Classification of employees under the Fair Labor Standards Act (FLSA) remains a high-risk area where employers can easily misstep, potentially incurring thousands of dollars in overtime pay, liquidated damages, attorneys fees, and other costs. The “white-collar” exemptions remain a highly fact-intensive analysis for employers.
Recently, the U.S. Sixth Circuit Court of Appeals joined the Fifth Circuit in holding that the salary basis test remains unchanged even for an employer who relies on the highly-compensated exemption for highly-paid employees. Under the FLSA, it may not be enough for employers to guarantee that an employee is paid above the weekly compensation threshold (currently $684 per week), but employers should ensure that highly-compensated employees are paid an actual, predictable salary. Employers should confirm that their employees are classified correctly, as missteps can be costly for both the employer and employee.
Employers are well aware of the risks surrounding the classification of employees and the “salary basis” requirement – a necessary element in deciding whether an employer qualifies for an exemption to overtime pay under the FLSA’s executive, administrative, and professional exemptions exception. To qualify, an employee must be paid on a salary basis of at least $684 a week and perform certain duties. In order to qualify for the reduced duties test for highly compensated employees, an employee must annually earn at least $107,432. Recently, the Sixth Circuit confirmed that the salary requirement states an employee must receive a consistent payment each week that is not dependent on the number of hours worked.
On April 1, 2025, the Sixth Circuit released its decision in Pickens v. Hamilton-Ryker IT Solutions. In Pickens, a pipe inspector filed a claim under the FLSA for unpaid overtime compensation, alleging that his employer misclassified him as an exempt employee, when he should have been classified as a non-exempt employee entitled to overtime pay. The Sixth Circuit agreed with the misclassification.
From a compensation perspective, the pipe inspector was paid $100 per hour with a guaranteed weekly amount of $800. The pipe inspector also received $100 an hour for all hours in a week that he worked over eight hours. The average pipe inspector works 52 hours each week, earning approximately $274,000 in a year. This flexible pay, according to the Sixth Circuit, was sufficient to establish that the employee was paid hourly and not a fixed salary.
The court stated that the employer failed to pay the employee a salary because his weekly guaranteed pay of $800 was not equivalent to a week of work and was not equivalent to his usual weekly earnings. This emphasizes the requirement that payment on a salary basis requires the employee to receive a predetermined amount each pay period that does not fluctuate based on the number of hours worked. As the employee’s weekly compensation varied greatly depending on how many hours over eight that he worked, his weekly guarantee did not function as a true salary even where it exceeded the minimum weekly salary threshold of $684.
Of note, the employer argued that the Department of Labor (DOL) did not have the authority to promulgate the salary limits under the FLSA. The Sixth Circuit followed suit regarding all other court of appeals that have considered the “define and delimit” scope of the DOL and upheld the validity of the DOL’s authority.
Employers should take note that the Supreme Court may be ripe to take up this issue on appeal. The underlying Supreme Court decision – Helix Energy Solutions Group, Inc. v. Hewitt – does not directly address whether the DOL has the authority to establish salary limits for the salary exemption of the FLSA.
For employees who are misclassified under the FLSA, it can cost employers thousands – if not hundreds of thousands – of dollars in unpaid overtime, on top of liquidated damages, attorneys’ fees and costs.
