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On February 22, 2023, the Supreme Court issued a 6 to 3 decision in Helix Energy Solutions Group, Inc. v. Hewitt, ruling that a worker earning over $200,000/year but paid exclusively on a day rate was entitled to overtime compensation under the Fair Labor Standards Act (FLSA or Act). This decision demonstrates how sometimes what is intuitive is not always correct or legal under wage and hour laws.
In Helix, the employer, an offshore oil and gas company, had classified its employee as exempt from overtime under the DOL’s highly compensated employee exemption, 29 CFR 541.601. That exemption requires that an employee be paid on a salary basis, and that they perform at least one exempt duty, i.e. administrative, executive or professional. Specifically, the employee worked 28-day shifts on an offshore oil rig, on duty for 12 hours/day and was paid up to $1,341/day, resulting in annual compensation of over $218,000/year. Yet, the Supreme Court found that his compensation method did not satisfy the salary basis requirement to qualify for the exemption and, therefore, the employer had misclassified this employee.
In its decision, the Supreme Court explained that the “salary basis” requirement for claiming the highly compensated employee exemption requires that an employee receive a guaranteed, predetermined fixed salary on a weekly basis, regardless of the number of days worked. The salary requirement is currently $684/week. Because Helix paid the employee a day rate based on the number of days work and not on a fixed amount on workweek basis, he did not qualify for the highly compensated exemption and therefore, was entitled to overtime wages.
While this case is highly fact specific, it does serve as a word of caution for employers with unconventional compensation methods who seek to use the highly compensated employee exemption from overtime requirements. For example, paying a high earning employee on either a commissions only or a recoverable draw against commissions basis, requiring repayment of unearned draws, does not qualify as a “salary” of a “predetermined amount.”
In light of the Supreme Court’s ruling, employers should carefully scrutinize their exempt employee compensation policies to ensure those policies meet the salary basis test.
Jessica MacKeigan is senior counsel at Walter Haverfield and focuses her practice on labor and employment. She can be reached at jmackeigan@walterhav.com or at 216.928.2928.