U.S. Supreme Court — Paying on a daily rate does not meet the salary basis test

On February 22, the U.S. Supreme Court ruled that employees that fall under Fair Labor Standards Act’s (FLSA) highly compensated employee (HCE) exemption must still be paid on a salary basis. Being paid on a daily basis might not meet this requirement. These HCEs need not, however, meet the FLSA duties tests.

Case in point

Michael worked on an offshore oil rig, typically working 84 hours a week. The employer paid Michael on a daily-rate basis, with no overtime compensation. Michael’s paycheck, issued every two weeks, amounted to his daily rate times the number of days he had worked in the pay period. If he worked only one day, his paycheck would total (at the range’s low end) $963; but if he had worked all 14 days, his paycheck would come to $13,482. Under that compensation scheme, Michael earned over $200,000 annually.

The employer felt that Michael was exempt from the FLSA because he qualified as a bona fide executive. This meant that Michael had to be paid on a salary basis, be paid at least $455 per week, and perform certain job duties. Michael felt he was eligible for overtime because he wasn’t paid on a salary basis, and he sued.

The question before the court was whether a high-earning employee is compensated on a salary basis when his paycheck is based solely on a daily rate — so that he receives a certain amount if he works one day in a week, twice as much for two days, three times as much for three, and so on.

The so-called general rule regarding executives, pertains to employees making less than $100,000 in total annual compensation, including not only salary but also commissions, bonuses, and the like. A different rule addresses HCE employees — those making at least $100,000 per year (again, including all forms of pay). That rule, however, amends only the duties test, while restating the other two (salary level and salary basis).

The Court found that the employer did not guarantee that Michael would receive a predetermined amount each week (above $455). Because the exemption applies solely to employees paid by the week (or longer); it is not met when an employer pays an employee by the day, as Michael was paid.

The applicable regulation indicates that employees must be paid their full salary for any week in which any work is performed, without regard to the number of days or hours worked. This does not fit a daily-rate worker who, by definition, is paid for each day he works and no others. Therefore, Michael was entitled to overtime pay.

Helix Energy Solutions Group, Inc. v. Hewitt, No. 21-984

Key to remember: To be exempt from overtime, employees must be paid on a salary basis, and paying employees by the day does not meet this requirement. Even highly compensated employees must be paid on a salary basis.