Hi. I kind of took a hiatus from blogging. I’m back now and hopefully on a regular basis with an interesting, thought-provoking case for employers. Here it is:
Did you know that it’s possible for your employee to earn $200k a year AND get overtime pay???? Wait. Whaaaaaat? No way!
Yes, way. Thus said the US Supreme Court, in a recent case, thereby affirming the 5th Circuit’s ruling.
I wrote about this case a while back — before it went up to the SCOTUS, but I’ll recap the sitch and share some takeaways.
The case is Helix Energy Solutions Inc, v, Hewitt. Mr. Hewitt was a tool pusher for the oil and gas company Helix Energy Solutions. He made more than $200k a year. He worked significantly more than 40 hours a week and was classified as a salaried exempt employee. He was paid a daily rate, leading to fluctuating, but not overtime pay each week. So he sued Helix, claiming he was entitled to overtime pay.
But how can a salaried employee earning that much money can get overtime? Did his job meet the criteria of an Executive Employee (rendering his position exempt)? SCOTUS said No. (More on that in a minute. But isn’t there a Highly Compensated Employee exemption category under the federal FLSA (and many state wage and hour laws)? Yes, and I’ll come back to that. Let’s first look at why the court ruled that he was not an Executive.
Under the FLSA, an employee is considered a bona fide executive excluded from the FLSA’s minimum wage and overtime protections if the employee meets three distinct 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 a preset salary that equals or exceeds a specified amount ($455 a week at the time the events took place, but now $684 a week); and (3) the job “duties” test.
The job duties test for an executive is as follows:
- managing an enterprise, (or division, sub-division, shift, or department);
- directing 2 or more other full-time employees (a responsibility that cannot be shared with anyone);
- and exercising power to hire and fire (or make recommendations as to job status that are given due weight).
A highly compensated employee who fulfills one of the duties of an executive, administrative or professional employee and who currently earns $107,432 a year ($100k at the time this case’s events took place) paid on a salary basis would also be exempt from minimum wage and overtime requirements. So both of these exemptions claimed by Helix require paying the employee on a salary basis
Believe it or not, SCOTUS found payment on a salary basis missing in this case. Are you surprised? Let’s look a little deeper.
As I’ve mentioned, Helix paid Mr. Hewitt a daily rate. While he got paid every 2 weeks, his pay varied based on how many days in each pay period he worked, and he had no guaranteed weekly minimum. Actual receipt of more than the minimum salary threshold in and of itself, per the SCOTUS, is not relevant. Paying on a salary basis requires the employer to ensure that the employee is guaranteed each week to receive at least the minimum salary threshold.
That did not happen here. Even though Mr. Hewitt received a lot of pay each week, there was no guaranteed minimum. Pay without a guaranteed minimum cannot be a salary, no matter how high it is.
So what are our takeaways (or at least some key ones, IMHO)?
1. Even paying an employee oodles of money is no guarantee that their job is overtime exempt.
2. Even if the employee always actually receives more than the minimum salary amount required under federal and/or state wage & hour laws s/he may still be eligible for overtime
3. Satisfying the salary basis requirement means ensuring that the employee is guaranteed a predetermined amount if s/he works at least part of any week — and that amount equals or exceeds the minimum under federal/state law.
4. Employers must satisfy the salary AND primary duties tests for a job to be overtime-exempt.
How’s that for a thought-provoking case?
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