The following conditions must be satisfied if a “basic” rate is to be considered proper under section 7(g)(3) and subpart A of this part.

(a) Agreement or understanding. There must be an agreement or understanding establishing a basic rate or rates. This agreement must be arrived at before performance of the work to which it is intended to apply. It may be arrived at directly with the employee or through his representative. The “basic” rate method of computing overtime may be used for as many of the employees in an establishment as the employer chooses, provided he has reached an agreement or understanding with these employees prior to the performance of the work. 3

(b) The rate. The established basic rate may be a specified rate or a rate which can be derived from the application of a specified method of calculation. For instance, under certain conditions the Regulations permit the use of the daily average hourly earnings of the employee as a basis for computing daily overtime. 4 Thus, a method rather than a specific rate is authorized. Also, under certain conditions, the cost of a single meal a day furnished to employees may be excluded from the computation of overtime pay. 5 It is the exclusion of the cost of the meals that is authorized and each employee's rate of pay, whatever it may be—an hourly rate, a piece rate or a salary—is his basic rate.

(c) Minimum wage. The employee's average hourly earnings for the workweek (exclusive of overtime pay and other pay which may be excluded from the regular rate) 6 and the established basic rate used to compute overtime pay may not be less than the legal minimum. 7