Mar 06, 2023

Supreme Court Rules HCEs May Be Eligible for Overtime

It seems contrary to long-standing policy and even common sense, but in a recent ruling, the Supreme Court decided that in certain situations, highly paid employees can earn overtime pay. Read on to see if you're affected.

You may think that the terms "highly compensated worker" and "overtime pay" don't belong in the same sentence, but the Supreme Court disagrees. HCEs can receive overtime if they are paid on a daily basis. In this case, Helix Energy Solutions Group, an offshore oil and gas firm based in Houston, claimed a former employee — Michael Hewitt — was exempt from overtime pay because he was a highly paid executive. He claimed he should get retroactive overtime pay because Helix calculated his pay using a daily rate — and the Supreme Court agreed.

A wide-ranging effect

The court's decision has broad implications for employers who have historically paid on a day-rate basis. The case hinged on whether being paid at least a minimum amount per day can count as salary. The court ruled that the defendant company was not paying a salary as defined by the Fair Labor Standards Act, so the highly paid worker wasn't exempt from overtime.

In its ruling, the court determined that employees who are paid a daily rate—whatever the income level—must satisfy a two-part salary-basis test:

1. The employee is paid at least $455 each week.
2. The guaranteed amount computed on a daily basis "must bear a 'reasonable relationship' to the 'amount actually earned.'"

However, the payment scheme of the employer in the Helix case didn't satisfy the test because it didn't guarantee that the employee would receive a weekly amount but rather a daily amount.

Hewitt worked on an offshore oil rig for Helix at a daily rate of $963, typically for 12 to 14 hours a day, seven days a week, during a 28-day "hitch," followed by 28 days off. He was paid every other week for the days worked in a pay period and earned an income of more than $200,000 annually.

What this means

If you pay employees on a day-rate basis, you should carefully examine with counsel your practices in light of the court's opinion to determine whether you're at any risk for unpaid overtime and if there are any steps available to mitigate that risk.

The court concluded that workers paid a daily rate don't qualify as salaried workers, no matter how high the daily rate. The FLSA test explicitly excludes day-rate workers if the term "salary" means that employees receive a fixed amount per week, no matter how many days they worked. The court rejected Helix's contention that Hewitt was a salaried worker because he was paid every two weeks and received at least $455 for the weeks that he worked.

The long-standing position of the U.S. Department of Labor is that day-rate pay doesn't satisfy the salary requirement of the FLSA overtime exemptions. Hewitt acknowledged he performed duties of an overtime-exempt executive by supervising a dozen or more workers. He was guaranteed at least $963 in any week he worked even a single minute.

Helix argued he should have been exempt from FLSA overtime requirements under the streamlined test for HCEs, which allows employers to avoid paying overtime to employees who

• customarily and regularly perform only one of the exempt duties, and
• have a total annual compensation of at least $107,432, including at least $684 per week paid on a salary basis.

The critical question, according to the court, was whether the employer paid the plaintiff on a salary basis. The regulation applies only to employees paid by the week or longer; it doesn't apply when an employer pays an employee by the day, as in the Helix case.

This is just a summary of a complex case, and more guidance is likely to come. Companies should not make any immediate changes based solely on a summary, but if they believe this could affect them, they should consult a lawyer well versed in federal labor rules.

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