From a non-legal and practical perspective, it is interesting that the U.S. Supreme Court rendered a specific option on how salary is defined under the FLSA (Helix Energy Solutions Group, Inc. v. Hewitt). Hewitt, an employee with supervisory duties, had a guaranteed daily pay of $983, no matter how long he worked and was paid over $200,000 annually. His employer denied him overtime pay based on the executive exemption under federal regulations. The very narrow question then focuses on whether Hewitt was paid on a salaried basis under the applicable regulations. The Court ruled that Hewitt’s pay was based on a daily rate, he was not paid a salary, and therefore did not meet the executive exemption, and therefore was owed overtime pay.
The FLSA rules provide that certain employees who work over 40 hours per week are entitled to overtime pay. Whereas other employees do not qualify for overtime pay if they engage in executive, administrative, or professional duties, and meet certain salary requirements and thresholds. An employee is not entitled to overtime if the employee is paid over a certain weekly threshold no matter how many hours are worked, has executive duties, and is paid a salary. For 2023, if the employee earns at least $107,432, is paid at least $684 guaranteed per week, and has executive duties, the employee is not entitled to overtime pay under federal regulations.
From a practical standpoint, it can be reasoned that Hewitt earned more than enough to meet the weekly dollar threshold for a salaried employee. However, the opinion provided that Hewitt was entitled to overtime because he had no guaranteed weekly payment, as provided under the regulations. As such, a daily guaranteed payment, no matter how significant, does not meet the definition of salary for purposes of the overtime exemption for a highly compensated employee.
We often advise clients on questions regarding FLSA status. Employers may be tempted to simply annualize compensation arrangements to comply with the earnings standard, provided that the duties test is also met. Accordingly, compensation arrangements must consider not only the amount of guaranteed pay but also the timing of it in weekly or less frequent increments in order to exclude employees (and certainly highly compensated employees) from overtime pay.