In Helix Energy Sols. Grp., Inc. v. Hewitt, 143 S. Ct. 677 (2023), the Supreme Court held that the salary-basis test for certain exemptions to the Fair Labor Standards Act is not met when the employee at issue is paid a day rate, even when the day rate exceeds the required minimum weekly salary level. More specifically, the Department of Labor regulation setting out the salary-basis test requires predetermined weekly compensation for the FLSA’s overtime exemption for executive employees. The Court held that this rule applies only to employees paid by the week or longer, and therefore is not met when an employer pays an employee by the day. The case is important because, inter alia, it shows that even highly compensated employees can be entitled to overtime pay if they are not paid on a salary basis.
Statutory and Regulatory Background – FLSA Exemptions and the Salary Basis Test
Relevant to the decision in Helix, Section 213(a)(1) of the Fair Labor Standards Act provides an exemption from its minimum wage and overtime requirements for employees who qualify as bona fide executive, administrative, or professional employees:
Minimum wage and maximum hour requirements
The provisions of sections 206 … and 207 of this title shall not apply with respect to—
any employee employed in a bona fide executive, administrative, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools) …
The Court in Helix Energy further explained that under Department of Labor regulations, an employee is considered a bona fide “executive” under this exemption if the employee meets three 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 to exceed a specified amount; and
(3) the job “duties” test.
Helix Energy, 143 S. Ct. 677, 678 (citing 84 Fed. Reg. 51230).
The Court further observed that the Department of Labor implemented the bona fide executive exemption through two different rules. One is the “general rule for executive employees,” which at the time of the facts in Helix applied to employees making less than $100,000 per year. 29 C.F.R. §§ 541.100; 541.601(a), (b)(1). A different rule sets out the exemption criteria for “highly compensated employees” (HCEs) who at the time of the facts in Helix were employees who made at least $100,000 per year. 541.601(a), (b)(1). (The HCE salary threshold was later increased to $ 107,432. Id.). Helix Energy, 143 S. Ct. 677, 678, 683-84.
The Court pointed out that the general rule considers employees to be FLSA-exempt executives when they meet the following criteria:
“Compensated on a salary basis” (called the “salary-basis” test); “at a rate of not less than $455 per week” (called the “salary-level” test) (after the facts in Helix Energy, that weekly amount was later increased to $684);
Whose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;
Who customarily and regularly directs the work of two or more other employees; and
Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.
The Court noted that the HCE rule relaxes only the duties test, while keeping the same salary-basis and salary-level tests. “In the HCE rule, the duties test becomes easier to satisfy: an employee must “regularly perform[ ]” just one (not all) of the three responsibilities listed in the general rule.” 143 S. Ct. 677, 678, 683 (citing § 541.601(a); and 69 Fed. Reg. 22174 (2004) (explaining that the HCE rule uses a “more flexible duties standard” and thus leads to more exemptions)).
From 2014-2017, Hewitt worked for Helix Energy as a “toolpusher” on an offshore oil rig. Helix paid Hewitt on a daily-rate basis, with no overtime compensation. The daily rate ranged, over the course of his employment, from $963 to $1,341 per day. Under this compensation scheme, Helix paid Hewitt over $200,000 annually. 143 S. Ct. 677, 678, 684.
Hewitt filed suit against Helix for failure to pay him overtime compensation. Helix argued that he was an FLSA-exempt executive or highly compensated employee. 143 S. Ct. 677, 678, 684-85.
In Helix, the question for the Court whether the employee Hewitt was an FLSA-exempt executive not entitled to overtime pay. This question turned solely on whether Hewitt was paid on a salary basis. More specifically, the issue for the Court was whether the salary basis test is met when an employee is paid a day rate that exceeds the minimum weekly salary threshold. 143 S. Ct. 677, 678, 684-85.
The Court’s Decision; Salary Basis Regulations
The Court held that Hewitt was not paid on a salary basis, and therefore was not exempt from the FLSA’s overtime requirements.
Important to the Court’s decision in Helix, a pair of regulations describe the “salary basis” test in more detail.
The Court noted that the main salary basis provision, 29 C.F.R. § 541.602(a), states in relevant part:
“An employee will be considered to be paid on a ‘salary basis’ … if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. Subject to [certain exceptions], an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.”
The Court further observed that a separate provision, 29 C.F.R. § 541.604(b), focuses on workers whose compensation is “computed on an hourly, a daily or a shift basis,” rather than a weekly or less frequent one. The Court noted that under § 604(b) an employer may base an employee’s pay on an hourly, daily, or shift rate without “violating the salary basis requirement” or “losing the [bona fide executive] exemption” if two conditions are met:
The employer must “also” guarantee the employee at least $455 each week [the minimum salary level at the time] “regardless of the number of hours, days or shifts worked.”
That promised amount must bear a “reasonable relationship” to the “amount actually earned” in a typical week. This “reasonable relationship test” will be met if the weekly guarantee is “roughly equivalent to the employee’s usual earnings at the assigned hourly, daily or shift rate for the employee’s normal scheduled workweek.”
The Court noted that the “critical question” was “whether Hewitt was paid on a salary basis under § 602(a) of the Secretary’s regulations. 143 S. Ct. 677, 685. This was because Helix acknowledged that Hewitt’s compensation did not satisfy § 604(b)’s conditions: Helix did not guarantee that Hewitt would receive each week an amount (above $455) bearing a “reasonable relationship” to the weekly amount he usually earned. Id. So, the Court observed, “everything turns on whether Helix paid Hewitt on a salary basis as described in § 602(a). If yes, Hewitt was exempt from the FLSA and not entitled to overtime pay; if no, he was covered under the statute and can claim that extra money.” 143 S. Ct. 677, 685.
Examining the text of § 602(a) and the overall regulatory structure, the Court concluded that the answer was “no.”
The Court first observed that the salary basis test of § 602(a) “applies solely to employees paid by the week (or longer); it is not met when an employer pays an employee by the day, as Helix paid Hewitt.” 143 S. Ct. 677, 685.
The Court then pointed out that Helix did not pay Hewitt on a salary basis under § 602(a) because he was paid by the day, rather than by the week or longer. “Daily-rate workers, of whatever income level, are paid on a salary basis only through the test set out in § 604(b) (which, again, Helix’s payment scheme did not satisfy).” Thus, the fact that Hewitt was paid on a daily basis meant that was not paid on a salary basis under § 602(a), since his compensation was based on the day, rather than by the week or longer. 143 S. Ct. 677, 685, 685-692.
The Court further explained that these conclusions “follow from both the text and the structure of the regulations.” 143 S. Ct. 677, 685, 686-692. It also addressed Helix’s policy-based objections to this conclusion, such as its operational and cost-based objections from having to pay overtime to highly-paid daily-rate workers, and found that those objections did not justify departing from the text of the rules. 143 S. Ct. 677, 690-692.
Therefore, the Court held that because Hewitt was paid on a daily basis, Hewitt did not meet the salary basis test. As the Court observed, “A daily-rate employee like Hewitt is not paid on a salary basis under § 602(a) of the Secretary’s regulations. He may qualify as paid on salary only under § 604(b). Because Hewitt’s compensation did not meet § 604(b)’s conditions, it could not count as a salary. So Hewitt was not exempt from the FLSA; instead, he was eligible under that statute for overtime pay.” 143 S. Ct. 677, 692.
In sum, Helix held that the salary-basis test for certain FLSA exemptions is not met when the employee is paid a day rate. This is the case even when the day rate exceeds the minimum weekly salary requirement. The DOL regulation setting out the salary-basis test requires predetermined weekly compensation for the FLSA’s overtime exemption for executive and highly compensated employees. The Court held that this rule applies only to employees paid by the week or longer, and therefore the test is not met when an employer pays an employee by the day. The case is important because, inter alia, it shows that even highly compensated employees can be entitled to overtime pay if they are not paid on a salary basis.
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