Day-Rate Pay with Overtime Compliance: How to Avoid 29 C.F.R. 778 Pitfalls and Payroll Risks

Day-rate pay with overtime compliance: key concepts under 29 C.F.R. Part 778

Day-rate pay is a common compensation model in construction, oil and gas, field services, healthcare, logistics and similar sectors. The employee is paid a flat amount for each day worked, regardless of the number of scheduled hours. Under the Fair Labor Standards Act (FLSA), this structure is lawful, but it does not eliminate the obligation to pay overtime. The central rule for day-rate arrangements is found in 29 C.F.R. § 778.112, read together with other provisions on the regular rate and the treatment of bonuses, commissions and differentials.

In a compliant day-rate system, the daily amount generally covers all straight-time compensation for the hours worked in that week. When the employee works more than 40 hours in a workweek, the employer must calculate the regular rate of pay for that week and pay an additional 0.5× of that rate for each overtime hour. Failure to do so is a frequent driver of back wage assessments and collective actions.

How to structure a compliant day-rate arrangement

1. Fix the workweek and track hours accurately

• Define a fixed workweek (e.g., Sunday–Saturday) in policy and practice.
• Use reliable timekeeping for all nonexempt workers paid on a day-rate:
  badges, apps, GPS-enabled field tools or signed timesheets.
• Prohibit off-the-clock work; all compensable time must be recorded.

2. Calculate the regular rate correctly

• Sum all day-rate payments for the week.
• Add any other amounts that must be included in the regular rate:
  non-discretionary bonuses, production incentives, shift differentials,
  piece-rate or job-rate add-ons.
• Divide by the total hours actually worked that week.

3. Distinguish day-rate from fluctuating workweek (FWW)

• Day-rate (§ 778.112): pay is tied to each day worked. The weekly total varies with days worked.
• FWW (§ 778.114): a fixed weekly salary covers all hours worked; additional OT is 0.5×
  the regular rate, but only if strict conditions are met (clear mutual understanding, salary never drops below minimum wage, etc.).
• Mislabeling a day-rate plan as FWW (or vice versa) is a recurring compliance failure and can trigger back pay exposure.

4. Treatment of bonuses, commissions and differentials

• Non-discretionary bonuses (for productivity, safety, attendance, revenue, etc.) must be
  allocated to the workweeks covered and included in the regular rate before calculating OT.
• Commissions and piecework premiums are also included; they are spread across the relevant
  period in proportion to hours worked.
• Discretionary bonuses that are truly unpredictable and not promised in advance can be excluded.
• Shift differentials and hazardous duty pay are included in the total for regular rate purposes.

Per diem, reimbursements and misclassification risks

5. Per diem and expense payments

• Legitimate per diem and travel reimbursements that reflect reasonable expenses can be excluded from the regular rate.
• If “per diem” is used as disguised wages (e.g., fixed daily add-on unrelated to expenses),
  it should be included in the regular rate, increasing overtime obligations.

6. Exempt vs nonexempt

• Day-rate workers are usually nonexempt, because exemptions under Part 541 generally require a
  salary basis and duties test not satisfied by pure day-rate arrangements.
• Treating clearly nonexempt day-rate workers as “exempt” is a major source of collective FLSA claims.

Controls and documentation to stay compliant

• Time records: maintain daily and weekly hours for each day-rate employee (29 C.F.R. Part 516).
• Pay records: show total day-rates, included bonuses/commissions, computed regular rate,
  overtime hours and separate OT premium line.
• Written policy: describe day-rate structure, overtime calculation, treatment of travel/per diem
  and prohibition of off-the-clock work.
• Supervisor training: ensure front-line leaders understand that approving long shifts without
  recording hours creates FLSA risk.
• Internal audits: recalculate samples of weeks with bonuses or heavy overtime to verify that
  regular rate and premiums were correct.

FAQ

1) Why is the overtime premium only 0.5× under a day-rate method?

Because the day-rate already compensates all hours at the straight-time rate. Once the weekly regular rate is computed, the employer owes only the additional half-time (0.5×) for each hour above 40 in the workweek.

2) Can a pure day-rate worker be treated as exempt from overtime?

Generally no. Most white-collar exemptions require a salary basis and specific duties. A day-rate alone does not satisfy the salary basis test; misclassifying such workers as exempt exposes the company to significant back pay liability.

3) How should non-discretionary bonuses be handled for day-rate employees?

They must be allocated to the workweeks covered and included in the total remuneration before calculating the regular rate. Overtime must then be recomputed so that the bonus increases the OT premium proportionally.

4) Are travel stipends or per diem always excluded from the regular rate?

No. Legitimate reimbursements tied to actual or reasonably approximated expenses may be excluded. But fixed “per diems” that function like wages—paid regardless of travel or expenses—should be included in the regular rate.

5) What records are required for day-rate employees?

The employer must keep records of daily and weekly hours, day-rate amounts, other earnings, overtime premiums, deductions and pay dates, consistent with 29 C.F.R. Part 516. Lack of reliable records usually weighs against the employer in disputes.

6) Can a company switch from day-rate to hourly or FWW to reduce risk?

Yes, prospectively. Many employers move to clear hourly rates or a compliant FWW structure. However, changing the plan does not erase prior exposure; past weeks must still be compliant or corrected.

7) What are common enforcement triggers for day-rate investigations?

Complaints of long shifts with no overtime, high “per diem” proportions, inconsistent records, use of “1099” contractors who function like employees, and policies that discourage reporting of all hours are typical red flags for agencies and plaintiffs’ counsel.

Technical framework & legal anchors

• FLSA — basic overtime requirement for nonexempt employees over 40 hours per workweek.
• 29 C.F.R. § 778.112 — day-rate and job-rate method; half-time premium for hours over 40.
• 29 C.F.R. §§ 778.108–.109, .208–.210 — definition of regular rate; treatment of non-discretionary bonuses and commissions.
• 29 C.F.R. § 778.114 — fluctuating workweek method (used as contrast; separate conditions).
• 29 C.F.R. Part 516 — recordkeeping obligations.
• State wage and hour laws — may impose stricter rules (daily overtime, rest/meal premiums, different limitations periods).

Conclusion

A properly implemented day-rate pay system can give flexibility in operations without sacrificing FLSA compliance. The non-negotiables are precise timekeeping, accurate regular rate calculations that fold in all required earnings, and a consistent application of the 0.5× overtime premium for hours above 40. Employers who periodically audit their data, document their methodology and distinguish clearly between day-rate, hourly, and fluctuating workweek arrangements significantly reduce exposure to back pay claims, penalties and litigation.

Disclaimer: This material is for informational purposes only and does not replace advice from a licensed attorney or wage-and-hour specialist. Actual compliance duties depend on specific job duties, contracts, collective agreements and federal/state regulations applicable to your organization.