Walling v. Harnischfeger Corp.

Delivered the opinion of the Court.

Here, as in Walling v. Youngerman-Reynolds Hardwood Co., ante, p. 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.

Respondent is a Wisconsin corporation engaged in producing electrical products for interstate commerce. About one-half of respondent’s production employees, called incentive or piece workers, 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” 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 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 “non-incentive” 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 “non-incentive” 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 non-overtime hours.

The Administrator of the Wage and Hour Division of the Department of Labor brought this action to compel the respondent to comply with the provisions of § 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 rate 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 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 non-overtime hours the respondent complies fully with § 7 (a) by paying them one and one-half times 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 non-overtime 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 §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 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 § 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. If they received only piece work 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 piece work wages forming only a part of the normal weekly income must also be an ingredient of the statutory regular rate. Piece work wages do not escape the force of § 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 piece work basis with a minimum hourly guaranty. The conclusion that only the minimum hourly rate constitutes the regular rate opens an easy path for evading the plain design of § 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 piece work wages, those wages automatically enter into the computation of the regular rate for purposes of § 7 (a) regardless of any contract provision to the contrary. Moreover, where the facts do not permit it, we cannot arbitrarily divide bonuses or piece work wages into regular and overtime segments, thereby creating an artificial compliance with § 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 piece work earnings per hour. Until that premium is 50% of the actual hourly rate received from all regular sources, § 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 pay-days, due to the nature of the “priced” jobs. But § 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) 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.

52 Stat. 1060, 29 U. S. C. § 201 et seq.

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.

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.

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 piece work pay.

The overtime rate now paid amounts to about one and one-third or one and one-fourth the regular hourly rate of actual earnings.