On February 22, 2023, the Supreme Court of the United States issued a decision in Helix Energy Solutions Group, Inc. v. Hewitt, holding that a manager who supervised a dozen employees and made over $200,000 annually was not “exempt” from the Fair Labor Standards Act (“FLSA”) and was therefore due compensation for overtime. The fulcrum of the Court’s decision was its interpretation of the “salary basis” test, a necessary component of commonly used exemptions under the FLSA.
The FLSA, enacted in 1938, is the cornerstone of federal wage and hour law. At first glance, the FLSA is simple. It requires only that employees covered by its provisions be paid at least minimum wage and that they be paid time-and-a-half (i.e., 1.5x) their standard hourly rate for hours worked in excess of 40 per week. But the devil is in the details. The FLSA must be interpreted alongside the tome of regulations enacted by the United States Department of Labor, which delve into topics ranging from special industry concerns (e.g., fishing and forestry operations), to defining which hours qualify as “hours worked,” to mathematical calculations. Most importantly for Helix, however, are the regulations defining which workers are exempt from the coverage of the FLSA.
These exemptions, commonly referred to as “white-collar” exemptions, recognize a set of exemptions for administrative, executive, professional, computer, outside sales, and highly compensated employees. Each of these exemptions requires a multi-part analysis into the nature of the employee’s job duties, as well as how the employee is paid. Each of the administrative, executive, and professional exemptions use the salary basis test, which requires employees to be paid a salary of not less than $684 per week.
According to the FLSA, paying on a salary basis means that the employee regularly receives a fixed amount of compensation each week, or on a per-pay-period basis. While some deductions are permissible, that fixed payment amount cannot be reduced for variations in the quality or quantity of the employee’s work. For instance, a salary basis employee would make the same wage for working 40 hours a week, at eight hours per day, as working 20 hours per week, at four hours per day.
In Helix, Michael Hewitt worked for Helix as a tool pusher on an offshore oil rig. He worked 12 hours per day, seven days per week, for 28 days at a time. Mr. Hewitt supervised a dozen employees and was paid over $200,000 per year. Helix classified Hewitt as exempt under the executive employee exemption, or alternately, under the highly compensated employee exemption, applicable to those who earn $107,432 or more per year. Mr. Hewitt, however, filed a lawsuit against his employer, claiming he was actually non-exempt and entitled to overtime because he was not paid on a salary basis. Instead, he was paid a “daily rate,” which fluctuated over the course of his employment, ranging from $963 to $1,314 per day. Because his compensation was not set from one pay period to the next and varied based on the number of days he worked, he contended the salary basis test was not satisfied.
In a 6-3 decision authored by Justice Kagan, the Supreme Court held that paying a daily rate did not qualify for the FLSA’s salary basis test, meaning that Hewitt was non-exempt and entitled to overtime. The Court reasoned that a salary basis test is satisfied only when employees are paid by the week — or some longer period — not when an employee is paid by the day. Justice Kagan explained that to satisfy the salary basis test, “[w]henever an employee works at all in a week, he must get his ‘full salary for [that] week’ — . . . [a] ‘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.” 598 U.S. _____ (2023). By contrast, “A daily-rate worker’s weekly pay is always a function of how many days he has labored.” Id.
Conceivably, Helix could have paid Hewitt his $200,000 per year as a salary, in identical increments, and qualified for at least one FLSA exemption. However, the lack of predictability from one paycheck to the next meant that Helix failed the salary basis test with respect to Hewitt, and the requirements necessary to claim exemption from the FLSA were not satisfied. Thus, Helix contains an important takeaway for employers everywhere: how you pay is just as important as how much you pay.