Companies Should Beware of ‘Salary Basis’ Requirements

A lot of employers assume that if an employee is highly compensated, they’re “exempt” under the federal Fair Labor Standards Act and thus not subject to overtime requirements.

If you’re one of those employers, you should meet with a labor and employment attorney to review your pay structure. Because as a recent U.S. Supreme Court decision indicates, you could be setting yourself up for a big overtime payment you weren’t expecting.

In that case, Michael Hewitt managed other workers on an offshore oil rig. His employer, Helix Energy Solutions, paid him solely on a daily rate and often required him to work more than 40 hours a week without paying him overtime.

Hewitt sued under the FLSA. Helix argued that it didn’t have to pay overtime to the plaintiff, who was earning more than $200,000 a year, because he was a “highly compensated employee” exempt from such a benefit.

Hewitt argued that because he was paid a daily rate, he was not paid on a “salary basis” and thus was entitled to overtime no matter how much he made. While a trial judge ruled in Hewitt’s favor, the 5th U.S. Circuit Court of Appeals reversed on appeal.

But the Supreme Court reversed the 5th Circuit, finding that Hewitt was entitled to overtime. Specifically, it found that daily rate workers, regardless of income level, are deemed to be paid on a “salary basis” only if they receive a predetermined, fixed salary that doesn’t depend on time worked; the preset salary exceeds a certain amount; and they have responsibility for managing the business, directing other workers and hiring and firing them.

While Hewitt satisfied the latter two criteria, the fact that he was paid a daily rate rendered him “non-exempt” and entitled to overtime.

This is a particularly important decision for employers to be aware of because of how costly FLSA cases can be. If a worker wins their claim, not only are they entitled to damages, but the court can award attorney’s fees and court costs.

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