Supreme Court Clarifies the “Salary Basis” Test Under the FLSA for Highly Compensated Executives
Published: March 1, 2023
On February 22, 2023, the United States Supreme Court released its ruling in Helix Energy Solutions Group, Inc. vs. Hewitt, clarifying that employees who are paid a daily rate likely do not qualify for the executive exemption under the Fair Labor Standards Act (the “FLSA”).
Michael Hewitt filed an action against his employer, Helix Energy Solutions Group, seeking overtime pay under the FLSA, which guarantees overtime pay to covered employees when they work more than 40 hours a week. Mr. Hewitt worked for Helix as a Tool Pusher on an offshore oil rig. He typically worked as many as 84 hours a week. For this work, he earned over $200,000 a year, but was paid a daily rate, with no overtime compensation. Helix argued that Mr. Hewitt qualified as “a bona fide executive,” excluding him from the FLSA’s protections.
To be considered a bona fide executive, and employee must generally meet three tests: (1) the “salary basis” test, which requires that an employee receive a fixed salary; (2) the “salary level” test, which requires that preset salary to exceed a specified amount; and (3) the job “duties” test. The duties test (which requires that the employee manage and/or direct other employee and have the ability to hire and fire) is relaxed for “highly compensated employees,” meaning employees who make at least $100,000 per year. Here, the sole question was whether Mr. Hewitt met the “salary basis” test where he was paid was a daily rate for his work. Mr. Hewitt argued that because the daily rate did not offer him a minimum guaranteed weekly pay, the salary basis test could not be met.
The majority concluded that a daily-rate employee does not meet the “salary basis” test found in in the language of the FLSA where there is no weekly minimum guaranteed pay. The majority was guided by the plain language of the FLSA, which clarifies that:
“An employee will be considered to be paid on a ‘salary basis’ . . . if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. Subject to [certain exceptions], an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.”
The Court considered that a provision in the FLSA permits “daily-rate” workers to qualify as paid on a salary basis under certain circumstances, even though their pay is “computed on an hourly, a daily or a shift basis.” The majority determined, however, that under these circumstances, the daily pay could not qualify because Mr. Hewitt was paid solely based on the number of days he worked, with no minimum guarantee of a weekly amount.
This decision clarifies for employers that most employees earning a daily rate will not qualify for the executive exemption under the FLSA, especially where the worker is not guaranteed a weekly pay at or exceeding the salary level. Of course, California employers considering whether its workers qualify for an executive exemption exempting the employee from overtime pay must also consider the requirements under the California Labor Code. If you have any questions whether your employees meet the executive exemption under either California or federal law, contact your Weintraub Tobin Labor and Employment attorney for help.