In a recent decision from the U.S. Supreme Court, an employee who was paid on a daily rate basis and earned more than $200,000 annually was found to be nonexempt and therefore eligible to recover overtime under the federal Fair Labor Standards Act (FLSA).
The employee was a “tool-pusher” on an offshore oil rig and was paid on a daily rate basis, with no overtime compensation. He supervised 12 to 14 workers and oversaw some aspects of the rig’s operations. He generally worked 12 hours a day, seven days a week, for 28 days and then had 28 days off. The parties agreed that the employee satisfied the “duties test” for the executive exemption and that he earned enough money to meet the annual compensation level for an executive “highly compensated” exempt employee. Where they disagreed was whether the employee was paid on a salary basis. With some exceptions, this generally means the employee is guaranteed a fixed amount paid each week, which isn’t subject to deductions based on changes in quantity or quality of work. The court concluded that the employee wasn’t paid on a salary basis since he was paid at a daily rate, and was therefore entitled to overtime (Helix Energy Solutions Group, Inc. v. Hewitt, US, Feb. 2023).
State overtime laws in California, Oregon, and Washington don’t offer an overtime exemption for highly compensated employees, but employers in Arizona, Idaho, and Montana are free to follow the federal FLSA in offering this exemption. A worker may qualify for the highly compensated employee exemption under the FLSA if: (1) they earn a total annual compensation of at least $107,432, which must include payments on a salary basis rate of at least $684 per week; and (2) they customarily and regularly perform at least one of the exempt duties of an executive, administrative, or professional employee. In the above case, the employer failed to pay the employee on a salary basis rate of the minimum amount per week.
Tips: For additional guidance, see our Legal Guides, When Is an Employee Exempt Under Federal Law?, State Laws on the White Collar Exemptions from Overtime, and Salary Basis Test for Overtime Exemptions. If you classify an employee as exempt when they’re actually nonexempt, you put your company at risk for expensive overtime claims, going back in time for at least two years and possibly three years if a judge determines your conduct was willful. Contact your Vigilant Law Group employment attorney if you’re unsure whether a salaried worker qualifies for one of the white collar overtime exemptions.
