A wage agreement, arrived at by collective bargaining, provided
for compensation at a specified base rate or "regular rate." On
"time studied" jobs, "incentive bonuses" or "piecework earnings"
normally resulted in employees' receiving compensation, exclusive
of overtime payments at a rate higher than the base rate. The
hourly rate actually paid on many jobs not "time studied" was at
least 20% higher than the base.
Held:
1. As to employees who received hourly rates higher than the
base rate, the computation of overtime on the basis of such rate,
rather than on the rate actually received violated § 7(a) of the
Fair Labor Standards Act. P.
325 U. S.
430.
2. As to employees who received incentive bonuses, such payments
must enter into the computation of the statutory regular rate for
purposes of the overtime provisions of § 7(a), regardless of any
contract provision to the contrary. P.
325 U. S.
431.
3. Where, as here, the facts do not permit it, the Court cannot
arbitrarily divide bonuses or piecework wages into regular and
overtime segments, thereby creating artificial compliance with §
7(a). P.
325 U. S.
432.
4. It is not sufficient that the employer pays for overtime a
premium which makes the overtime rate somewhat higher than the
piecework earnings per hour; section 7(a) requires that that
premium be not less than 50% of the actual hourly rate received
from all regular sources. P.
325 U. S.
432.
5. Where the correct overtime compensation cannot be determined
until after the regular payday, § 7(a) requires only that the
employee receive such compensation as soon as convenient or
practicable under the circumstances. P.
325 U. S.
432.
145 F.2d 589, reversed.
Certiorari, 324 U.S. 837, to review the reversal of an order of
the District Court, 54 F. Supp. 326, enjoining violations of the
Fair Labor Standards Act.
Page 325 U. S. 428
MR. JUSTICE MURPHY delivered the opinion of the Court.
Here, as in
Walling v. Youngerman-Reynolds Hardwood
Co., 325 U. S. 419, we
are concerned with the problem of whether a particular type of wage
agreement meets the requirements of Section 7(a) of the Fair Labor
Standards Act of 1938. [
Footnote
1]
Respondent is a Wisconsin corporation engaged in producing
electrical products for interstate commerce. About one-half of
respondent's production employees, called incentive or
pieceworkers, are involved in this case.
As a result of collective bargaining by their union, these
employees entered into a collective agreement with respondent
whereby they are each paid a basic hourly rate plus an "incentive
bonus" or "piecework earnings." The various jobs performed by these
incentive workers are "time studied" by the management. The time
which the job is shown to consume is multiplied by a "standard
earning rate" [
Footnote 2] per
unit of time. The amount so obtained is known as the "price" placed
on that job. When an employee is given work on a job that has been
so priced, he receives a job card bearing the price.
The worker is paid his agreed base or hourly rate (ranging from
55 cents to $1.05 per hour) for the time which
Page 325 U. S. 429
he takes to perform the job. If the job price exceeds this base
pay, he ultimately receives the difference between the two amounts.
The excess of the job price over the hourly earnings is known as an
"incentive bonus," or "piecework earnings." Thus, the sooner a job
is completed, the greater will be this incentive bonus. When the
job price is smaller than the hourly earnings, the employee
receives only the hourly rate for the time worked, being assured of
that rate regardless of his efficiency or speed. About 98.5% of the
incentive workers, however, work with sufficient efficiency and
speed to earn compensation over and above their base pay. These
incentive bonuses were found by the District Court to form about
22% of the total compensation received each pay day by these
workers, exclusive of overtime payments, although respondent claims
that the bonuses vary from 5% to 29% of each payroll.
On many jobs which have not been "time studied," the respondent
has agreed to pay, and does pay, each incentive worker an hourly
rate at least 20% higher than his basic hourly rate. And when an
incentive worker is temporarily assigned to "nonincentive" work, he
is paid at least 20% more than his basic hourly rate. Moreover,
vacation pay is based on an employee's average hourly straight time
earnings over a three-month period, and not on his base rate.
These incentive workers frequently work in excess of the
statutory maximum workweek. For these extra hours, they receive a
premium of 50% of the basic hourly rate, which does not reflect the
incentive bonuses received. Likewise, when incentive workers are
working on jobs that have not been "time studied" or are
temporarily doing "nonincentive" work, they receive overtime pay on
the basis of their basic hourly rates, rather than on the 20%
higher hourly rates actually paid them during the nonovertime
hours.
The Administrator of the Wage and Hour Division of the
Department of Labor brought this action to compel
Page 325 U. S. 430
the respondent to comply with the provisions of Section 7(a) of
the Act. In defense, respondent pointed to the provision in the
collective contract to the effect that
"the parties agree that, for all purposes, the regular rate of
pay at which each employee who participates in an incentive plan is
employed is the base rate of each such employee."
The District Court held that the respondent was violating the
Act by excluding from the computation of overtime the piece rates
actually paid. 54 F. Supp. 326. The Seventh Circuit Court of
Appeals reversed that judgment by a divided vote. 145 F.2d 589.
Our attention here is focused upon a determination of the
regular rate of compensation at which the incentive workers at
which the incentive workers are employed. To discover that rate, as
in the
Youngerman-Reynolds case, we look not to contract
nomenclature, but to the actual payments, exclusive of those paid
for overtime, which the parties have agreed shall be paid during
each workweek.
It is evident that all the incentive workers receive a
guaranteed basic hourly pay as a minimum. As to those who receive
no regular additional payments during their nonovertime hours, the
respondent complies fully with Section 7(a) by paying them one and
one-half time the basic hourly rate for all overtime hours. But the
vast majority of the employees do receive regular though
fluctuating amounts for work done during their nonovertime hours in
addition to their basic hourly pay.
(1) Those who receive hourly rates at least 20% higher than
their guaranteed base rates clearly are paid a regular rate
identical with the higher rate, and the failure of respondent to
pay them for overtime labor on the basis of such a rate is a plain
violation of the terms and spirit of Section 7(a). No contract
designation of the base rate as the "regular rate" can negative the
fact that these employees do in fact regularly receive the higher
rate. To compute overtime compensation from the lower and
unreceived rate
Page 325 U. S. 431
is not only unrealistic, but is destructive of the legislative
intent. A full 50% increase in labor costs and a full 50% wage
premium, which were meant to flow from the operation of Section
7(a), are impossible of achievement under such a computation.
(2) Those who receive incentive bonuses in addition to their
guaranteed base pay clearly receive a greater regular rate than the
minimum base rate. [
Footnote 3]
If they received only piecework wages, it is indisputable that the
regular rate would be the equivalent of the translation of those
wages into an hourly rate.
United States v. Rosenwasser,
323 U. S. 360. It
follows that piecework wages forming only a part of the normal
weekly income must also be an ingredient of the statutory regular
rate. Piecework wages do not escape the force of Section 7(a)
merely because they are paid in addition to a minimum hourly pay
guaranteed by contract. Indeed, from another viewpoint, the
incentive employees so compensated are in fact paid entirely on a
piecework basis with a minimum hourly guaranty. [
Footnote 4] The conclusion that only the
minimum hourly rate constitutes the regular rate opens an easy path
for evading the plain
Page 325 U. S. 432
design of Section 7(a). We cannot sanction such a patent
disregard of statutory duties.
In this instance, 98.5% of the incentive employees receive
incentive bonuses in addition to their guaranteed hourly wages,
demonstrating that such bonuses are a normal and regular part of
their income. Once the parties agree that these employees should
receive such piecework wages, those wages automatically enter into
the computation of the regular rate for purposes of Section 7(a)
regardless of any contract provision to the contrary. Moreover,
where the facts do not permit it, we cannot arbitrarily divide
bonuses or piecework wages into regular and overtime segments,
thereby creating an artificial compliance with Section 7(a).
It matters not how significant the basic hourly rates may be in
determining the compensation in situations where incentive bonuses
are not paid. When employees do earn more than the basic hourly
rates because of the operation of the incentive bonus plan, the
basic rates lose their significance in determining the actual rate
of compensation. Nor is it of controlling importance that the
respondent now pays a premium for overtime employment so as to make
the overtime rate somewhat above the piecework earnings per hour.
[
Footnote 5] Until that premium
is 50% of the actual hourly rate received from at regular sources,
Section 7(a) has not been satisfied.
Respondent also points to the fact that the incentive bonuses
are often not determined or paid until weeks or even months after
the semi-monthly paydays, due to the nature of the "priced" jobs.
But Section 7(a) does not require the impossible. If the correct
overtime compensation cannot be determined until some time after
the regular pay period, the employer is not thereby excused from
making the proper computation and payment. Section 7(a)
Page 325 U. S. 433
requires only that the employees receive a 50% premium as soon
as convenient or practicable under the circumstances
The judgment of the court below is reversed, and that of the
District Court is affirmed.
Reversed.
[
Footnote 1]
52 Stat. 1060, 29 U.S.C. § 201
et seq.
[
Footnote 2]
The "standard earning rate" is the hourly rate of pay which
workers in the Milwaukee, Wisconsin, district receive for that type
of work. This "standard earning rate" is not the base rate of any
worker in respondent's plant, nor is it the average hourly earned
rate of any worker.
[
Footnote 3]
This is shown by the following example. An incentive worker is
assigned a basic rate of $1 an hour and works 50 hours a week on 15
"time studied" jobs that have each been given a "price" of $5. He
completes the 15 jobs in the 50 hours. He receives $50 basic pay
plus $25 incentive pay (the difference between the base pay and 15
job prices). In addition, the worker receives $5 extra for the 10
overtime hours. This is computed on the basis of 50% of the $1 base
rate, or 50 cents an hour premium. Actually, however, this worker
receives compensation during the week at the actual rate of $1.50
an hour ($75 divided by 50 hours) and the overtime premium should
be computed on that basis, giving the worker a premium of 75 cents
an hour or $7.50 for the 10 overtime hours.
[
Footnote 4]
Thus, in the example given in
footnote 3 the worker earns $75 during the week exclusive
of the overtime premium. This $75 may be considered either (1) the
amount received for completing the 15 "priced" jobs with a $50
minimum guaranty or (2) the sum of the $50 hourly pay and the $25
piecework pay.
[
Footnote 5]
The overtime rate now paid amounts to about one and one-third or
one and one-fourth the regular hourly rate of actual earnings.
MR. JUSTICE FRANKFURTER, concurring.
The Fair Labor Standards Act, 52 Stat. 1060, 29 U.S.C. § 201
et seq., does not prohibit employment at piecework rates.
It merely requires that piecework earnings be converted to an
hourly basis for determining the minimum and overtime requirements
of that Act.
United States v. Rosenwasser, 323 U.
S. 360. Nor does the Act bar an agreement establishing
an hourly "regular rate" that does not fall short of the statutory
minimum even though it be complicated by a guaranteed weekly lump
sum wage adapted to the circumstances of a particular employment,
provided it is not a mere artifice unrelated to wage earning
actualities.
Walling v. Belo Corp., 316 U.
S. 624;
Walling v. Helmerich & Payne, Inc.,
323 U. S. 37.
Accordingly, the Fair Labor Standards Act does not preclude a wage
agreement whereby piece-rate payments are related, fairly and not
evasively, partly to regular hours of work and partly to overtime.
Piece rates need not necessarily be so adjusted that they cannot
fairly be designed as part of the overtime but must necessarily
help "load" the regular hourly wage.
But a properly apportioned overtime function for piecework
should be clearly indicated as such in the employment contract. No
doubt a law which, while covering piece rates, speaks in terms of
hourly rates presents difficulties both for those charged with the
law's enforcement and for those under duty to obey it. But if a
wage agreement is to escape the obvious arithmetic way of
calculating hourly rates based on piecework rates, by dividing
Page 325 U. S. 434
the total earnings by the hours worked, it is not too much to
require that the function of piece rates as an overtime factor, if
such they be, be clearly formulated. The contract should leave no
such dubiety as to the role of the piece rate to the regular hourly
rate as the two arrangements before us. It should not be left to
courts to work out a hypothetical mathematical interpretation
which, if it corresponded with the actual arrangement, could
satisfy the statute.
MR. CHIEF JUSTICE STONE, dissenting.
I think the judgment in both these cases should be affirmed as
to all piecework employees, and, in No. 956, the judgment should be
reversed only as to employees working exclusively on the hourly
wage basis.
The respondent in each of these cases has entered into a wage
contract with its employees which places in their pay envelopes a
weekly wage in excess of the minimum hourly wage rate which the
Fair Labor Standards Act prescribes for the work week of forty
hours and the additional overtime hours which they work in each
week. There is no contention that the contracts were not entered
into fairly and in a good faith effort to satisfy all the
requirements of the law and to provide the employees with a wage
higher than the prevailing rate of pay for like hours of work, with
time and a half for overtime. The contract involved in No. 956 was
the result of collective bargaining between the respondent employer
and the CIO Union of its employees. Both employers and employees
desire to continue the contracts, the employers because the
employees are satisfied and labor disputes will consequently be
avoided, the employees because they receive a larger wage than if
they worked at prevailing hourly rates of pay with time and a half
for overtime as the statute prescribes.
Under each contract, the employees receive for the first forty
hours of the work week a guaranteed minimum
Page 325 U. S. 435
hourly wage which is equal to or greater than the minimum wage
prescribed by the statute. For overtime, they receive one and
one-half times the hourly wage, and, in addition, a bonus, the
amount of which is dependent upon the amount of piecework which
they do during the work week. The bonus constitutes an addition to
the hourly wage, both regular and overtime, so that, in fact, the
compensation both for time and overtime is greater than the statute
requires. The only question involved in either case is whether
there is anything in the Fair Labor Standards Act which compels the
bonus payment to be added to the stipulated time and overtime
hourly wage in any different proportions than the wage itself is
distributed.
The Government concedes that the statute does not require
respondents to put their piece workers on hourly wage rates, and
that they may continue to pay piecework rates and comply with § 7
of the Fair Labor Standards Act, provided only that piecework
earnings be "translated or reduced by computation to an hourly
basis for the sole purpose of determining whether the statutory
requirements have been fulfilled." Such is the effect of our
decision in
United States v. Rosenwasser, 323 U.
S. 360,
323 U. S.
364.
The method of translation urged by the Government and adopted by
the Court is to ascertain the average hourly rate of pay by
dividing the total weekly piecework wage by the number of hours
worked. The hourly rate thus obtained, multiplied by the total
number of hours worked per week, plus one-half of the hourly rate
multiplied by the number of work hours in excess of forty, will, it
is said, give the weekly wage which the Fair Labor Standards Act
requires respondents to pay to their piecework employees. The
adoption of this method in the present cases requires the payment
of an additional amount as overtime compensation which, according
to the Court's theory, is not compensated by the weekly piecework
wage, however high it may be.
Page 325 U. S. 436
This conclusion is based on two mistaken assumptions. One is
that the weekly piecework wage, however high, cannot be taken to
include any of the wage differential which the Act requires to be
paid for overtime hours. The other is that the statute requires
that the employer, who pays to his piece-time employees a lump sum
weekly wage more than enough to pay the hourly minimum rate plus
time and a half for overtime, must nevertheless treat the total
wage as comprising only the hourly wage paid for all the hours
worked, without including anything for overtime. In short, the
contention is that the statute requires the distribution of the
piecework bonus between the first forty hours worked and the
overtime hours in such proportions as would violate the statutory
requirement for the payment of an increased rate for the overtime
hours. It thus excludes the possibility that the bonus could be
distributed in proportions which would compensate the first forty
hours at an hourly wage above the minimum statutory requirement and
compensate for the overtime hours at one and one-half times that
rate.
To ascertain whether the piecework rate can be lawful
compensation for time and overtime for which it is paid, the court,
like the government, starts with the assumption that it is unlawful
not because it is inadequate in amount, but because the bonus was
either not intended to be, or cannot be taken to be, an appropriate
increase in the guaranteed overtime compensation as well as an
increase in the guaranteed regular hourly rate of pay. By assuming
that a wage, ample to satisfy minimum demands of the statute for
time and overtime, is nevertheless intended to violate the statute
by adding all of the bonus to the average hourly wage alone, the
conclusion is reached that no increase in overtime compensation has
been paid from the bonus. The wage must therefore be
correspondingly increased in order to give added compensation for
overtime.
Page 325 U. S. 437
Undoubtedly one could translate a piecework wage into an hourly
rate which would violate the statute by treating the piecework wage
as compensating for the hourly rate without time and a half for
overtime. But that has not been done by the parties here. Such is
not the necessary effect of the bonus payment, and there is no
ground for assuming that such was intended. The fact that the bonus
is to be added to a guaranteed minimum hourly rate for both time
and overtime would seem to establish the contrary. Certainly no
employee under such a contract could doubt that its purpose and
function is to pay him for time and overtime at a rate above the
statutory minimum. Even though the bonus payments were not thus
labeled, where a lawful end may be attained by a lawful means, we
are not free to assume that it was attained by unlawful means.
The purpose of the Fair Labor Standards Act was to insure to
every worker to whom it applies a minimum hourly wage and a fifty
percent higher wage for his overtime hours. It was not to force
increases in wages paid for time and overtime which are already
above the statutory minimum. One may search the statute and its
legislative history in vain for any hint that employers who, like
respondents, are paying in excess of the statutory minimum wage for
time and overtime are compelled to increase the wage merely because
they have failed to label the pay envelope as containing the wage
for both time and overtime.
The fallacy of the position now taken becomes apparent at once
upon comparison of the following examples, in each of which the
employee works fifty hours a week, ten of which, being overtime,
must, under the statute, be compensated at an hourly wage rate of
one and a half times that paid for the first forty hours.
Example 1: The employee works upon an hourly basis at the rate
of $1.00 per hour. His wage, as the statute
Page 325 U. S. 438
commands, would be $40.00 for the first forty hours of his
employment and $15.00 for the ten hours of overtime at the
statutory rate of one and one-half times the agreed hourly rate,
making a total weekly wage of $55.00.
Example 2: The employment contract, as in the present cases,
provides that the employer guarantee the payment of a fixed minimum
hourly rate of pay equal to or greater than the statutory minimum
plus one and a half times that rate for overtime, plus such
additional amount as the employee may earn on a piecework rate. If
the guaranteed hourly rate were $1.00 an hour, and the employee's
earnings at the piecework rate were $66.00, his wage would be the
weekly guaranteed minimum of $55.00 plus the $11.00 piecework bonus
at the piecework rate, or $66.00 in all. His weekly wage on the
hourly basis would be calculated as follow
Minimum $1.00 per hour for forty hours . . . . . . $40.00
Bonus addition 20� per hour for forty hours. . . . 8.00
Guaranteed minimum overtime $1.50, ten hours . . . 15.00
Bonus addition for overtime 30� an hour for ten
hours. . . . . . . . . . . . . . . . . . . . . . 3.00
------
Total. . . . . . . . . . . . . . . . . . . . $66.00
*
It will be noted from Example 2 that the weekly piecework wage
is sufficient in amount, when "translated or reduced by
computation," to pay an hourly rate of $1.20 an hour for the first
forty hours of work and $1.80 an hour for the remaining ten hours
of overtime. The statute,
see § 7, requires no more.
In Example 2, the guaranteed rate of $1.00 per hour and $1.50
per hour for overtime would satisfy every statutory
Page 325 U. S. 439
requirement, even though no bonus were added to the weekly wage.
It seems plain that the addition of the bonus does not involve the
payment of an unlawful wage or any omission to pay the lawful wage.
If the employer and employee can lawfully agree to work for $1.20
an hour for the first forty hours and for $1.80 per hour for the
additional ten overtime hours, making $66.00, the weekly piecework
rate, I can find nothing in the Fair Labor Standards Act or in the
principles of fair dealing and common sense to forbid a contract by
which the employee is paid the sum of $66.00 for a week's work of
fifty hours, or any larger amount, for piecework done in the period
of fifty hours.
No basis is suggested for saying that the employer in satisfying
the overtime requirements of the statute must distribute a lump sum
weekly piecework wage between the wage payable for the first forty
hours and that paid for overtime in such proportions as to render
the wage contract illegal, rather than in proportions which express
the required statutory time and overtime wage relationship of one
to one and one-half. There is nothing in the statute requiring the
wage contract, the pay envelope, or the payroll to designate
separately the part of the weekly wage which is for the forty hours
regular time and that portion which is paid for the additional
hours of overtime. It is enough that the weekly wage is that
mutually agreed upon in good faith, that it is intended to pay for
time and overtime, and that it is sufficient in amount to pay for
the first forty hours at a rate above the minimum wage prescribed
by the statute, and to pay for the overtime at one and one-half
times that rate.
When, as here, the wage contract guarantees an hourly wage with
one and a half times that rate for overtime, it is obviously just
and reasonable and in conformity to the statute to divide the
piecework bonus between the regular hours of work and the overtime
hours in the same proportions.
Page 325 U. S. 440
Under the formula adopted by the Court, the employer could pay
no piecework rate high enough to dispense with what is thought to
be the requirement to increase the weekly wage in order to pay the
wage differential for overtime for which, by hypothesis, no
piecework rate of pay compensates. Thus, a piecework rate which
would pay to the employee a weekly wage sufficient to pay several
times the minimum hourly rate prescribed by the statute for time
and overtime would not be lawful without a wage increase to
compensate for the overtime. Despite the government's assurance
that the statute does not preclude employment on piecework rates,
and our decision to that effect in the
Rosenwasser case,
supra, the goal of lawfulness could never be attained by
the adoption of such a rate of compensation, since the piecework
wage, however great, can never be regarded as including the wage
differential for overtime, even though the parties so agree.
All this is in flat contradiction to
Walling v. Belo
Corp., 316 U. S. 624, in
which we held that nothing in the Fair Labor Standards Act bars an
employer from contracting to pay his employees minimum hourly rates
for time plus one and a half times those rates for overtime in
excess of the minimum statutory rates, with a lump sum weekly
guaranty which, in some weeks, exceeds the wage at the stipulated
hourly rate. There, we held that the guaranteed weekly wage was
compensation for overtime, as well as for regular time. We decided
that the contract contemplated that the excess of the guaranteed
weekly wage over the stipulated minimum at the hourly rate was to
be so distributed as to recognize the wage differential for
overtime in such a way as to satisfy the statutory requirements,
even though the wage contract did not explicitly so declare. 316
U.S. at
316 U. S. 632.
That case is controlling here. In the present case, the "regular
rate," within the meaning of § 7(a)(3) of the Act is, as in
Example
Page 325 U. S. 441
2, the stipulated minimum hourly rate plus a part of the bonus,
and the bonus is, as the wage contracts have treated it, an
addition both to the regular rate and the overtime rate, which the
statute permits.
Neither
Overnight Motor Transp. Co. v. Missel,
316 U. S. 572, nor
Walling v. Helmerich & Payne, Inc., 323 U. S.
37, is applicable here. In the
Missel case,
"there was no contractual limit upon the hours" which the employer
could require the employee to work for the agreed weekly wage, and
"no provision for additional pay in the event the hours worked
required minimum compensation greater than the fixed wage." 316
U.S. at
316 U. S. 581.
Hence, the court was unable to say that the fixed weekly wage was
intended by the parties to cover both base pay and fifty percent
additional for the hours actually worked over the statutory
maximum. In the
Helmerich case,
supra, no attempt
was made by the employer to apply the asserted regular hourly rate
to the first forty hours of the work week, the actual wage paid
being greater. In consequence, the overtime wage was less than one
and one-half times the hourly wage in fact paid during the first
forty hours of the work week. This was an obvious failure to comply
with the overtime pay requirements of the statute.
Even though Congress could have compelled an increase in wages
above the statutory minimum for time and overtime in the case of
all employers who pay wages on the piecework basis, Congress has
not done so by the Fair Labor Standards Act, or adopted any policy
penalizing employers who are so misguided as to add a bonus to a
guaranteed lawful minimum hourly wage for time and overtime. It is
not our function to prescribe wage standards or policies which
Congress has not adopted.
MR. JUSTICE ROBERTS joins in this opinion.
* If a equals the hourly rate, the following formula would apply
to the fifty-hour week in which the piece work wage is $66.00:
40a + (1 1/2a x 10) = 66.00
55a = 66.00
a=$1.20, the hourly rate for forth hours.
1 1/2a=$1.80, the hourly rate for overtime hours.