Highly Compensated Employee Gets FLSA Overtime Because He Was Not Paid On A Salary Basis

CATEGORY: Client Update for Public Agencies, Fire Watch, Law Enforcement Briefing Room, Private Education Matters, Public Education Matters
CLIENT TYPE: Private Education, Public Education, Public Employers, Public Safety
DATE: Mar 06, 2023

From 2014 to 2017 Michael Hewitt worked for Helix Energy Solutions Group on an offshore oil rig. Hewitt typically worked 12 hours a day, 7 days a week for 28 days. He would then have 28 days off. Hewitt oversaw various aspects of the rig’s operations and supervised 12-14 workers.

Hewitt’s pay consisted of his daily rate (about $1,000 a day) multiplied by the number of days he worked. So if Hewitt worked only one day in the work week, he received about $1,000 a week.  If Hewitt worked seven days in the work week, he received about $7,000 that week.  He was not paid overtime. This pay arrangement is computed to over $200,000 a year.

Hewitt sued Helix seeking overtime pay under the Fair Labor Standards Act (FLSA).  The issue was whether Helix had paid Hewitt on a salary basis.  If not, Hewitt would be entitled to overtime pay.

The FLSA guarantees that covered employees receive overtime pay when they work more than 40 hours a week.  But an employee is excluded from overtime pay requirements, if he works “in a bona fide executive, administrative, or professional capacity,” as defined in the FLSA regulations.  The regulations allow an employer to exclude an employee from overtime pay if the employee:  1) is paid on a “salary basis”; 2) is paid at least $455 a week (that minimum amount is now $684 a week); and 3) performs high-level job duties that fall into at least one of several regulatory categories.

Still another way an employer can exclude an employee from overtime is under another FLSA regulation regarding highly-compensated employees (HCE) who make more than $100,000 a year.  Under the HCE regulation, there is a higher income threshold and a shortened list of required duties, but the salary basis rule remains the same.

The FLSA regulations give an employer two general options for paying an employee on a “salary basis”:  1) pay the employee a predetermined amount of pay every work week, even if the employee only works part of that work week  (29 CFR Section 541.602(a)); or 2)  pay the employee an hourly, daily or shift rate that is guaranteed to be no less than $455 (now $684) a week regardless of the number of hours worked, and the guaranteed amount must be roughly equivalent to the usual earnings for the employee’s normally-scheduled work week. (29 CFR Section 541.604(b)).

Justice Kagan explained that these FLSA salary test regulations “create a compensation system functioning much like a true salary—a steady stream of pay, which the employer cannot much vary and the employee may thus rely upon week after week.”

Helix acknowledged that Hewitt’s compensation did not meet the second option under the FLSA regulation 29 CFR Section 541.604(b).  Thus, the Court focused on whether Helix paid Hewitt on a salary basis under the first option described in the FLSA regulation at 29 CFR Section 541.602(a).)

The Court decided Hewitt was not paid on a salary basis.  This is because the amount of his pay was subject to reduction because of variations in the quantity of work he performed each week.  The Court noted that a daily-rate worker’s weekly pay is always a function of how many days the worker has labored; as a result, the weekly pay is not a predetermined amount.  A salaried employee, conversely, receives at least his or her same salary for any week in which any amount of work is performed. Hewitt, however, would only receive his salary pro-rated to how many days in the pay period he worked. Hewitt, therefore, was a non-exempt employee entitled to overtime compensation.

Helix Energy Solutions Group, Inc. v. Hewitt (U.S., Feb. 22, 2023, No. 21-984) 2023 WL 2144441.

Note: This case illustrates the high stakes involved in FLSA overtime-exemption cases.  This employer appeared to believe that paying a high wage would mean it was not required to pay overtime pay.  This employer’s mistaken belief resulted in a back pay award of thousands of dollars.

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