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Supreme Court: Overtime Exemption Doesn’t Apply to Highly Compensated Employee Paid Daily Rate

Thomson Reuters Tax & Accounting  

· 5 minute read

Thomson Reuters Tax & Accounting  

· 5 minute read

The U.S. Supreme Court has ruled that a highly compensated employee, one who earns over $200,000 annually, paid at a daily rate, did not qualify for the overtime exemption under the Fair Labors Standard Act (FLSA) because he was not paid on a salary basis [Hewitt v. Helix Energy Solutions Group, Inc., S. Ct., Dkt. No. 21–984, 2/22/2023].

Michael Hewitt was employed as a supervisor of offshore oil rig workers and was paid at a daily rate from $963 to $1,341 per day, earning over $200,000 per year. Under the daily rate scheme, Hewitt’s daily rate increased each consecutive day he worked. Hewitt filed suit claiming Helix Energy violated the overtime provisions of the FLSA. Helix Energy argued that Hewitt was exempt from FLSA overtime requirements as a “bona fide executive” under 29 USC 213(a)(1). To qualify for the exemption, the employee must meet: (1) the salary basis test; (2) salary level test, and (3) job duties test (see Payroll Guide ¶18,085).

Under FLSA regulations, a bona fide executive may satisfy the salary basis test if they are a highly compensated employee (HCE), one that earns at least $107,432 or more per year ($100,000 per year prior to January 1, 2020) under 29 CFR § 541.601.

In a 6-3 ruling, the Supreme Court held that a highly compensated employee that is paid at a daily rate is not considered as paid on a salary basis and thus did not qualify for the overtime exemption for FLSA purposes. As a result, the Court ruled that Hewitt was entitled to overtime pay. In its majority opinion, the Court reasoned that the highly compensated employee rule is not only a “simple income level” test for the purposes of the exemption. The Court noted that Helix could have satisfied the exemption if the day rate was a weekly guarantee that satisfied 29 CFR 604(b) or if compensation had been a straight weekly salary. The Court was not swayed by Helix’s objection that it would result in paying Hewitt for days he did not work to which the Court replied that Hewitt would then not be truly paid a salary, and therefore not meet the overtime exemption requirements.


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