Are Your Highly Compensated Employees Exempt Under FLSA?

On February 22, 2023, the Supreme Court of the United States issued an important decision under the Fair Labor Standards Act (FLSA). In Helix Energy Solutions Group Inc. et al. v. Michael J. Hewitt, the Court determined that an employee, under the highly compensated employee (HCE) exemption, was not exempt from overtime pay even though he earned over $200,000 annually. The HCE exemption requires that an employee’s total annual compensation is at least $107,432, which includes at least $684 per week paid on a salary or fee basis. In this case, however, the employee was paid on a daily-rate basis which failed to satisfy the FLSA’s definition of salary for HCEs. Thus, the Supreme Court confirmed that an employee is entitled to overtime pay if that employee’s pay varies based on how often he or she works during each pay-period.

Important Reminders on the FLSA HCE Exemption

The FLSA’s HCE exemption requires that employees be paid on a “salary basis,” and perform certain job “duties.”

First, a “salary basis” means “a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.”[i] One of the primary reasons for the “salary basis” is to establish “a steady stream of pay, which the employer cannot much vary and the employee may thus rely on week after week.”[ii] An employee paid on a “salary basis” must receive his or her “full salary for [that] week” whenever the employee works at all during a week. If an employee’s earnings are computed by the hour, day, or shift, then the employer must guarantee that the employee will be paid at least $684-per-week to satisfy the “salary basis” requirement.[iii] When computing the employee’s earnings, there must be a reasonable relationship between the guaranteed $684 amount and the amount the employee actually earns. In the Helix case, the employee was paid a daily rate without any guaranteed minimum weekly amount. As a result, even though the employee’s annual compensation exceeded $200,000, his pay did not satisfy the salary basis test and he was therefore not exempt from overtime pay.

Second, the job “duties” test focuses fundamentally on the nature of the worker’s job responsibilities. The HCE has a lower bar for satisfying the “duties” component than the requirements for the traditional executive, administrative, or professional FLSA exemptions. For an HCE, the employee’s primary duty must include performing office or non-manual work, and the employee must customarily and regularly perform at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee. Thus, the HCE’s duties must consist of either (1) managing the enterprise; (2) directing other employees; or (3) exercising power to hire and fire.

Conclusion

The HCE exemption is one of many different exemptions from the FLSA’s overtime provisions. If you have questions or concerns about complying with the FLSA, please contact a WRVB Labor & Employment attorney.

[i] 29 CFR § 541.602(a).

[ii] Helix Energy Sols. Grp., Inc. v. Hewitt, 598 U.S. ----, 2023 WL 2144441, at *5 (2023).

[iii] 29 CFR § 541.604(b).