The U.S. Supreme Court confirmed yesterday that the federal exemption from overtime for highly compensated employees applies only if the employees are paid on a salary basis. The Court also clarified the meaning of “salary basis.” The federal Fair Labor Standards Act (FLSA) requires that employees be paid overtime unless they fall within an exemption. One exemption from overtime is for highly compensated employees who perform specific duties, earn at least $100,000 per year, and are paid on a “salary basis.” (Note: this exemption is not recognized in California.) In Helix Energy Solutions Group Inc. v. Michael J. Hewitt, the employer classified the Plaintiff as an exempt employee but paid the employee a daily rate rather than a salary, and his pay varied depending on the number of days he worked each week.

The Court confirmed that there are two definitions of “salary basis” in the applicable federal regulations: (1) an employee regularly receives a set amount of money on a weekly (or less frequent) basis, and receives the full salary for any week in which the employee performs work; or (2) pay can be computed on an hourly, daily, or shift basis, but the employer must guarantee the employee at least $455 per week and that amount must bear a reasonable relationship to the amount actually earned. Under both scenarios, the employee has a steady stream of pay that they can rely on week after week. The Court also confirmed that both of these definitions of salary basis are applicable to the “highly compensated employee” exemption. And the Court held that the first definition of salary basis cannot be satisfied by a daily rate of pay that varies depending on the number of days worked, even if the total pay far exceeds the minimum threshold of $100,000 per year.

What Does This Mean for Employers?

Employers who utilize the highly compensated employee exemption under the FLSA for workers outside California should make sure all such employees are paid on a salary basis as defined in the applicable regulations.

If you have questions about how these regulations apply to your business, please contact us.

• Leticia C. Butler (lbutler@wilsonturnerkosmo.com)
• Katie M. McCray (kmccray@wilsonturnerkosmo.com)

Wilson Turner Kosmo’s Special Alerts are intended to update our valued clients on significant employment law developments as they occur. This should not be considered legal advice.