SCOTUS Rules on Overtime Exemptions for Highly Compensated Employees

On February 22nd, 2023, the U.S. Supreme Court (the Supreme Court) ruled that highly compensated employees who earn more than $200,000 a year but on a daily rate could be entitled to overtime pay. Although such an employee’s daily rate may even exceed the minimum weekly salary and duty requirements under the Fair Labor Standards Act (FLSA), a daily-pay structure would mean they were a non-exempt employee. The Supreme Court’s ruling confirms an earlier decision in the U.S. Court of Appeals for the Fifth Circuit (Fifth Circuit). In recent years, the U.S. Department of Labor’s (DOL’s) Wage and Hour Division (WHD) has heightened enforcement of the laws it oversees. In January 2023, the WHD fined a contractor $724,000 for denying overtime pay and falsifying records.

What Does the FLSA Say About Highly Compensated Employees?

As the nation’s primary wage law and one of the major employment laws employers must follow, the FLSA establishes minimum wage and overtime pay for non-exempt part-time and full-time employees. Generally, highly compensated employees are exempt from overtime provisions under the FLSA. Under section 13(a)(1) of the FLSA, highly compensated employees perform office or non-manual work and are paid an annual compensation totaling at least $107,432. This total annual compensation must include at least $684 per week on either a salary or fee basis. Finally, these exempt employees must perform at least one of the duties of an executive, administrative, or professional employee. These duties include the following:

• company or departmental management
• regularly directing work
• hiring, firing, promoting, or suggesting such employment actions
• exercising discretion and independent judgment in matters of significance
• performing work that requires advanced knowledge in science or learning acquired through specialized academic training
• using originality, talent, imagination, or invention in a recognized artistic or creative field

Highly compensated employees meeting these qualifications are paid on a salary basis. This means that the employee regularly receives predetermined compensation on a weekly or other regular basis regardless of variations in the workload or working schedule unless they performed no work on a particular workweek.

Background of the Case

From 2014 to 2017, the employee worked as a supervisor on an oil rig at a daily rate of $963. According to the case, the employee worked month-long periods and was guaranteed the daily rate if they worked any amount of time in one day, which mirrors the guarantee provided by a weekly salary rate. Notably, the daily rate of $963 meets and exceeds the $683 weekly rate the FLSA requires. The employee’s duties included regularly supervising 10-12 employees. As such, they satisfied the duties requirement under the FLSA’s executive exemption. The legal issue surrounding the case was whether a guaranteed daily rate, itself greater than the required weekly salary rate, could qualify as a salary under the FLSA.

The Supreme Court’s Decision

Initially, a district court decided in the employer’s favor. However, the Fifth Circuit reversed the earlier decision, holding that a guaranteed minimum daily pay rate did not satisfy the salary-basis requirement in section 602(a) of the FLSA. In Helix Energy Solutions Group, Inc. v. Hewitt, the Supreme Court agreed with the Fifth Circuit’s decision, citing a strict interpretation of the FLSA. According to the judgment, the FLSA defines the salary basis as a minimum guaranteed weekly pay rate or longer. Therefore, a daily rate, regardless of amount, does not meet the legal salary basis. The Supreme Court did note that the employee may have qualified as an exempt highly compensated employee if, in addition to the daily rate, they were guaranteed a minimum weekly salary level. However, the case did not include that element. In the end, the employee is entitled to overtime pay accrued between 2014 and 2017 at a rate of time-and-one-half for hours worked over 40 in a workweek.