man-Reynolds Hardwood Company, 325 U.S. 419).

(e) The general rule may be stated that wherever the employee is guaranteed a fixed or determinable sum as his wages each week, no part of this sum is a true bonus and the rules for determining overtime due on bonuses do not apply.

[33 FR 986, Jan. 26, 1968; 33 FR 3172, Feb. 20, 1968, as amended at 46 FR 7318, Jan. 23, 19811

§ 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:

Subsistence allowances paid under Public Law 346 (commonly known as the G.I. bill of rights) to a veteran employed in on-the-job training program work may not be used to offset the wages to which he is entitled under the Fair Labor Standards Act. The subsistence allowances provided by Public Law 346 for payment to veterans are not paid as compensation for services rendered to an employer nor are they intended as subsidy payments for such employer. In order to qualify as wages under either section 6 or section 7 of the Act, sums paid to an employee must be paid by or on behalf of the employer. Since veterans' subsistence allowances are not so paid, they may not be used to make up the minimum wage or overtime pay requirements of the Act nor are they included in the regular rate of pay under section 7.

§ 778.601 Special overtime provisions available for hospital and residential care establishments under section 7(j). (a) The statutory provision. Section 7(j) of the Act provides, for hospital and residential care establishment employment, under prescribed conditions, an exemption from the general re

quirement of section 7(a) that overtime compensation be computed on a workweek basis. It permits a 14-day period to be established for the purpose of computing overtime compensation by an agreement or understanding between an employer engaged in the operation of a hospital or residential care establishment, and any of his employees employed in connection therewith. The exemption provided by section 7(j) applies:

if, pursuant to an agreement or understanding arrived at between the employer and employee before performance of the work, a work period of 14 consecutive days is accepted in lieu of the workweek of 7 consecutive days for purposes of overtime computation and if, for his employment in excess of 8 hours in any workday and in excess of 80 hours in such 14-day period, the employee receives compensation at a rate not less than one and one-half times the regular rate at which he is employed.

(b) Conditions for application of exemption. As conditions for use of the 14-day period in lieu of the workweek in computing overtime, section 7(j) requires, first, an agreement or understanding between the employer and the employee before performance of the work that such period is to be used, and second, the payment to the employee of overtime compensation at a rate not less than one and one-half times his regular rate for all hours worked in excess of eight in any workday within such period and in excess of 80 during the period as a whole.

(c) The agreement or understanding. The agreement or understanding between the employer and employee to use the 14-day period for computing overtime must be entered into before the work to which it is intended to apply is performed. It may be arrived at directly with the employee or through his representative. It need not be in writing, but if it is not, a special record concerning it must be kept as required by part 516 of this chapter. The 14-day period may begin at any hour of any day of the week; it need not commence at the beginning of a calendar day. It consists of 14 consecutive 24-hour periods, at the end of which a new 14-day period begins. The election to use the 14-day period in lieu of the workweek must, like selection of an employee's workweek

(§ 778.105) be with the intent to use such period permanently or for a substantial period of time. Changes from such period to the workweek and back again to take advantage of less onerous overtime pay liabilities with respect to particular work schedules under one system than under the other are not permissible.

(d) Payment for overtime under the special provisions. If the parties have the necessary agreement or understanding to use the 14-day period, computation of overtime pay on the workweek basis as provided in section 7(a) is not required so long as the employee receives overtime compensation at a rate not less than one and onehalf times his regular rate of pay "for his employment in excess of 8 hours in any workday and in excess of 80 hours in such 14-day period." Such compensation is required for all hours in such period in excess of eight in any workday or workdays therein which are worked by the employee, whether or not more than 80 hours are worked in the period. The first workday in the period, for purposes of this computation, begins at the same time as the 14-day period and ends 24 hours later. Each of the 13 consecutive 24-hour periods following constitutes an additional workday of the 14-day period. Overtime compensation at the prescribed time and one-half rate is also required for all hours worked in excess of 80 in the 14-day period, whether or not any daily overtime is worked during the first 80 hours. However, under the provisions of section 7(h) and 7(e)(5) of the Act, any payments at the premium rate for daily overtime hours within such period may be credited toward the overtime compensation due for overtime hours in excess of 80.

(e) Use of 14-day period in lieu of workweek. Where the 14-day period is used as authorized in section 7(j), such period is used in lieu of the workweek in computing the regular rate of pay of employees to whom it applies (i.e., those of the hospital's or residential care establishment's employees with whom the employer has elected to enter into the necessary agreement or understanding as explained in paragraph (c) of this section). With this

exception, the computation of the regular rate and the application of statutory exclusions therefrom is governed by the general principles set forth in this part 778.

[33 FR 986, Jan. 26, 1968, as amended at 46 FR 7319, Jan. 23, 1981; 46 FR 33516, June 30, 1981]

§ 778.602 Special overtime

under section 7(b).

provisions

(a) Daily and weekly overtime standards. The general overtime pay requirements of the Act provide for such pay only when the number of hours worked exceeds the standard specified for the workweek; no overtime compensation on a daily basis is required. However, section 7 of the Act, in subsection (b), provides certain partial exemptions from the general overtime provisions, each of which is conditioned upon the payment to the employee of overtime compensation at a rate not less than one and one-half times his regular rate of pay for his hours worked in the workweek in excess of daily, as well as weekly, standards specified in the subsection. Under these provisions, when an employee works in excess of both the daily and weekly maximum hours standards in any workweek for which such an exemption is claimed, he must be paid at such overtime rate for all hours worked in the workweek in excess of the applicable daily maximum or in excess of the applicable weekly maximum, whichever number of hours is greater. Thus, if his total hours of work in the workweek which are in excess of the daily maximum are 10, and his hours in excess of the weekly maximum are 8, overtime compensation is required for 10 hours, not

8.

(b) Standards under section 7(b). The partial exemptions provided by section 7(b) apply to an employee under the conditions specified in clause (1), (2), or (3) of the subsection "if such employee receives compensation for employment in excess of 12 hours in any workday, or for employment in excess of 56 hours in any workweek, as the case may be, at a rate not less than one and one-half times the regular rate at which he is employed." As an example, suppose an

14 9

Number of overtime hours: Daily, 5 (hours over 12); weekly, 12 (hours over 56).

Since the weekly overtime hours are greater, the employee is entitled to pay for 12 hours at $7.80 an hour (11⁄2×$5.20), a total of $93.60 for the overtime hours, and to pay at his regular rate for the remaining 56 hours (56×$5.20) in the amonut of $291.20 or a total of $384.80 for the week. If the employee had not worked the 8 hours on Saturday, his total hours worked in the week would have been 60, of which five were daily overtime hours, and there would have been no weekly overtime hours under the section 7(b) standard. For such a schedule the employee would be entitled to 5 hours of overtime pay at time and one-half (5×12×$5.20=$39) plus the pay at his regular rate for the remaining 55 hours (55×$5.20=$286), making a total of $325 due him for the week.

[33 FR 986, Jan. 26, 1968, as amended at 34 FR 144, Jan. 4, 1969; 46 FR 7319, Jan. 23, 1981]

§ 778.603 Special overtime provisions for certain employees receiving remedial education under section 7(q).

Section 7(q) of the Act, enacted as part of the 1989 Amendments, provides an exemption from the overtime pay requirements for time spent by certain employees who are receiving remedial education. The exemption provided by section 7(q), as implemented by these regulations, allows any employer to require that an employee spend up to 10 hours in the aggregate in any workweek in remedial education without payment of overtime compensation provided that the employee lacks a high school diploma or educational attainment at the eighth-grade level; the remedial education is designed to provide reading and other basic skills at an eighth-grade

level or below, or to fulfill the requirements for a high school diploma or General Educational Development (GED) certificate; and the remedial education does not include job-specific training. Employees must be compensated at their regular rate of pay for the time spent receiving such remedial education. The employer must maintain a record of the hours that an employee is engaged each workday and each workweek in receiving remedial education, and the compensation paid each pay period for the time so engaged, as described in 29 CFR 516.34. The remedial education must be conducted during discrete periods of time set aside for such a program, and, to the maximum extent practicable, away from the employee's normal work station. An employer has the burden to establish compliance with all applicable requirements of this special overtime provision as set forth in section 7(q) of the Act and in this section of the regulations. Section 7(q) is solely an exemption from the overtime provisions of section 7(a) of the Act. It is not an exemption from the requirements of any other law that regulates employment practices, including the standards that are used to select individuals for employment. An employer creating a remedial education program pursuant to section 7(q) should be mindful not to violate other applicable requirements. See, for example, title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. 2000e et seq.; Executive Order 11246, as amended, 3 CFR part 339 (1964-1965 Compilation), reprinted in 42 U.S.C. 2000e note; the Rehabilitation Act of 1973, as amended, 29 U.S.C. 701 et seq.; and the Uniform Guidelines on Employee Selection Procedures published at 41 CFR part 60-3.

[56 FR 61101, Nov. 29, 1991]

Sec. 779.105 Employees engaged in activities "closely related" and "directly essential" to the production of goods for com

merce.

779.106 Employees employed by an independent employer. 779.107 Goods defined.

779.108 Goods produced for commerce. 779.109 Amount of activities which consti

tute engaging in commerce or in the production of goods for commerce. 779.110 Employees in retailing whose activities may bring them under the Act. 779.111 Buyers and their assistants. 779.112 Office employees.

779.113 Warehouse and stock room employees.

779.114 Transportation employees. 779.115 Watchmen and guards.

779.116 Custodial and maintenance employees.

779.117 Salesmen and sales clerks. 779.118 Employees providing central services for multi-unit organizations. 779.119 Exempt occupations.

Subpart C-Employment to Which the Act May Apply; Enterprise Coverage

ENTERPRISE; THE BUSINESS UNIT 779.200 Coverage expanded by 1961 and 1966 amendments.

779.201 The place of the term "enterprise" in the Act.

779.202 Basic concepts of definition. 779.203 Distinction between "enterprise,"

"establishment," and "employer." 779.204 Common types of "enterprise."

RELATED ACTIVITIES

779.205 Enterprise must consist of "related

activities."

779.206 What are "related activities." 779.207 Related activities in retail operations.

779.208 Auxiliary activities which are "related activities."

779.209 Vertical activities which are "related activities."

779.210 Other activities which may be part of the enterprise.

779.211 Status of activities which are not "related."

COMMON BUSINESS PURPOSE

779.212 Enterprise must consist of related activities performed for a "common business purpose."

779.213 What is a common business pur

pose.

779.214 "Business" purpose.

UNIFIED OPERATION OR COMMON CONTROL 779.215 General scope of terms.