The U.S. Supreme Court issued a decision on February 22, 2023, holding the Fair Labor Standards Act’s (FLSA’s) salary-basis test for determining whether an employee is exempt requires a worker to be paid, at minimum, a guaranteed weekly salary, even if the employee is highly paid. In Helix Energy Solutions Group, Inc. v. Hewitt (U.S., No. 21-984, Feb 22, 2023), an offshore oil rig employee filed a suit against his former employer to recover overtime pay after he was paid on a daily-rate basis, or a specified amount for each day worked. The employer argued that the former employee was exempt from the FLSA’s overtime requirement because he was a qualified executive.
Under the FLSA, for a position to be classified as exempt, it must (1) be paid on a guaranteed salary basis; (2) be paid a salary of at least $684 a week or $35,568 a year, per the federal guidelines for 2023; and (3) perform duties meeting one or more of the exemption tests: outside sales, executive, professional, and administrative. Here, both parties agreed on the latter two elements; that the former employee’s duties met the executive exemption test and that he met the salary threshold since he was paid over $200,000 annually. As a result, the Supreme Court’s decision turned solely on whether the former employee was paid on a guaranteed salary basis.
During his tenure, the former employee was paid a daily rate ranging from $963 to $1,341 per day. If the former employee only worked one day in the two-week pay period, his paycheck would have a gross pay of $963, but if he worked all 14 days of the pay period, he would receive a gross pay of $13,482. Section 602(a) of the Secretary of Labor’s regulations states, “an employee will be considered to be paid on a “salary basis” … if the employee regularly receives each pay paid period on a weekly, or less frequent basis, a predetermined amount of compensation.” (See 29 CFR §541.602(a).) In a majority opinion written by Justice Elena Kagan, the Court held the §602(a) requirement is met for employees with guaranteed pay, “paid by the week or longer pay period,” and it is not met when “an employer pays an employee by the day.”
As a result, the Court found the salary-basis test is not met when an employee is paid on a daily-rate basis, and, therefore, employees paid in that manner cannot be considered exempt. To be an exempt employee, even if they are a high earner, the employee must be guaranteed at least the minimum weekly required amount set by the FLSA regulations, regardless of the number of hours or days they work.
Helix is an important reminder for employers to be careful when classifying employees as exempt, and despite an employee’s duties and annual salary, they may still be entitled to overtime if they are not guaranteed weekly pay. Employers Council can assist with evaluating whether a position should be classified as exempt and can provide guidance on making corrections for employees improperly classified. You can also find numerous resources about paying workers correctly on our website. If you have any questions, please contact us at info@employerscouncil.org.
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