Flat rate pay is when an employee is paid per job instead of salary or per hour. Flat rate pay is only applicable in specific situations. In order to pay employees a flat rate, the employee must be employed by a retail or service establishment, the employee’s regular rate of pay must exceed one and one half times the applicable minimum wage, and more than half of the employee’s total earnings must consist of commissions on goods or services. See 29 C.F.R. §§ 779.313-.324, 779.410-.420
Flat rate pay is most commonly seen in service garages or car dealerships. A “flat rate” hour is not the same as an actual hour worked. Rather, each job is assigned a certain number of hours which the customer is charged regardless of how long it actually takes to perform the job. The employee in turn is given a certain portion of that charge. This type of payment constitutes “commission”. Therefore, it is possible for an employee to work 7 actual hours and get paid for 11 flat rate hours depending on how much work is done.
Where an employer needs to watch out, is if an employee is working more actual hours than “flat rate” hours. In this situation, it is crucial to make sure that the amount paid to the employee per actual hour worked is greater than one and one half time the applicable minimum wage. As long as you stay within the parameters set by the FLSA, flat rate pay can be highly beneficial to both the employer and employee.