A section 7(f) guaranty contract lets an employer pay certain employees a fixed weekly sum — regardless of how their hours actually swing from week to week — without recalculating overtime pay under the ordinary regular-rate method covered in Chapter 7. That convenience comes with a price: the employee must be aware of and have agreed to the guaranty-pay method before the work is performed; the contract itself — its making and the settlement of its terms — must be bona fide, meaning entered into in good faith; and it must contain three specific elements the regulation spells out in detail. Leave one out, or get one wrong, and the exemption fails (the section 7(f) guaranty-pay method, not exempt-employee status) — the employer owes overtime computed the ordinary way, for every workweek the defective contract covered.

The first element is not a formality. The “regular rate” named in the contract has to be the rate that actually controls the employee’s total pay, not a number on paper. If an employee’s real earnings are also built from regular bonuses or commissions on top of the specified hourly rate, that hourly figure never truly determines total compensation — it is one input among several — and a guaranty contract cannot be built on it at all. The specified rate must also meet the ordinary minimum-wage floor set by section 6, but nothing requires it to match whatever rate the employee earned before the contract began; the parties are free to agree on any rate at or above that floor that can reasonably be expected to govern pay going forward.

The second element, the overtime provision, has to reach every hour worked beyond the applicable maximum hours standard (generally 40 hours in a workweek under section 7(a), as established in Chapter 7) — not merely the hours the guaranty happens to cover. A contract that pays time and one-half only up to some lower cutoff, while leaving hours above that cutoff at straight time, does not qualify.

The third element, the guaranteed sum, must be a weekly figure — monthly, semimonthly, or biweekly guarantees do not qualify, because they would let pay be averaged across more than one workweek — and it must be paid in full in every workweek the employee performs any work at all, even a very short one. That guaranty is also capped: it cannot promise more than the specified regular rate and overtime rate would produce for 60 hours of work, though an employee who actually works past 60 hours in a week must still be paid additional overtime for those extra hours on top of the guaranty. The guaranteed sum must further be based solely on the regular and overtime rates the contract specifies. A contract that also pays shift differentials, hazardous or arduous-work premiums, stand-by pay, piece-rate incentive bonuses, commissions, or similar rates, and derives the guaranteed sum from that blended total, does not qualify under section 7(f) — even if the guaranty is otherwise a proper weekly sum capped at 60 hours (§ 778.413). And separately from that 60-hour ceiling, the number of hours for which pay is guaranteed must bear a reasonable relation to the range of hours the employee’s duties can actually be expected to require; a guaranty set at or near the top of that expected range — even one still under 60 hours — renders the specified rate “wholly fictitious” and independently defeats the section 7(f) exemption (§ 778.412).