Highly compensated employees may still be eligible for overtime pay

If an employee is salaried and earns more than $200,000 annually they are ineligible for overtime pay. You may assume that any employee making that much must be salaried, but that is not always the case.

This is demonstrated in the recent U.S. Supreme Court case of Helix Energy Solutions Group, Inc. v. Hewitt.

The FLSA rules
Under the Fair Labor Standards Act (FLSA), hourly “nonexempt” wage earners generally must receive overtime pay for hours worked beyond 40 hours per workweek. A workweek does not need to be a calendar week — for example, a Wednesday to Tuesday workweek would qualify.

To be exempt from overtime (and minimum wage) regulations, most employees need to be paid at least $684 per week or $35,568 annually. This is known as the salary level test. An exempt employee must also pass the job duties test, the conditions for which vary by position. For instance, to qualify for the executive exemption, the job duties test stipulates that:

The employee’s primary duty must be managing the enterprise or a department or subdivision of the enterprise,

The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalents, and

The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other employment status change must be given particular weight.

Case details
In the aforementioned Supreme Court case, the employee involved was a “tool-pusher” whose duties included supervising other offshore oil rig workers. He was paid a daily rate ranging from $963 to $1,341 per day, resulting in earnings of more than $200,000 annually. Under the compensation scheme, the daily rate increased each consecutive day worked.

The employee filed suit claiming his employer violated the FLSA’s overtime provisions. In response, the company argued that he was exempt from overtime pay as a “bona fide executive.”

To qualify for such an exemption, an employee must meet the salary level and job duties tests as mentioned above. But the employee also needs to satisfy the salary basis test. Under FLSA regulations, a bona fide executive may satisfy the salary basis test if the person is a highly compensated employee (HCE) — that is, one who earns at least $107,432 or more per year (or $100,000 per year before January 1, 2020).

The Court’s decision
The Supreme Court held in a 6-3 ruling that an HCE who is paid at a daily rate is not considered to be paid a salary. Therefore, the employee in question was not exempt from receiving overtime pay.

In its majority opinion, the Court reasoned that the HCE rule is not only a “simple income level” test for the purposes of exemption. It noted that the employer could have satisfied the exemption if the daily rate was a weekly guarantee that satisfied applicable regulations, or if compensation had been a straight weekly salary.

The Court was not swayed by the company’s objection that paying a weekly guaranteed daily rate or straight weekly salary would have resulted in the employee receiving compensation for days he did not work. According to the Court, this only further showed that the employee was not paid a salary and, thus, did not meet the requirements for the exemption from overtime pay.

Current and compliant
The business is only one of many that have been tripped up by the FLSA’s rules. If your company pays employees overtime, has questions on highly compensated employees or what counts as a salaried employee, contact your Rudler, PSC advisor to discuss. Our firm can help you stay current and compliant with the latest applicable regulations.

Helix Energy Solutions Group, Inc. v. Hewitt, No. 21-984, February 22, 2023 (U.S. Supreme Court)

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