Chapter 7 covered the general rule: the regular rate is recomputed each workweek from what the employee actually earned and the hours actually worked, and overtime hours are paid at one and one-half times that figure. Section 7(g)(3) offers a different route. It provides an exception from the maximum-workweek provisions of section 7(a) (the requirements, covered in Chapter 7, governing how overtime is paid for hours beyond the standard workweek threshold). An employer is not deemed to have violated those provisions for a given workweek if, pursuant to an agreement or understanding reached with the employee before the work is performed, the excess hours (the hours requiring overtime pay) are paid at not less than one and one-half times the rate that agreement establishes as the “basic rate” for computing overtime under it. The basic rate, once adopted, stands in place of a rate recalculated fresh every week.

That basic rate cannot simply be whatever figure the employer and employee settle on. It must be authorized by regulation from the Secretary of Labor as substantially equivalent to the employee’s average hourly earnings, exclusive of overtime premiums, in that particular work over a representative period of time (a prior stretch of the employee’s actual work on that job, chosen as the basis for computing the basic rate). Part 548 sets out the specific regulatory standard for this determination — § 778.401 states that regulations issued under section 7(g)(3) are published as Part 548 of this chapter, and that payments made in conformance with them satisfy the Act’s overtime pay requirement. Two further conditions have to hold in the workweek itself: the employee’s average hourly earnings, excluding the kinds of payments described in section 7(e)(1) through (7) — the statutory exclusions covered in Chapter 7 — cannot fall below the minimum hourly rate required by law, and extra overtime compensation still has to be properly computed and paid on any other additional pay that belongs in the regular rate — for example, the commissions and nondiscretionary pay covered in Chapters 7 and 8, which don’t stop counting just because a basic rate is in use.

Because the method is employer-adopted rather than the statutory default, § 516.26 sets its own recordkeeping rule: the employer keeps the standard payroll records required by § 516.2, except the regular-hourly-rate entry in § 516.2(a)(6) — since no such rate is recomputed each week under the basic-rate method — and adds several items in its place. It must keep the hourly, piece, or commission rates applicable to each type of work the employee performs. It must keep the computation that established the basic rate itself; a single entry suffices if an entire workforce or establishment agreed to the same method. It must keep the amount and nature of any payment excluded from the regular rate under section 7(e). It must keep the representative period — a prior stretch of the employee’s actual work on that job, chosen as the basis for computing the basic rate — and the period the basic rate is used for. It must keep information showing no significant difference between the pertinent terms, conditions, and circumstances of employment in those two periods, since the representative period only remains valid so long as those terms, conditions, and circumstances haven’t significantly changed. And it must keep a copy of the written agreement, or a memorandum summarizing an oral one.