Employment Advisory: “Highly Compensated” Employee Entitled to Overtime Pay?

CLEVELAND, OH, February 24, 2023 – U.S. Supreme Court Upholds Overtime Pay for Highly Compensated Employee

This week the U.S. Supreme Court ruled in favor of an employee of an energy company in a landmark case involving overtime pay requirements.

Michael Hewitt, a supervisor on an off-shore oil rig for Helix Energy Solutions, earned more than $200,000 per year, an amount that qualified him as a “highly compensated” employee under the Fair Labor Standards Act (FLSA). Still, Hewitt argued that he was entitled to overtime pay for hours worked in excess of 40 in a workweek, despite his “highly compensated” status. His argument was based on the fact that he was not paid on a salary basis – a requirement under the FLSA. Rather, Helix paid Hewitt a daily rate of $963 regardless of the number of hours he worked in a given workweek.

The Fifth Circuit Court of Appeals decided that since Hewitt was not paid on a salary basis, he was “non-exempt” and entitled to overtime pay for hours worked in excess of 40 in a workweek. Helix appealed. In a 6-3 decision authored by Justice Elena Kagan, the U.S. Supreme Court held that Hewitt qualified for overtime pay because he was paid by the day, rather than on a salary basis. As Kagan wrote, “the concept of ‘salary’ is linked, ‘[a]s a matter of common parlance,’ to ‘the stability and security of a regular weekly, monthly, or annual pay structure.’” Specifically, daily-rate workers, of whatever income level, qualify as paid on a salary basis only if the conditions set out in §541.604(b) of the FLSA are met (i.e., the employer provides a guarantee of regular weekly compensation approximating what the employee usually earns).

Under the FLSA, there are three key factors in determining whether an employee is exempt from overtime pay:

• The employee must be compensated on a salary basis;
• The employee must earn a minimum of $684 per week or $35,568 annually; and,
• The employee must be considered “exempt” under one of the classifications identified by the Department of Labor (i.e., administrative, professional, IT, etc.).

The Hewitt decision confirms that an employee cannot be considered “exempt” if they are not paid on a salary basis.

The Supreme Court’s decision could have huge implications for employers who may treat non-salaried employees as “exempt” from overtime pay laws. The issue of whether a particular employee is “exempt” under the FLSA can be tricky, particularly where alternative pay structures are utilized, and should be discussed with qualified legal counsel.

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