Highly Compensated Workers May Still Be Entitled to Overtime Pay in Some Cases, U.S. Supreme Court Says

March 29, 2023
Nantiya Ruan

Employees who receive six-figure salaries for performing executive, administrative, professional, or outside sales work are generally not entitled to overtime pay under the Fair Labor Standards Act (FLSA). But it is not just the amount of compensation that determines whether an employee is exempt from overtime pay requirements – how that compensation is paid is just as important. And under a recent decision by the United States Supreme Court, an employee who is paid on a daily basis rather than receiving a salary must be paid time-and-a-half for overtime work no matter how large their paychecks are. 

The Court’s 6-3 decision in Helix Energy Solutions Group v. Hewitt means that well-paid employees should not presume that overtime pay is unavailable, especially if they don’t receive a “salary” as defined in the FLSA.

What the FLSA Says Regarding Overtime Pay for Highly Paid Employees

Under the FLSA, “bona fide executives” do not qualify for overtime pay for hours worked over 40 hours per week. Generally, an employee is considered an exempt executive if:

  • They manage the business, direct the work of at least two full-time employees, and have the authority to hire or fire other employees.
  • They are compensated “on a salary basis” that does not vary based on the quality or quantity of work performed.
  • Their salary is at least $107,432 per year (or at least $684 per week).

“Salary Basis” Defined for Purposes of Overtime Pay Exemption

The Helix case involved an employee who sought overtime pay from his former employer. The employee had been a supervisor on an offshore oil rig and worked 28-day “hitches,” living on a rig for 28 days at a time, on duty for 12 hours each day (or 84 hours per week while on the rig). He earned well over $200,000 each year but was paid on a daily rate basis, with no overtime compensation. His paycheck, issued every two weeks, amounted to his daily rate times the number of days he had worked in the pay period.

The employee sued his former employer for unpaid overtime wages under the FLSA. The District Court sided with the employer and held that the employee was compensated on a salary basis and, thus, not entitled to overtime. The Court of Appeals for the 5th Circuit reversed, deciding that the employee was not paid on a salary basis and, therefore, could claim the FLSA’s protections.

The Supreme Court affirmed the appellate court’s ruling. “The question here is whether a high-earning employee is compensated on a ‘salary basis’ when his paycheck is based solely on a daily rate — so that he receives a certain amount if he works one day in a week, twice as much for two days, three times as much for three, and so on,” Justice Kagan wrote for the Court. “We hold that such an employee is not paid on a salary basis, and thus is entitled to overtime pay. “

The Court relied on the language of the applicable regulation (29 CFR § 541.602)

defining when an employee is paid on a “salary basis” to determine an employee’s exempt status. “An employee, the regulation says, is paid on a salary basis if but only if he ‘receive[s] the full salary for any week in which [he] performs any work without regard to the number of days or hours worked,'” Justice Kagan wrote. She continued:

To break that up just a bit: Whenever an employee works at all in a week, he must get his “full salary for [that] week”— what §602(a) ‘s prior sentence calls the “predetermined amount.” That amount must be “without regard to the number of days or hours worked”—or as the prior sentence says, it is “not subject to reduction because” the employee worked less than the full week. Nothing in that description fits a daily-rate worker, who by definition is paid for each day he works and no others.

In light of this decision, well-paid executives and employees who regularly put in more than 40 hours a week should review how their employer calculates their compensation, especially if that compensation fluctuates based on the number of hours or days they work.

If you would like to discuss the terms of your compensation to determine whether you may be entitled to overtime pay under this Supreme Court ruling, please contact Outten & Golden today.

(*Prior results do not guarantee a similar outcome.)