Could Your Executive Employees Be Entitled to Overtime?

  A recent Supreme Court 6-3 ruling provided that a “bona fide executive” who earned more than $200,000 annually was entitled to overtime pay for working more than forty hours per week.

Under the Fair Labor Standards Act (FLSA), “bona fide executive, administrative, or professional” (EAP) employees are exempt from receiving overtime. An employee is considered a bona fide executive and thereby excluded from the Act’s protections if the employee meets all of these tests:

1. the “salary basis” test, which requires that an employee receive a predetermined and fixed salary that does not vary with the amount of time worked;
2. the “salary level” test, which requires that preset salary exceed a specified amount (for highly compensated employees, this is $107,432 per year in total compensation, including payment of at least $684 / week);
3. the job “duties” test.

SCOTUS noted the pivotal issue of whether the employee, an offshore oil rig worker, was paid on a salary basis. The Helix Energy Solutions Group argued that the worker was not entitled to overtime under the FLSA, despite regularly working eighty-four hours per week. A federal district court judge agreed and found that the employee was paid a salary and was not entitled to overtime pay. However, the 5th Circuit reversed the decision finding the worker did not satisfy a special rule of the FLSA that allowed so-called daily-rate workers to be paid on a salary basis.

The Court affirmed the 5th Circuit and noted in the majority opinion that the worker’s “biweekly paycheck amounted to his daily rate multiplied by the number of days he worked in the pay period.” With his paycheck being based solely on a daily rate, the Court found that the worker was not an executive exempt from the FLSA’s overtime pay guarantee and that daily workers, regardless of income, qualify for salary if the conditions are set. The opinion noted that the worker’s “compensation did not meet the conditions of that special rule, ‘which focuses on workers whose compensation is ‘computed on an hourly, a daily or a shift basis.’” That was not the case in this insistence, and thereby the worker was entitled to overtime pay.

This case highlights that the FLSA, which requires employers to pay “time and a half” to employees when they work more than 40 hours a week, places liability not on how much a worker is paid but on how the worker is paid. The day-rate pay model has been a standard in the energy industry due to the unpredictable and irregular hours required from oil rig workers. This decision means that workers paid on a day-rate basis will be entitled to overtime after 40 hours of work, and the energy industry will likely see a widespread shift to an hourly pay plus overtime model. Overall, the Helix decision shows how SCOTUS will likely construe FLSA, so this is a good time for employers to audit and review their payment structures and employee classifications.

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