Supreme Court Rules Day-Rate Pay Structure Defeats Overtime Exemption, Even for Highly Compensated Employees
Jane Waterman-Joyce & Brooke A. Colaizzi
The U.S. Supreme Court doubled down on the Fair Labor Standards Act’s (FLSA) regulations for overtime exemptions, holding that some employees who are paid only a day rate are not exempt from overtime — even if they are highly compensated — because they are not paid on a “salary basis.”
The Court’s decision in Helix Energy Solutions Group, Inc., et al. v. Hewitt could have massive financial consequences for employers in industries that typically pay by day rate, such as oil and gas.
Plaintiff Hewitt was an offshore oil rig worker for Helix. Although he was paid at a daily rate, Hewitt typically worked 84 hours a week while on the rig. Hewitt’s paycheck did not include overtime, amounting only to his daily rate multiplied by the number of days he had worked that week. Relying on his total yearly compensation of over $200,000 and his job duties supervising other workers on the rig, Helix classified Hewitt as exempt from overtime under the “bona fide executive” rule of the FLSA. Helix also did not guarantee Hewitt an average anticipated amount for his paychecks.
To be exempt from overtime under the FLSA, including as a “bona fide executive,” an employee must satisfy three basic tests: the salary basis test, which requires an employee receive a fixed and predetermined salary that does not change based on hours worked; the salary amount test, which requires an employee make a certain minimum amount each week ($455 per week at the time relevant to this case); and the duties test, which requires an employee’s job duties meet certain criteria. Although the first two tests remain the same regardless of salary level, the duties test relaxes slightly for employees making above a certain threshold ($100,000 at the time relevant to this case). These employees are known as highly-compensated employees or HCEs.
As Hewitt’s job duties met the duties test, the sole issue in this case was whether Hewitt was paid on a salary basis, making him a “bona fide executive” and therefore exempt from overtime. For guidance, the court looked to the two provisions of the FLSA which define “salary basis”: §541.602(a) and §541.604(b).
After quickly ruling that §541.602(a) did not apply because its text excludes daily rate workers, the Court turned to §541.604(b). Under 604(b), a worker paid on a daily, hourly, or shift rate may be considered paid on a “salary basis” if the employer also provides the minimum weekly-required amount paid on a salary basis. The Court found this provision was a clear textual directive that applied to HCEs and because Hewitt did not receive such a guarantee, he was owed overtime under the FLSA. The fact that he made $200,000 per year was irrelevant.
Employers who treat any employees as exempt from overtime must ensure that their pay structure fully complies with the FLSA’s requirements for exempt employees, as well as any state laws on overtime, which may differ significantly from the FLSA.
If you have concerns about compliance with the FLSA’s highly-compensated employee exemption, or any other wage and hour issues, contact Sherman & Howard’s Labor & Employment group.