A recent United States Supreme Court decision provided two reminders for employers utilizing a day-rate compensation scheme. First, employers must pay their day-rate employees overtime or risk potential liability under the FLSA. Second, employers cannot shield themselves from FLSA overtime liability by directing the Court to only their annualized compensation of employees or their job duties. If a highly compensated supervisory employee’s salary is computed solely by multiplying the number of days worked and the employee’s daily rate, that supervisory employee is nonexempt and subject to the FLSA’s protections. So, how did we get here and what does that
mean for employers who pay their employees on a purely day rate basis?
In Helix Energy Solutions Group, Inc. v. Hewitt, Michael Hewitt, a former supervisory employee of Helix, brought a lawsuit against Helix in the Southern District of Texas seeking overtime pay under the FLSA. Helix denied that Hewitt was entitled to overtime pay, relying on Hewitt’s supervisory duties and annualized compensation exceeding $200,000 as proof that Hewitt qualified as a “highly compensated employee” and was therefore exempted from the FLSA overtime requirements as a bona fide executive.
The Court rejected Helix’s argument, however, and looked squarely at the method of compensation Helix used to pay Hewitt to determine that he was, in fact, entitled to overtime pay. An employee is considered a bona fide exempt executive if the employee: (1) received a predetermined and fixed salary that does not vary based upon the hours the employee actually worked; (2) receives a weekly salary that exceeds a set amount, presently $684 a week; and (3) performs certain job duties consistent with that of an executive. If only two of these three factors are met, but the third is not (for example, if an employee is paid a day rate that equals at least $684 a week and the employee performs supervisory duties but the amount paid is not predetermined and fixed), the employee is still entitled to overtime pay.
The Supreme Court’s holding means that even those employees who are “highly compensated” may still be entitled to overtime pay if the employee’s paycheck is based solely on a daily pay rate. Employers should therefore: (1) pay overtime to day rate employees for any hours worked over 40 in a week; or (2) have a weekly minimum salary guarantee for day rate employees that is above the minimum salary threshold (to then pay on a day-rate basis with a minimum salary guarantee, a reasonable relationship must exist between the guaranteed amount and the amount actually earned).