The Fair Labor Standards Act (FLSA) is a federal law that was enacted in 1938. The law establishes minimum wage, overtime pay, record-keeping, and youth employment standards throughout the United States. The FLSA requires employers to pay their employees time-and-a-half for all hours worked over 40 in a workweek, unless the employee falls under certain exemptions. One of the exemptions is the white-collar exemption for bona fide executives, which requires employees to pass three distinctive tests. However, the Supreme Court of the United States issued an important decision in Helix Energy Solutions Group, Inc. v. Hewitt on whether highly compensated employees, who are paid on a daily-rate basis, were entitled to overtime compensation under the FLSA.
Hewitt’s Payment Method
Helix Energy Solutions Group paid Hewitt, an engineer who oversaw the company’s offshore oil and gas drilling operations, on a daily-rate basis with no overtime compensation. Hewitt’s pay structure was typical in the industry where employers pay their employees a predetermined amount each day regardless of the number of hours worked. The company argued that Hewitt was exempt from overtime because he was a “bona fide executive” under the FLSA.
Exempt Executive Argument
Under the FLSA, an employee is considered an exempt executive if the employee meets three distinct tests: (1) the employee must be paid on a salary basis, (2) the employee’s primary duty must be managing the enterprise or a customarily recognized department or subdivision of the enterprise, and (3) the employee must customarily and regularly direct the work of two or more other employees. Helix argued that Hewitt met all three tests because he was responsible for overseeing drilling operations and had a significant role in the company’s decision-making process.
The FLSA establishes the salary-basis test, the duties test, and the salary-level test for white-collar exemptions. The salary-basis test requires the employee to receive a predetermined amount of compensation each pay period that is not subject to reduction due to variations in the quality or quantity of work performed. The employee’s primary duty must involve executive, administrative, or professional duties under the duties test. The employee’s salary must meet a minimum threshold under the salary-level test.
Highly Compensated Employees Test
For highly compensated employees who earn over $100,000 per year, the duties test is relaxed, but the salary-basis test remains the same. Under the FLSA regulations, a highly compensated employee is any employee who customarily and regularly performs at least one of the duties of an executive, administrative, or professional employee and earns a total annual compensation of $107,432 or more.
Regarding Hewitt’s eligibility for the executive exemption, there was no dispute that he met the duties test for the white-collar exemption as his primary responsibility was managing the company’s offshore drilling operations. However, the Supreme Court found that Hewitt did not pass the salary-basis test because his payment structure based on daily-rates did not satisfy the FLSA’s criteria for a fixed salary. The Court’s decision was that the salary-basis test demands an employee to receive a “predetermined amount each pay period” which is not met by a day-rate payment plan.
Regarding the Supreme Court decision, it was ruled that Hewitt was entitled to overtime compensation as he did not meet the salary-basis test for the white-collar exemptions from overtime under the FLSA. The court held that a fixed salary is required under the plain text of the salary-basis test and that a day-rate payment plan does not meet this requirement. Additionally, the Court noted that the FLSA does not exempt highly compensated employees paid on a day-rate basis from receiving overtime pay.
Implications for Employers
The Supreme Court’s ruling in Helix Energy Solutions Group, Inc. v. Hewitt has significant implications for employers who pay their employees a day rate. Even if such employees are highly paid, employers should ensure that they receive any applicable overtime compensation when they work more than 40 hours per week. Employers may also have to reconsider their pay structures and ensure that their employees satisfy the salary-basis test for the white-collar exemptions under the FLSA.
The Supreme Court’s decision in Helix Energy Solutions Group, Inc. v. Hewitt clarifies that employees paid on a day-rate basis are entitled to overtime compensation because they do not meet the salary-basis test for the white-collar exemptions from overtime under the FLSA. Employers should review their pay structures and ensure they comply with the FLSA’s overtime compensation rules for highly compensated employees paid on a daily-rate basis. The ruling is a reminder that employers must comply with the FLSA’s obligations, including its overtime pay requirements, to avoid liability for wage and hour violations.