Supreme Court Rules That Employee Earning Six Figures Is Also Entitled to Overtime Pay

On February 22, 2023, the United States Supreme Court ruled in a 6-3 decision that an employee who earned over $200,000 annually was still entitled to overtime pay under the Fair Labor Standards Act (FLSA). The Court’s opinion sheds light on when employers must provide highly compensated employees (HCE) overtime pay.

Helix v. Hewitt: What Is a Salary?

In the case, Helix Energy Solutions Group, Inc. v. Hewitt, Michael Hewitt alleged that his employer, an international offshore energy services company (Helix), failed to pay him overtime in violation of the FLSA. Hewitt worked over 84 hours in a week on an offshore oil rig at a rate of $963 per day. Helix argued that Hewitt was a “highly compensated employee” based on his pay and supervisory duties, and therefore subject to the FLSA’s exemption from overtime pay. A “highly compensated employee” (HCE) is exempt from the FLSA’s overtime pay requirement if the employee earns at least $107,432 annually; is paid at least $684 per week on a salary basis; regularly performs office or non-manual work as a part of their primary duty; and carries out certain executive, administrative, or professional job responsibilities. At the relevant time of Hewitt’s case, the annual salary and weekly pay thresholds were $100,000 and $455 respectively.

Affirming the Fifth Circuit’s decision for Hewitt, the Court found that the FLSA’s HCE exemption did not apply because he was not paid on a “salary basis” as defined under § 29 CFR 541.602(a). The regulation provides that a “salary basis” is the payment of a predetermined amount on a “weekly, or less frequent basis.” Accordingly, the Court explained that Hewitt did not qualify as a “salaried” employee because he was paid based on the number of days—not weeks—he worked.

Additionally, the Court noted that Hewitt did not meet the “special rule” under 29 CFR § 541.602(b). The rule allows a daily-rate worker to be deemed salaried if they (1) receive a guarantee of weekly payment; (2) such payment is reasonably related to their approximate earnings; and (3) the payment is not less than the regulatory minimum ($455 per week at the time of the case, now raised to $684 per week). Justices Brett Kavanaugh and Samuel Alito noted in dissent that Hewitt would receive the weekly regulatory minimum in any week that he worked, as Hewitt’s daily rate of $963 was roughly double the $455 weekly threshold. However, the majority found that the special rule did not apply because Hewitt was not promised a weekly rate irrespective of the number of days he worked. 

Ultimately—since Hewitt was neither paid on a weekly (or less frequent) basis nor guaranteed a weekly payment—the Court concluded that Hewitt was not paid on a salary basis, and in turn, the FLSA’s HCE overtime pay exemption did not apply to Hewitt.

Key Takeaways: Steps Employers Should Take

In light of the above “salary basis” regulations, the Court noted that Helix could have prevailed on its claim that Hewitt met the HCE overtime pay exemption if (1) Helix simply paid Hewitt based on each week he worked rather than each day; or (2) Helix paid Hewitt a guaranteed weekly amount reasonably related to Hewitt’s actual earnings and totaling at least the regulatory minimum.

The Helix decision signals that employers should carefully consider (1) whether their overtime pay practices comply with the FLSA’s requirements; and (2) whether they are implementing the most optimal pay methods, especially when it comes to highly compensated employees. Indeed, the Court’s recent holding shows that even an employee who earns well over six figures annually may be entitled to overtime pay under the FLSA.

Given the complexities and significant implications in this area of law, entities should consult with legal counsel to ensure their overtime pay practices are compliant and efficient. For additional information on overtime pay regulations and the FLSA generally, please contact your local Quarles & Brady attorney or:

• Edward (Ted) Hollis: 317.399.2834 / edward.hollis@quarles.com
• Olivia (Liv) DeScala: 239.659.4029 / olivia.descala@quarles.com