Supreme Court Says Highly Compensated Supervisor Eligible for Overtime
Mar 10, 2023 | Written by: | Share
On February 22, 2023, the U.S. Supreme Court ruled that an employee who earned over $200,000 per year was entitled to overtime under the Fair Labor Standards Act (FLSA). The Supreme Court ruled that such a highly compensated employee was entitled to overtime pay because his employer compensated him on a daily rate basis, rather than on a salary basis.
Typically, executives, administrative professionals and outside sales employees who are paid a certain salary basis are exempt from both the minimum wage and the overtime provisions of the FLSA. In the subject case, Helix Energy Solutions Group, Inc. v. Hewitt, Hewitt worked as a “toolpusher” on an offshore oil rig. In this capacity, he oversaw various aspects of the rig’s operations and supervised 12 to 14 workers. He typically worked 12 hours a day, seven days a week, or 84 hours per week. Although he performed executive duties, he was paid a daily rate of $963 to $1,341 rather than an annual salary.
Despite regularly working 84 hours or more per week when on the oil rig, Hewitt received no overtime pay. His paychecks showed he was paid a daily rate multiplied by the number of days over each two-week period he worked, rather than a set salary for every week he worked. The Supreme Court agreed to review the case to determine whether a highly paid employee is compensated on a “salary basis” when his or her paycheck is based solely on a daily rate. In agreeing with a 2021 ruling by the New Orleans-based Fifth U.S. Circuit Court of Appeals, the Supreme Court decided that Hewitt was not paid on a “salary basis” and was therefore entitled to overtime pay. The Court noted that, “A worker paid by the day or hour—docked for time he takes off and uncompensated for time he is not needed—is usually understood as a daily or hourly wage earner, not a salaried employee. So, in excluding those workers—once again, because they do not receive a preset weekly salary regardless of the number of days worked—the salary-basis test just reflects what people ordinarily think being ‘salaried’ means.”
Under the FLSA regulations, employees are considered executives and are exempt from overtime pay if they are compensated on a salary basis at a rate of not less than $684 per week, (the “salary level test”) and carry out three responsibilities, which include managing, directing other employees, and exercising power to hire and fire (the “duties test”). There is a separate rule for highly compensated employees who make at least $107,432 per year. Those employees cannot receive overtime pay if they have supervisory duties and are paid at least $455 per week in the form of a salary.
Had Helix paid Hewitt a weekly salary regardless of how many days he worked in a week, he would have been properly classified as exempt under the FLSA’s overtime rules. The Court noted that the FLSA regulation at issue that does not permit overtime pay “applies solely to employees paid by the week (or longer); it is not met when an employer pays an employee by the day, as Helix paid Hewitt,”.
If you are an employer who has historically paid “day rates” rather than a salary, you do have options if you do not wish to pay your employees overtime. In Hewitt, the Supreme Court laid out two alternatives for employers to satisfy the salary-basis requirement: (1) employers could add to the employee’s per-day rate a weekly guarantee to satisfy the $455 per week threshold, or (2) employers can convert an employee’s compensation to a straight weekly salary.
If you have any questions about the Supreme Court’s decision in Helix Energy Solutions Group, Inc. v. Hewitt or how it may impact you, please reach out to one of our employment law attorneys.
Sharon M. Flynn, Esq. is a partner with Gebhardt & Kiefer, PC, and practices primarily in the areas of general litigation, employment law, and insurance defense.
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Any statements made herein are solely for informational purposes only and should not be relied upon or construed as legal advice.