FR 7319, Jan. 23, 1981\]