Supreme Court rules that highly compensated employees eligible for overtime pay if paid daily

On February 22, 2023, the United States Supreme Court ruled in Helix Energy Solutions Group, Inc. v. Hewitt, that a highly compensated employee paid exclusively on a daily rate basis (as opposed to a weekly basis) did not satisfy the “salary basis” test and was therefore not exempt from the Fair Labor Standards Act’s overtime pay requirements.

Generally, the FLSA requires that nonexempt employees be paid overtime when they work more than 40 hours per week. Exempted from this requirement are employees who perform certain job duties, such as “bona fide executive, administrative, or professional” employees and “highly compensated employees”, and who are paid a minimum weekly threshold on a salary basis. The main issue in Helix is whether the employee was paid on a salary basis where the employee was paid a daily rate of at least $963 and earned more than $200,000 annually.

Under the FLSA, an employee is compensated on a salary basis when that “employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount . . . without regard to the number of days or hours worked.” Hewitt, however, was paid a rate for each day worked and his weekly pay could only be determined at week’s end by counting the number of days worked. Because Hewitt “receives a certain amount if he works one day in a week, twice as much for two days, three times as much for three, and so on,” the Court found that Hewitt was not paid a salary as defined under the regulations, but rather, his paycheck was based solely on a daily rate. The Court determined that, even though he was well paid, Hewitt was not exempt from the FLSA and was eligible for overtime pay.

Although it was not at issue in this case, the Court noted that an employee paid at an hourly, daily, or shift rate may still satisfy the salary basis test so long as the employer guarantees the employee a minimum weekly salary level “regardless of the number of hours, days or shifts worked” and that promised amount bears a “reasonable relationship” to the amount typically earned in a week. Employers with highly compensated employees paid on a daily or shift rate basis may also look to guarantee a portion of their employees’ weekly pay to satisfy the salary basis requirement.

Takeaways

The Supreme Court’s ruling is a reminder that FLSA exemptions are narrowly construed. Therefore, employers must be careful to ensure that all requirements are met before a position is classified as exempt from overtime pay. Employers should be especially careful about claiming that an employee is exempt from overtime pay if the employee is paid on a day or shift rate basis.

Employers should also note that some states, such as Connecticut, do not recognize the “highly compensated employee” exemption.

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This information is for educational purposes only to provide general information and a general understanding of the law. It does not constitute legal advice and does not establish any attorney-client relationship.