On February 22, 2023, the Supreme Court of the United States (SCOTUS) ruled that an employee who was classified by their employer as bona fide exempt, earning over $200,000 per year, but paid on a daily-rate basis didn’t meet the Fair Labor Standards Act’s (FLSA) highly compensated employee (HCE) exemption and was entitled to overtime.
The court’s decision focused on the fact that the employee was paid on a daily-rate basis, not a salary basis as required for the exemption, so he didn’t meet the HCE exemption requirements. According to the decision, “the critical question here is whether Hewitt (employee) was paid on a salary basis under C.F.R. § 541.602(a). A worker may be paid on a salary basis under either § 602(a) or § 604(b). But Helix (employer) acknowledges that Hewitt’s compensation did not satisfy § 604(b)’s conditions. And the Court concludes that Helix did not pay Hewitt on a salary basis as defined in § 602(a).”
Under the FLSA, and unless exempt from it, covered employees must receive at least the federal minimum hourly wage ($7.25) and overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay. The regulations contain a special rule for “highly compensated” employees who are paid a total annual compensation of $107,432 or more. An HCE is exempt if:
They earn a total annual compensation of $107,432 or more, which includes at least $684 per week paid on a salary or fee basis;
Their primary duty includes performing office or non-manual work; and
They customarily and regularly perform at least one of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee.
Per the court’s opinion, “ . . . a high-earning employee [who] is compensated on a “salary basis” when his paycheck is based solely on a daily rate—so that he 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, . . . is not paid on a salary basis, and thus is entitled to overtime pay.”
Helix Energy Solutions Group, Inc. v. Hewitt; Wage and Hour Division: Overtime Pay