On Feb. 22, 2023, the Supreme Court of the United States held that certain highly compensated employees are entitled to overtime under the Fair Labor Standards Act (FLSA) if they are not paid on a salary basis. 

In Helix Energy Solutions Group, Inc. et al. v. Hewitt, 598 U.S. ____ (2023), an oil rig supervisor earning over $200,000 per year sued for overtime, because he was paid a daily rate, as opposed to a weekly, predetermined salary. Helix Energy defended on the grounds that Hewitt was an exempt executive employee — in fact, a highly compensated exempt executive employee. 

The dispute throughout the litigation was whether Hewitt met the requirement under Department of Labor regulations of being paid on a salary basis. With Justice Kagan delivering the majority opinion, the Supreme Court held:

• To qualify as an exempt highly compensated employee or an exempt executive employee, the salary basis requirement must be met;
• A traditional “salary basis” compensation structure as defined in 29 C.F.R. § 541.602(a) is met only when the worker is guaranteed the minimum required amount ($684) on a weekly basis; and
• Daily-rate employees can satisfy this salary basis test, but only if the requirements of § 541.604(b) are met — namely, that the employee’s wages include a guaranteed minimum amount they receive “regardless of the number of … days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned.”

The Supreme Court rejected Helix Energy’s contention that Hewitt met the salary basis requirements of § 541.602(a) merely because he always received more than the required minimum salary amount on his biweekly paychecks. Justice Kavanaugh’s dissent argued the case should have been dismissed because Hewitt’s daily pay of $963 far exceeded the required minimum weekly salary amount. Justice Kagan dismissed this as “a non-sequitur to end all non-sequiturs” based on the text of § 541.602(a), which defines “salary basis” as a “predetermined amount” and a “full weekly salary” to which the worker is entitled “without regard to [the] number … of days or hours” worked. “Nothing in that description fits a daily-rate worker, who by definition is paid for each day he works and no others,” Justice Kagan explained. In other words, no matter how high the rate of compensation, § 541.602(a) is not met unless “the paycheck reflects how many weeks—not days or hours—he has worked.” 

The Supreme Court also rejected Helix Energy’s policy-based argument that this interpretation would lead to windfalls for highly compensated employees, countering that an opposite interpretation of the salary basis requirement would result in many traditionally day-rate earners losing the benefit of overtime, such as nurses. That is because the salary basis requirement — and the reasoning of the Helix decision — applies equally to executive employees who are considered “highly compensated” and those who are not.

Takeaways for Employers

In sum, the Supreme Court confirmed there is a difference between the highly compensated employee exemption for those with annual compensation of $107,432 or more and the general executive employee exemption for those earning under that amount — “it just has nothing to do with the salary-basis requirement.” The duties test is relaxed for the highly compensated employee, but not the minimum salary requirement. 

This case highlights the importance of being able to demonstrate compliance with every single element of the exemption exactly as set forth in the regulations. Accordingly, employers should review their compensation structures for exempt employees carefully to ensure the salary basis and duties tests are met to minimize the risk of expensive overtime claims by highly compensated employees. How employees are paid could dramatically affect how much they ultimately cost an employer.