Supreme Court Rules that Even Highly Compensated Employees Must be Paid on a Salary Basis to be Overtime-Exempt

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On February 22, 2023, the U.S. Supreme Court ruled that high-earning professionals can only be overtime-exempt if they are paid on a “salary basis” as defined by the Fair Labor Standards Act (“FLSA”). In Helix Energy Solutions Group Inc. et al. v. Michael J. Hewitt, the Court affirmed the Fifth Circuit’s en banc decision that Helix Energy Solutions Group Inc. violated the FLSA by classifying an oil rig worker as exempt under the FLSA because it paid his $200,000+ annual compensation on a day-rate basis instead of a salary basis.

The Court reasoned that the daily basis on which Hewitt was paid 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” was not equivalent to being paid a salary even though he earned over $200,000 annually. The Court further explained that a "true salary" should involve a steady stream of pay workers may rely on week after week. In addition, the court opined that employers could theoretically meet the FLSA’s salary basis requirement by adding a guaranteed weekly amount to a worker’s day rate or by converting the worker's pay to a straight weekly salary for time s/he spends on the rig. Here, the employer did neither.

The Court’s decision relied on a narrow interpretation of the FLSA’s text, ruling that an employee paid exclusively on a day-rate basis cannot meet the salary basis test, even if the day rate exceeds the required weekly salary amount. Justice Kagan summarized the majority’s strict interpretation by writing: “[m]ost simply put, an employee paid on an hourly basis is paid by the hour, an employee paid on a daily basis is paid by the day, and an employee paid on a weekly basis is paid by the week.” Ultimately, because Hewitt’s day-rate pay failed the salary basis test, the Court held he was not exempt from the FLSA’s overtime requirements.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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