High Earners May Still Qualify for Overtime, Supreme Court Rules
In a 6-3 decision issued today, the United States Supreme Court held that a former employee of an offshore oil rig, who earned more than $200,000 a year, was eligible for overtime pay under the Fair Labor Standards Act (FLSA).
The former employee, Michael Hewitt, was classified as exempt by his employer, Helix Energy Solutions Group (Helix), under the “executive” exemption. Helix paid Hewitt a “daily rate,” with no overtime. This meant that each pay period Hewitt would receive his fixed daily rate ($963 to $1,341 a day) multiplied by the number of days worked in the pay period (up to 14 days). So, Hewitt’s lowest paycheck amount (for one day of work in a pay period) would be $963, and his highest paycheck (for 14 days worked) would hit $13,482. Under this scheme, Hewitt was paid over $200,000 per year by Helix.
Hewitt filed suit under the FLSA seeking to recover unpaid overtime. Hewitt claimed that though he had a supervisory role, he was not in fact covered by the FLSA’s executive exemption because his “daily-rate” pay was not a salary. In response, Helix argued that because Hewitt was an executive who received consistent pay which exceeded the required minimum of $455 per week, he was exempt from the FLSA’s overtime rules.
In finding for Hewitt, the Court recognized the longstanding rule that executive employees are exempted from the FLSA’s overtime rules only if, among other factors, they are paid on a “salary basis.” For an employee to be paid on a “salary basis,” however, they must be paid a predetermined amount on a weekly, or less frequent basis, that is not contingent on the actual days or hours worked by the employee. The Court held that because Hewitt’s daily rate was directly tied to the number of days actually worked, it was not a salary and the FLSA’s overtime rules applied to him.
The Court did note, however, that employees paid on an hourly, daily, or per-shift basis can qualify as salaried, and thus overtime exempt, under a different regulation so long as they are guaranteed weekly payment that is “roughly equivalent to the employee’s usual earnings.”
This case is an important reminder that high-level and well-paid employees can still qualify for overtime under the FLSA if they are not paid on a salary basis, as that term is understood for purposes of the FLSA and state law. Subject to limited exceptions, for an employee to be paid on a salary basis their pay must be predetermined, paid on a weekly or less frequent basis, and must not be tied to the actual amount of days or hours worked. Employers should carefully consider whether compensation on a basis other than salary meets the strict definition set forth in the FLSA and reiterated by the Court today.
Disclaimer: Please contact your Payne & Fears attorney for current guidance on the subject matter of this article.