On February 22, 2023, the Supreme Court ruled in Helix Energy Group, Inc. v. Hewitt that an employee (Hewitt) who was classified by his employer (Helix) as exempt from minimum wage and overtime, earning over $200,000 per year, but being paid on a daily rate, did not meet the Fair Labor Standards Act’s (FLSA) highly compensated employee (HCE) exemption and was therefore entitled to overtime.
For context, a HCE is exempt as long as they perform at least one job duty that qualifies as executive, administrative or professional, and if they are “paid a total annual compensation of $107,432 or more, which includes at least $684 per week paid on a salary or fee basis.”
The case rested on whether Hewitt’s being paid at least a minimum amount per day could count as a salary under the FLSA. Under the FLSA, and unless exempt, covered employees must receive at least $7.25 per hour and overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rate of pay. While on the surface, Hewitt’s annual wages met the yearly salary level for an HCE (which at the time this case was filed, was $455 per week or $100,000 per year) but Hewitt’s wages could fluctuate each day based on how much he worked, the court found that this practice was not consistent with being paid on a salary basis, citing that there was no “steady and predictable stream of pay.” In short, Hewitt did not have a weekly guarantee of a salary; as a result, the court found that Hewitt was entitled to overtime pay.
Notably, Helix could have likely met the salary basis requirement by adding a weekly guarantee to Hewitt’s daily rate or by converting his average annual pay to a weekly salary, but Helix neglected to do so. In making this ruling, the court has certified that a guaranteed weekly amount is a critical requirement for satisfying the FLSA’s salary basis test.
Next Steps for Employers
This case should serve as a reminder for employers to ensure that they are reviewing the totality of the requirements for an FLSA white-collar exemption, including both the job duties and any applicable salary basis tests as failure to properly classify and compensate employees can result in significant back pay and liquidated damages. Employers should also critically review the manner in which they are compensating exempt positions to ensure that their practices are consistent with the salary basis requirements under the FLSA.
Multistate employers should also ensure that they review state-specific requirements for exempt status. Some states have stricter duties tests and/or higher salary level thresholds which means that an employer’s compliance obligations may be significantly higher than those under the FLSA.