What does it mean to be paid on a salary basis – and why is that such an important question?
The answer: because it is crucial to determining whether an employee is entitled to overtime pay. In a new decision, the U.S. Supreme Court has ruled that an oil rig worker who was paid based on a daily rate was not a salaried employee and could get overtime pay – even though he earned more than $200,000 annually.
Michael Hewitt worked for Helix Energy Solutions Group on an offshore oil rig, usually for 84 hours a week. He oversaw parts of the rig’s operations and supervised 12 to 14 employees. He usually alternated between working 28 straight 12-hour days and having 28 days off.
Helix paid Hewitt a daily rate of $963, and it did not pay him an overtime rate. Hewitt received a paycheck every two weeks. Under that arrangement, he earned more than $200,000 a year.
When Hewitt sued to get overtime pay, Helix said he was not entitled to it because he was an executive employee.
What does ‘salary basis’ mean?
To be an executive employee (and thus denied overtime pay), an employee must (among other things) be paid on a salary basis.
The decisive question in this case: Was Hewitt paid on a salary basis?
The answer from the high court: No.
Hewitt was eligible for overtime, the court held.
An employee whose paycheck is based solely on a daily rate is not paid on a salary basis just because that employee is a high earner, the court said.
Employees are not deprived of the benefit of overtime pay (time and a half for hours worked over 40 in a week) just because they are highly paid, the court explained.
Not everyone gets OT
At the same time, it continued, the Fair Labor Standards Act excludes some categories of workers from the benefit of the overtime pay guarantee.
Those categories include “any employee employed in a bona fide executive, administrative or professional capacity,” as those terms are defined by the federal Department of Labor.
To be an executive who does not get overtime, as Helix argued was the case here, an employee must receive a predetermined and fixed salary. The salary must exceed a specified amount, and the employee must have managerial and supervisory duties.
Daily rate workers of any income level can be considered to be paid on a salary basis only if they meet a special test that requires a guaranteed threshold minimum weekly income that is reasonably related to the amount actually earned in a typical week. In this case, Helix acknowledged that the special rule did not apply.
That meant the case hinged on whether Hewitt was otherwise paid on a salary basis – and he was not, the court ruled.
Hewitt was not paid on a salary basis because he was paid daily and the special rule did not apply.
Thus, he could get overtime.
What does ‘salary’ mean?
The DOL’s main salary basis regulation, the court explained, talks about predetermined weekly pay and just does not fit a daily-rate worker, the court said.
The court explained:
“A daily-rate worker’s weekly pay is always a function of how many days he has labored. It can be calculated only by counting those days once the week is over — not, as [the regulation] requires, by ignoring that number and paying a predetermined amount.”
Relying on a dictionary definition, the court added that “salary” means ““fixed compensation regularly paid, as by the year, quarter, month or week.”
The concept is linked to security and stability, the court added, and without those things “the idea of a salary … dissolves.”
Hewitt was not exempt from overtime, the court concluded; instead, he was entitled to it.
The message for employers: Be very careful about classifying daily-rate workers as salaried employees. They qualify as such only when a narrow special rule (described above) applies.
Helix Energy Solutions Group Inc. v. Hewitt, No. 21-984 (U.S. 2/22/23).