Federal regulations · Through 2026-08-25 · Newer source version available

29 CFR 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
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.

Where this section sits in the code

Title 29—Labor
Subtitle B—Regulations Relating to Labor
CHAPTER V—WAGE AND HOUR DIVISION, DEPARTMENT OF LABOR
SUBCHAPTER B—STATEMENTS OF GENERAL POLICY OR INTERPRETATION NOT DIRECTLY RELATED TO REGULATIONS
PART 778—OVERTIME COMPENSATION
Subpart F—Pay Plans Which Circumvent the Act

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.

Collected 2026-08-27T02:25:20Z. Source file · JSON

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