On February 22, 2023, the U.S. Supreme Court ruled in Helix Energy Solutions v. Hewitt that highly compensated employees paid on a daily rate basis, rather than on a salary basis, are not exempt from the Fair Labor Standards Act’s (FLSA) overtime requirements.
In Hewitt, the employee worked as a supervisor on an offshore oil rig. Hewitt performed exempt executive duties but was paid a daily rate of $900 to $1,300 rather than an annual salary. He generally worked 84 hours a week. Annually, Hewitt earned more than $200,000 from Helix.
Under the FLSA, any “employee employed in a bona fide executive, administrative, or professional capacity” is exempt from overtime pay. To be classified as a “bona fide executive,” an employee must be paid on a salary basis and be compensated at a minimum rate of $455 (now $684) per week. Under § 541.602(a) of the FLSA, an employee is considered to be paid on a “salary basis” if he or she “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.” Conversely, under § 541.604(b) of the FLSA, an employer may compute an exempt employee’s pay on an hourly, daily or shift basis “if the employment arrangement also includes a guarantee of at least” $455 (now $684) per week “regardless of the number of hours, days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned.”
In affirming the decision of the U.S. Court of Appeals for the Fifth Circuit, the Supreme Court concluded that highly compensated daily-rate employees, like Hewitt, are not paid on a “salary basis” so as to be exempt from overtime pay. The Supreme Court reasoned that the language of § 541.604(a) excludes daily-rate employees because the provision expressly requires that the employee’s compensation be predetermined for a “unit” of at least one week. The Supreme Court determined that it is not enough, as in Hewitt’s case, that an employee receive a predetermined amount for each day worked in the form of a bi-weekly paycheck.
The Supreme Court further concluded, and Helix acknowledged, that Hewitt’s compensation did not satisfy the conditions of § 541.604(b) because Helix did not guarantee Hewitt would receive an amount above $455 each week bearing a “reasonable relationship” to the weekly amount he typically earned.
It is important to note that employers who have historically paid “day rates” rather than salary have options if they do not wish to pay overtime. In Hewitt, the Supreme Court laid out two alternatives for such employers to satisfy the salary-basis requirement: (1) employers could add to the employee’s per-day rate a weekly guarantee to satisfy § 541.604(b)’s conditions, or (2) employers could convert the employee’s compensation to a straight weekly salary.
