# 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.”
| | |
| --- | --- |
| 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]