Supreme Court Holds that Daily-Rate Employees are Entitled to Overtime Compensation

In Helix Energy Solutions Group, Inc. v. Hewitt, the Supreme Court of the United States issued an important decision regarding whether highly compensated employees paid on a daily-rate basis were entitled to overtime compensation pursuant to the Fair Labor Standards Act (FLSA). 

Factual Background
Hewitt worked on an offshore oil rig. He often worked 84 hours a week during weeks he was on the rig. Helix paid Hewitt on a daily-rate basis with no overtime. This means that Hewitt’s paycheck would amount to his daily rate times the number of days he worked in the pay period. Hewitt earned more than $200,000 per year.

The FLSA Exemption Rules
Helix argued that Hewitt was exempt from overtime because he was a “bona fide executive.” The three most common exemptions from overtime under the FLSA are what are commonly known as the “white-collar exemptions”: administrative, executive, and professional. Under the FLSA, an employee is considered an exempt executive if the employee meets three distinctive tests: (1) the “salary basis” test, which requires an employee to be paid a predetermined and fixed salary that does not vary with the amount of time worked; (2) the “salary level” test, which requires that the preset salary exceed a specified minimum amount; and (3) the job “duties” test, which requires that the employee hold certain responsibilities.

The Department of Labor has implemented two slightly different rules for the executive exemption. The general rule applies to employees making less than $100,000 per year. Under the general rule, employees are exempt when “they are compensated on a salary basis (salary-basis test); at a rate of not less than $455 per week (salary-level test); and carry out three listed responsibilities – managing the enterprise, directing other employees, and exercising power to hire and fire (duties test).” For highly compensated employees who earn over $100,000 per year, the duties test is relaxed, but the salary-basis test remains the same. 

Application of the FLSA Exemption Rules to Daily-Rate Employees
In this case, there was no dispute that Hewitt met the duties test. Rather, Hewitt argued that he was not paid on a salary basis because, even though he earned more than $200,000 a year, he did not receive a pre-determined salary as his compensation depended on the number of days he worked in a workweek. The Supreme Court agreed with Hewitt. It was clear that he did not meet the salary-basis requirement because he was paid a daily rate and not guaranteed a fixed weekly amount.

Bottom Line
Employees paid on a day-rate basis are entitled to overtime because they do not meet the salary-basis test for the white-collar exemptions from overtime under the FLSA. Employers who pay employees a day rate – even if they are highly paid – should ensure that the employees are receiving any applicable overtime compensation when working more than 40 hours in a workweek. 

For assistance or questions about this legal insight, please contact the author or any member of the Steptoe & Johnson Labor & Employment Team.