Supreme Court Rules Highly-Paid Employee Owed Overtime, Not Paid on a Salary Basis

On February 22, the U.S. Supreme Court ruled that a highly compensated employee (HCE) was owed overtime under the Fair Labor Standards Act (FLSA) since he was paid a daily rate and not on a salary basis [Helix Energy Solutions Group, Inc. v. Hewitt, No. 21-984 (2023)].

The Supreme Court held that daily rate workers, of whatever income level, qualify as being paid on a salary basis only if the conditions set out in the federal regulations are met. The employee in this case earned over $200,000 annually. The compensation requirement for an HCE is $107,432 or more per year (see the White Collar Exemptions Compliance Hot Topic page).

What the Law Says

Under 29 CFR §541.604(b), an HCE must be paid on a salary basis to avoid overtime. The wages may be computed on an hourly, a daily, or a shift basis, without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes:

1. A guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days, or shifts worked
2. A reasonable relationship exists between the guaranteed amount and the amount actually earned

FLSA Exemption Not Met

The Supreme Court held that Hewitt was not an executive exempt from the FLSA’s overtime pay guarantee because he was not paid on a salary basis. Instead, Hewitt’s paycheck was based solely on a daily rate in that he received a certain amount if he worked one day in a week, twice as much for two days, three times as much for three, and so on.

To learn more about federal and state laws, regulations, and information to keep your company's payroll operations in compliance, check out Payroll Source Plus!

Jyme Mariani, Esq., is Managing Editor of Payroll Currently and Senior Manager of Payroll Information Resources for the APA.