Supreme Court Confirms Strict Compliance Required to Exempt Highly Compensated Employees From Overtime Regulations

March 1, 2023

By: Adrian P. Castro

One of the trickiest issues faced by employers is proper classification of employees as exempt or non-exempt from the overtime requirements of the federal Fair Labor Standards Act (FLSA) and corresponding state laws. Exempt employees need not be paid overtime but there are strict requirements for classifying an employee as exempt. In this post, Adrian Castro of Fairfield and Woods, P.C.’s Employment Law Department tells us about a recent Supreme Court Case regarding one of the most confusing exemptions, the “Highly Compensated Employee Exemption.” 

- Colin A. Walker



Supreme Court Confirms Strict Compliance Required to Exempt Highly Compensated Employees From Overtime Regulations 

On February 22, 2023, the Supreme Court held in Helix Energy Solutions Group v. Hewitt, that highly compensated non-exempt employees are entitled to overtime pay. 

The former employee in Helix earned over $200,000 a year and received his paycheck every two weeks, but his pay structure was based on a daily rate. His employer refused to provide overtime compensation under the belief the employee qualified for the highly compensated employee exemption to the overtime regulations of the Fair Labor Standards Act (FLSA). 

The Supreme Court disagreed. Under the applicable FLSA regulations, a highly compensated, salaried employee (employees that earn at least $107,432 a year on a salary basis) that performs executive, administrative, professional, or outside sales work is exempt from overtime only if that employee is paid on a “salary basis.” The FLSA and its regulations defines “salary basis” to mean that the employee is being paid on a weekly basis an amount equal to or greater than the current minimum level.

In essence, the employee must be guaranteed a weekly salary of at least the minimum level, which today is $684. In addition, the employee’s guaranteed weekly pay rate cannot be subject to reduction below this minimum amount as a result of the number of hours or days worked in a particular week. 

While the employee in Helix satisfied the compensation and executive work criteria, he did not qualify for the salary basis requirement because he was being paid a daily rate. The salary basis requirements mandates payment of at least a weekly rate equal to or greater than the weekly minimum. The fact that the employee received his paycheck every two weeks was immaterial, as was the fact that his annualized pay never fell below the minimum weekly amount. While the employee was guaranteed a daily rate, he was not guaranteed the weekly minimum required under the FLSA. 

This ruling underscores that the courts will enforce the FLSA and its regulations strictly, including the requirements necessary to exempt employees from overtime compensation. Employers that pay employees on a day rate pay structure, or other creative / unique pay structures, are advised to check that they are in compliance with the FLSA’s overtime requirements; the fact that the employee is highly compensated will not alone absolve the employer of compliance with the FLSA’s overtime requirements.