The U.S. Supreme Court ruled that highly compensated employees can be eligible for overtime if they are paid on a daily basis.
Daily Rate is Inconsistent with Salary Basis Test
In Helix Energy Solutions Group v. Hewitt, the Supreme Court in a 6-3 ruling held that an executive oil rig worker who was classified by his company as a “bona fide executive” and earned more than $200,000 annually was not exempt from the FLSA’s overtime pay guarantee because he was paid on a daily rate.
The Court held that his daily rate form of compensation did not meet the requirements of the salary basis test. An employee is paid on a salary basis only if the employee receives the full salary for any week in which the employee performs any work without regard to the number of days or hours worked. Stated otherwise, salaried employees must be paid a guaranteed, predetermined amount of compensation that does not vary based on the hours worked in a given workweek, or on the quality or quantity of work.
Although the Court’s ruling is not necessarily surprising, it is a harsh result for the employer. The Court found it irrelevant that the employee’s annual compensation exceeded $200,000 and his daily “predetermined” rate of $963 per day was higher than the weekly minimum requirement of $455 per week specified in the FLSA regulations. In sum, it was irrelevant that the employee was highly compensated
Takeaway for Employers
The Supreme Court’s decision makes clear the importance of strictly complying with the FLSA’s overtime exemption rules. Employers must understand that the manner in which an employee is paid, and not just the amount, is critical – even when the employee is highly compensated.
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