A rate per hour for each workweek equal to the average hourly remuneration of the employee for employment during the annual period or the quarterly period immediately preceding the calendar or fiscal quarter year in which such workweek ends, provided (i) it is a fact, confirmed by proper records of the employer, that the terms, conditions, and circumstances of employment during such prior period, including weekly hours of work, work assignments and duties, and the basis of remuneration for employment, were not significantly different from the terms, conditions, and circumstances of employment which affect the employee's regular rates of pay during the current quarter year, and (ii) such average hourly remuneration during the prior period is computed by the method or methods authorized in the following subparagraphs.
The employee further agrees that he is to receive overtime premium pay for each workweek on the normal pay day for that week; based each quarter on one-half his established basic rate derived by taking the hourly average of the total straight-time remuneration he received during the workweeks ending in the four-quarter period immediately preceding the current quarter. For example, his established basic rate for each workweek ending in the first quarter of 1964 (January through March) is determined by computing his average hourly rate for employment during all workweeks ending in the four quarter periods of 1963.
Assume the employee worked the following number of hours and received the straight-time pay indicated:
Line No. | Quarters | Pay | Hours worked | ||
1 | 1st-1963 | $1,074 | 550 | ||
2 | 2d-1963 | 980 | $980 | 480 | 489 |
3 | 3d-1963 | 1,069 | 1,069 | 542 | 542 |
4 | 4th-1963 | 1,365 | 1,365 | 619 | 619 |
5 | 1, 2, 3, 4-1963 | 4,488 | 2,200 | ||
6 | 1st-1964 | 1,168 | 531 | ||
7 | 2, 3, 4 (1963) 1 (1964) | 4,582 | 2,181 |
The employee's basic rate for the first quarter of 1964 (line 6) is determined by the hours worked and pay received in the four previous quarters (lines 1, 2, 3 and 4). Total pay received during that period ($4,488.00, line 5) is divided by the total hours worked (2,200 hours, line 5) to derive the established basic rate ($2.04 per hour). This is the hourly rate on which overtime is computed in each workweek ending in the first quarter of 1964 in which the employee worked in excess of the applicable maximum hours standard. For instance, if in the first week of that quarter the employee worked 47 hours he would be due his guaranteed salary, his commission (at a later date) plus $7.14 as overtime premium pay (7 hours * 2.04 * 1/2). It does not matter that the employee actually earned and ultimately received $90.71 in salary and commission as his total straight-time pay for that week and that his true hourly rate would be only $1.93 ($90.71 ÷ 47 hours). The established basic rate is an average rate and is designed to be used, and must be used, in every overtime week in the quarter for which it was computed, without regard to the employee's true hourly rate in the particular week.
The employee's basic rate for the second quarter of 1964 will be similarly computed at the end of the first quarter of that year by adding together the hours worked and pay received in the second, third, and fourth quarters of 1963 and the first quarter of 1964 (lines 2, 3, 4 and 6) so that the totals now reflect the figures in line 7. The regular rate is again computed by dividing pay received ($4,582.00) by hours worked (2,181) and the new basic rate would be $2.10.
As in the previous example the established basic rate must be used in every overtime week in the quarter for which it was computed without regard to the employee's true hourly rate in the particular quarter.
29 C.F.R. §548.306
Sec. 1, 52 Stat. 1060, 1062, as amended, 29 U.S.C. 201 , et seq.