Overtime Pay: The Supreme Court Considers Whether a Daily Rate is a Salary

Recently, the Supreme Court determined in the case of Helix Energy Solutions Group, Inc. v. Hewitt, that an employee paid a day rate totaling approximately $200,000.00annually was entitled to overtime if he worked in excess of 40 hours in any week. The Plaintiff, Mr. Hewitt, was paid a daily rate which varied during his employment from $936 to $1,341 per day. The Court found that pay on a daily-basis meant that Hewitt did not meet the definition of an exempt employee under the FLSA and thus, he was entitled to overtime.

The FLSA’s Bona Fide Executive Overtime Exemption. Pursuant to the Fair Labor Standards Act (FLSA), every employee is entitled to one and one-half times the employee’s regular rate of pay for all hours worked in excess of 40 hours per work week, unless otherwise exempt. “Unless otherwise exempt” encompasses a wide variety of overtime and minimum wage exemptions, but Helix Energy Solutions Group, Inc. relied upon a widely applicable “bona fide executive” exemption when Mr. Hewitt demanded overtime pay.  The “bona fide executive” exemption applies to many employees, including most supervisors and managers, provided: (i) the employee satisfies the “salary basis” test, (ii) the employee receives a salary above a statutory minimum (currently $684/week), and (iii) the employee satisfies the “duties test” by performing duties which involve levels of responsibility (e.g., supervising two or more employees, exercising independent judgment, or having specialized knowledge or skills).

The FLSA’s Salary Basis Test. The Department of Labor has modified the “bone fide executive” criteria based upon an employee’s compensation level; thus, highly compensated employees (those employees receiving total annual compensation of at least $107,432.00) need only satisfy one criteria of the “duties test” but still must be paid on a “salary basis.”  In Helix, Mr. Hewitt received a compensation over the statutory minimum and the parties agreed that Mr. Hewitt performed at least one criterion of the “duties test,” thus leaving one issue – did Mr. Hewitt satisfy the “salary basis” test? In part, an employee will be considered to be paid on a salary basis if (i) on a regular basis, the employee receives a predetermined amount, (ii) the amount to be paid is not subject to reduction because of variations in the quality or quantity of the work performed, and (iii) the employee receives the full salary for any week in which the employee performs any work, without regard to the number of days or hours worked. The Supreme Court, in a 6-3 decision, concluded Mr. Hewitt’s wage did not satisfy the “salary basis” test because he was paid only for the days he worked (without a weekly guarantee) and thus did not consistently receive his full salary for any week in which he worked.

Considerations. Paying employees significant sums or a “salary” does not by itself create an exemption from the overtime requirements of the FLSA. Helix was highly determinative on the facts of the case, but it underscores the need for employers to continually evaluate the method of compensation, as well as the duties and responsibilities of each employee before determining whether the employee is exempt or not exempt from the overtime requirements of the FLSA. In Helix, the Supreme Court only addressed the “salary basis” test after the parties agreed that Mr. Hewitt performed the appropriate duties to otherwise qualify him for an overtime exemption.

For additional information about overtime pay exemptions or the Fair Labor Standards Act, contact Kevin Doyle at kdoyle@praywalker.com.