SCOTUS Upholds Fair Labor Standards Act Salary Basis Test for Highly-Compensated Employees

On February 22, 2023, the United States Supreme Court affirmed the importance of long-standing U.S. Department of Labor salary pay regulations.  In Helix Energy Solutions Group Inc. et al. v. Michael J. Hewitt, (Case No. 21-984), the Court, in a 6-2-1 opinion, held that high-earning professionals can only be overtime-exempt if they are paid on salary basis.  The case involved Michael Hewitt, a former offshore oil rig worker for Helix Energy Solutions Group Inc.  Hewitt was an overtime-exempt employee earning more than $200,000 per year, but was paid on a daily rate instead of on a salary basis.  The crux of the petition was how the salary requirements should apply specifically to the highly compensated worker rule, a subset of the white collar exemptions that has a relaxed duties test, but requires a worker's total earnings equal at least $107,432.

Justice Elena Kagan, writing for the majority, stated that, “The question here is whether a high-earning employee is compensated on a ‘salary basis’ when his paycheck is based solely on a daily rate — so that he receives 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.”  The decision entailed a plain reading of 29 C.F.R. § 541.602(a), which states, in part, that, “An employee will be considered to be paid on a ‘salary basis’ . . . if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee's compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.”

Justice Kagan emphasized that “an employee is paid on a salary basis only if [he] receives the fully salary for any week in which [he] performs any work without regard to the number of days or hours worked. The full salary amount is not subject to reduction because the employee worked less than the full week. That's because a ‘true salary’ is ‘a steady stream of pay’ which the employer cannot much vary and the employee may thus rely on week after week.” 

Given the plain reading of 29 C.F.R. § 541.602(a), Hewitt was a daily-rate employee that did not fall within § 602(a) of the FLSA’s statutory language.  “That section 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.”

What Employers Need to Know

The decision affirms that highly compensated employees who are paid on a daily rate and not on a salary basis are not exempt from overtime pay under the FLSA’s regulations. To be exempt, employees must be paid on a salary basis, meaning their predetermined pay must be “calculated on a weekly, or less frequent basis” and not tied to the hours worked per week. The regulations also state workers paid on an hourly, daily, or shift basis can be classified as salaried, and thus overtime exempt, as long as their employer guarantees “at least the minimum weekly-required amount” despite the number of hours, days, or shifts worked.

If you are an employer with questions about how your business may be affected by this new decision, contact your Dinsmore Labor and Employment attorney to discuss.