The US Supreme Court Confirms the Highly Compensated Employee Exemption Test Requires Payment of Salary
By Anne-Marie L. Storey, Esq.
A decision issued by the United States Supreme Court on February 22, 2023, reminds employers that in order for the highly compensated employee exemption to the overtime requirement to apply, the employee must be paid a salary.
A highly compensated employee under the FLSA is defined as an employee who earns a total annual compensation of $107,432 or more, which includes at least $684 per week paid on a salary or fee basis (these are the current numbers- at the time of this case, the threshold was $455 per week/$100,000 per year). The employee also has to have a primary duty of performing office or non-manual work and has to customarily and regularly perform at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.
The issue in Helix Energy Solutions Group, Inc. v. Hewitt was the way in which the employee was compensated. The employee was a supervisor who worked on an oil rig. It was not disputed that he performed executive exempt duties as a supervisor and that he earned over $200,000 per year. Because of the nature of the industry, he would live and work on the rig for 28 days at a time, doing daily shifts of up to 12 hours. He was not paid on a weekly salary basis; instead, on any day in which he worked at all, he was paid a daily rate that ranged from $963 to $1,341.
After the employee was terminated for performance reasons, he brought a claim alleging that he was entitled to overtime under the FLSA. The employer argued that the employee was exempt from overtime due to the highly compensated employee exemption because he was paid in excess of the total annual compensation threshold and he satisfied the executive employee duties test.
The parties agreed that the employee met the duties test under the executive employee exemption. The dispute was whether he was paid on a “salary basis.” There was no question that he was paid more than the salary basis required and for that reason the District Court held that he satisfied that portion of the test as well. The 5th U.S. Circuit Court of Appeals disagreed, holding that a daily payment, even one that exceeds the minimum weekly salary requirement under the FLSA, did not satisfy the requirement that he be paid on a “salary basis” because the payment was based, at least in part, on the amount of time the employee worked in any given week, as opposed to being a set amount.
The US Supreme Court affirmed the 5th Circuit’s decision. The basis of the decision is the FLSA regulation that requires employees be paid a predetermined amount each week that is not subject to change based on the quality or quantity of the work performed. The daily rate paid to the employee in this case did not satisfy that standard, even though it was more than the test required. Therefore, he could not meet the requirements of the test to be exempt for overtime as either an exempt employee or a highly compensated employee.
While it may seem absurd that an employee earning so much more than the salary basis test threshold is still entitled to overtime, the case is a reminder that the requirements of the FLSA must be strictly followed in order to take advantage of the exemptions. Although this case was specific to the highly compensated test, it would arguably apply in the same manner to the other categories of exemptions, even if the employee is earning more than the salary basis requires.