C.F.R. » Title 29 » 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

29 C.F.R. § 778.500

Artificial regular rates

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(a) Since the term regular rate is defined to include all remuneration for employment (except statutory exclusions) whether derived from hourly rates, piece rates, production bonuses or other sources, the overtime provisions of the act cannot be avoided by setting an artificially low hourly rate upon which overtime pay is to be based and making up the additional compensation due to employees by other means. The established hourly rate is the “regular rate” to an employee only if the hourly earnings are the sole source of his compensation. Payment for overtime on the basis of an artificial “regular” rate will not result in compliance with the overtime provisions of the Act.

(b) It may be helpful to describe a few schemes that have been attempted and to indicate the pitfalls inherent in the adoption of such schemes. The device of the varying rate which decreases as the length of the workweek increases has already been discussed in §§ 778.321 through 778.329. It might be well, however, to re-emphasize that the hourly rate paid for the identical work during the hours in excess of the applicable maximum hours standard cannot be lower than the rate paid for the nonovertime hours nor can the hourly rate vary from week to week inversely with the length of the workweek. It has been pointed out that, except in limited situations under contracts which qualify under section 7(f), it is not possible for an employer lawfully to agree with his employees that they will receive the same total sum, comprising both straight time and overtime compensation, in all weeks without regard to the number of overtime hours (if any) worked in any workweek. The result cannot be achieved by the payment of a fixed salary or by the payment of a lump sum for overtime or by any other method or device.

(c) Where the employee is hired at a low hourly rate supplemented by facilities furnished by the employer, bonuses (other than those excluded under section 7(e)), commissions, pay ostensibly (but not actually) made for idle hours, or the like, his regular rate is not the hourly rate but is the rate determined by dividing his total compensation from all these sources in any workweek by the number of hours worked in the week. Payment of overtime compensation based on the hourly rate alone in such a situation would not meet the overtime requirements of the Act.

(d) One scheme to evade the full penalty of the Act was that of setting an arbitrary low hourly rate upon which overtime compensation at time and one-half would be computed for all hours worked in excess of the applicable maximum hours standard; coupled with this arrangement was a guarantee that if the employee's straight time and overtime compensation, based on this rate, fell short, in any week, of the compensation that would be due on a piece-rate basis of x cents per piece, the employee would be paid on the piece-rate basis instead. The hourly rate was set so low that it never (or seldom) was operative. This scheme was found by the Supreme Court to be violative of the overtime provisions of the Act in the case of Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 427. The regular rate of the employee involved was found to be the quotient of total piece-rate earnings paid in any week divided by the total hours worked in such week.

(e) The scheme is no better if the employer agrees to pay straight time and overtime compensation on the arbitrary hourly rates and to make up the difference between this total sum and the piece-rate total in the form of a bonus to each employee. (For further discussion of the refinements of this plan, see §§ 778.502 and 778.503.)

Notes of Decisions
Cited in 23 cases (6 in the last 5 years), 1987–2025 · leading case: Huntington Mem'l Hosp. v. Superior Court, 2005 Cal. Daily Op. Serv. 6813 (Cal. Ct. App. 2005).
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Huntington Mem'l Hosp. v. Superior Court, 2005 Cal. Daily Op. Serv. 6813 (Cal. Ct. App. 2005). · cites it 2× “” ( 29 C.F.R. § 778.500 (b) (2004).) “Overtime rates cannot be avoided by manipulating the pay for regular hours or otherwise reducing the pay for regular hours to make up for the .”
David Thompson v. Regions Sec. Servs., Inc, 67 F.4th 1301 (11th Cir. 2023). “In his complaint, Thompson cites 29 C.F.R. § 778.500 to sup- port his claim that his regular rate was $13.”
Kerbes v. Raceway Assocs., LLC, 961 N.E.2d 865 (Ill. App. Ct. 2011). “" 29 C.F.R. § 778.500 (a) (2011). Second, the CFR prohibits a "split-day" plan whereby "the normal or regular workday is artificially divided into two portions one of which is arbitrarily labeled the `straight time' portion of the day and the other the `overtime' portion.”
Kerbes v. Raceway Assocs., 2011 IL App (1st) 110318 (Ill. App. Ct. 2011). “” 29 C.F.R. § 778.500 (a) (2011). Second, the CFR prohibits a “split-day” plan whereby “the normal or regular workday is artificially divided into two portions one of which is arbitrarily labeled the ‘straight time’ portion of the day and the other the ‘overtime’ portion.”
Johnson v. Wave Comm GR LLC, 4 F. Supp. 3d 423 (N.D.N.Y. 2014). “” 29 C.F.R. § 778.500 (a). An employee who performed work quickly, and thus would have earned more based on the previous piece rate compensation system, was paid a performance incentive based on the difference between the amount they were paid according to their hourly wage and…”
Cash v. Conn Appliances, Inc., 2 F. Supp. 2d 884 (E.D. Tex. 1997). “29 C.F.R. §§ 778.500 -.03 (discussing pseudo-bonuses and devices to evade the overtime requirement).”
Blanton v. City of Murfreesboro, 658 F. Supp. 1540 (M.D. Tenn. 1987). “, citing 29 C.F.R. § 778.500 (emphasis added). In short, the Court reads the language and legislative history of Amendment section 8 to carry out a Congressional intent to afford public employers a choice of several mechanisms to comply with the impact of FLSA coverage,…”
Bell v. Iowa Turkey Growers Coop., 407 F. Supp. 2d 1051 (S.D. Iowa 2006). “See 29 C.F.R. § 778.500 (b). Thus, the regulation indicates that the “good faith” language was intended to address circumstances somewhat different than the situation in this case.”
Blanton v. City Of Murfreesboro, 856 F.2d 731 (6th Cir. 1988). “(29 CFR 778.500). 17 We also find strong support for our view that the fire fighters need not show that the City intended to discriminate in order to prove a violation of section 8 in the comments of Representative Hawkins, the Chairman of the Committee of Conference.”
Reich v. Midwest Body Corp., 843 F. Supp. 1249 (N.D. Ill. 1994). “See 29 C.F.R. § 778.500 . Consistent with this principal, the regulations also provide: In determining the number of hours for which overtime compensation is due, all hours worked (see § 778.”
Herman v. Anderson Floor Co., Inc., 11 F. Supp. 2d 1038 (E.D. Wis. 1998). “In her brief the Secretary attempts to analogize Anderson’s compensation system to those “schemes” or “devices” to evade overtime requirements found in 29 C.F.R. § 778.500 . To the extent the Secretary in *1047 vites the court to find the defendants’ compensation system to…”
Parth v. Pomona Valley Hosp. Med. Ctr., 630 F.3d 794 (9th Cir. 2010). “Employers cannot lawfully avoid the FLSA’s overtime provisions “by setting an artificially low hourly rate upon which overtime pay is to be based and making up the additional compensation due to employees by other means.”
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