View all text of Subjgrp 196 [§ 778.502 - § 778.503]
§ 778.503 - Pseudo “percentage bonuses.”
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 |