A recent decision by the U.S. Supreme Court, Helix Energy Solutions Group, Inc. v. Hewitt, Case No. 21-984 (U.S. Sup. Ct. Feb. 22, 2023) (“Helix”), may have implications for public employers and their compensation practices. In Helix, the U.S. Supreme Court addressed whether an employee who performed executive duties and was highly paid could be considered exempt from the Fair Labor Standards Act (FLSA) overtime compensation requirements when the employee’s pay was based on a daily rate instead of a weekly salary. Public employers who have classified as FLSA exempt those employees who earn compensation under non-traditional “salary” models should pay particular attention to the Helix decision to avoid liability for overtime compensation.
Under the FLSA, employers are required to pay their employees at least minimum wage, and to provide overtime pay for all hours worked in excess of 40 hours per week, unless the employee is deemed exempt from these requirements. The FLSA recognizes that administrative, executive, and professional employees are exempt provided that the employer can satisfy the requirements of a “salary basis” test and a “duties test” pertaining to the particular employee. Also, the FLSA regulations provide a relaxed “duties test” for “highly compensated employees” who earn at least $107,432 annually.
The “salary basis” test means that the employee is paid on a weekly, or less frequent, basis a predetermined and fixed salary that must satisfy the minimum salary requirements established by the FLSA, and that is not subject to reduction based on variations in the quality or quantity of work performed. FLSA regulation 29 CFR § 541.604(b) (Section 604) establishes a “special rule” that enables an employer to pay an employee a daily, hourly or shift rate without violating the “salary basis” test as long as the arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis, regardless of the number of hours, days or shifts worked.
In Helix, the employee was a “tool-pusher,” who supervised 12 to 14 workers on an offshore oil rig and earned over $200,000 per year. Tool-pushers supervise drilling and oversee well maintenance activities, as well as make sure the rig has all the tools and equipment it needs. Although the employee performed executive exempt duties (that is, the employee supervised at least two full-time employees, and spent more than 50% of his time on his supervisory function) and he was highly compensated, the issue was the manner in which he was paid.
Helix paid the employee on a daily-rate basis, with no overtime compensation. The daily rate ranged, over the course of the employee’s employment, from $963 to $1,341 per day. His paycheck, issued every two weeks, comprised his daily rate multiplied by the number of days he had worked in the pay period. For example, if the employee had worked only one day during the pay period, he would receive only $963. Alternatively, if he had worked all 14 days, his paycheck would come to $13,482. While the employee was compensated more than $200,000 annually, this compensation scheme provided the employee no weekly or other minimum salary guarantee.
The Supreme Court held that here, the employee was not FLSA exempt because the daily rate did not satisfy the “salary basis” test; nor did the daily rate satisfy the Section 604 special rule because the employer did not provide a guarantee of the minimum weekly salary amount. The Court found that the employer had only a pure day-rate paradigm for this employee; thus, the employee was not exempt from the FLSA and was entitled to overtime compensation for hours worked in excess of 40 hours in the workweek.
This decision emphasizes the importance of adhering to the specific tests for exempt employees, even if the employee is highly compensated and has agreed to other kinds of payment arrangements. The Court clarified that to qualify for the exemption, even highly paid employees must be paid a fixed amount of at least $684 per week on a salary or fee basis, regardless of their daily pay rate.
Public employers may want to review their compensation practices and consult with legal counsel to ensure compliance with the FLSA and other relevant employment laws in the aftermath of the Helix decision. As always, Aleshire & Wynder is available to assist in navigating these complex issues and developing best practices.
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