According to a recent U.S. Supreme Court decision, the answer could depend on how their compensation is calculated.
In Helix Energy Solutions Group, Inc., et al. v. Hewitt, the Supreme Court held that Mr. Hewitt, an oil rig worker who earned more than $200,000 annually, was entitled to overtime compensation under the Fair Labor Standards Act (FLSA) to the tune of several hundred thousand dollars because he was not paid on a “salary basis,” as required for exemption from overtime requirements as an executive.
Generally, FLSA guarantees overtime pay to employees who work more than 40 hours in a week. However, FLSA exempts certain categories of employees from the overtime requirement, including administrative employees, professional employees, and executives.
An employee may qualify as an exempt executive in one of two ways. Employees who earn less than $107,432 annually, may qualify as an exempt executive if they are: (1) paid on a “salary basis,” (2) earn at least $684 per week for any week in which they perform work, and (3) perform three executive-level duties: managing an enterprise or department, directing at least two full-time equivalent employees, and exercising the power to hire and fire.
By comparison, executives who earn more than $107,432 annually, may qualify as exempt “highly compensated employees,” if they are: (1) paid on a “salary basis,” (2) earn at least $684 per week for any week in which they perform work, and (3) perform just one of the above executive-level duties. The requirements to qualify as exempt as a “highly compensated employee” are more relaxed, but all requirements must still be met.
Employees are considered to be paid on a “salary basis” if they receive each pay period a predetermined amount constituting all or part of the employee’s compensation, which is not subject to reduction based on the quality of the employee’s work or number of hours worked by the employee in a work week.
In Mr. Hewitt’s case, he worked for Helix Energy Solutions Group as a “tool pusher” on an offshore oil rig. He typically worked 12 hours a day, seven days a week, for a 28-day “hitch” on the rig, then had 28 days off before his next “hitch.” Helix paid Mr. Hewitt bi-weekly on a daily-rate basis which amounted to between $963 and $1,341 per day, with no overtime compensation. Based on this compensation scheme, Mr. Hewitt earned more than $200,000 annually between 2014 and 2017; however, he was not guaranteed a predetermined amount of pay per week.
Both Mr. Hewitt and Helix agreed that Mr. Hewitt met two of the three requirements to be considered a highly compensated, exempt executive. He earned the required minimum pay for each week in which he worked at least one day (at the time, $455 per week, currently $684 per week) and he performed at least one of the executive-level duties required for exempt status. The issue in dispute was simply whether he was paid on a “salary basis.”
Helix argued that Mr. Hewitt was paid on a “salary basis” because he received his paycheck every two weeks, and for any week that he worked even a single day, his pay exceeded the required minimum. Further, his pay was not subject to reduction based on hours worked because he was paid the full daily rate for any day he worked, regardless of the number of hours worked. In contrast, Mr. Hewitt argued that the term “basis” meant how the pay was calculated (i.e., daily), not how often he received it.
Ultimately, the Court agreed with Mr. Hewitt and determined that any compensation scheme calculated more frequently than weekly did not fall under the statutory definition of “salary basis.” The Court reasoned that this is consistent with our typical understanding of the term “salary,” which denotes a fixed weekly, monthly, or yearly compensation. Since Mr. Hewitt was paid at a daily rate, he was not paid on a “salary basis” and did not qualify as exempt.
As a last resort, Helix urged the Court to consider the policy implications, most notably that highly compensated employees such as Mr. Hewitt would be entitled to a windfall of additional overtime compensation, which could create significant retroactive liability for unpaid overtime wages and lead to disruption of business. The Court stated the FLSA does not deprive workers of the benefits of the Act “simply because they are well paid.”
Notably, the Court suggested ways that Helix could come into compliance with the salary basis requirement, such as converting the compensation scheme to a weekly salary or guaranteeing weekly compensation that is “roughly equivalent” to an hourly, daily, or shift rate employee’s usual earnings in a normal workweek, as permitted by the FLSA.
In light of this decision, employers should examine their existing pay structures to ensure they are compliant with the FLSA’s salary basis requirements for all employees who are classified as exempt, especially hourly, daily, or shift rate workers.
For more information about this or any other employment concerns, please contact Casey D. Brinks or any member of the employment law practice group.
This information has been prepared by Tydings for informational purposes only and does not constitute legal advice.