U.S. Supreme Court Upholds Fair Labor Standards Act “Salary Basis” Requirement

The U.S. Supreme Court recently issued a decision in the matter of Helix Energy Solutions Group Inc., et al. v. Michael J. Hewitt, upholding the ruling of the Fifth Circuit Court of Appeals that a highly compensated worker (HCW) must be paid on a “salary basis” in order to be considered exempt from overtime under the Fair Labor Standards Act (FLSA). At issue was whether the employer, Helix Energy Solutions Group Inc., violated the FLSA by treating Hewitt, an oil rig worker earning more than $200,000 on an annualized basis, as exempt from overtime compensation while still compensating him based on a daily rate.

The Supreme Court rejected Helix’s argument, affirming that payment of a daily rate, no matter how high, does not constitute payment on a “salary basis” under Section 604(b) of the FLSA, noting that if such was the case, workers earning daily rates far less than Hewitt could be denied overtime pay.  The Court further rejected the Employer’s argument that despite variations in Hewitt’s weekly pay based on the number of days worked, his compensation still satisfied the salary basis requirement because each of his bi-weekly paychecks exceeded the $684 weekly minimum. 

Employers should continue to periodically audit the duties performed by employees to ensure that employees are properly classified as overtime-exempt under the FLSA, both as to standard exemptions and the HCW exemption. Employers should also review their payroll practices to ensure that employees designated as overtime-exempt are paid on a salary basis, with a minimum guaranteed weekly salary that does not vary based on quality or quantity of work.  

Read more about the U.S. Supreme Court’s decision in the Client Alert below.