Overtime Pay Required: Daily-Rate Workers Cannot Qualify for the “Highly Compensated Employee Exemption” Under the FLSA

Gone are the days when daily-rate employees were considered exempt from overtime pay requirements under the FLSA.

In February, the United States Supreme Court held in Helix Energy Sols. Grp., Inc. v. Hewitt, 143 S. Ct. 677 (2023) that an employee paid on a daily-rate basis must still be paid for overtime worked because such employees do not qualify for the highly compensated employee exemption under the federal Fair Labor Standards Act (FLSA).

The FLSA generally requires employers to pay overtime pay to covered employees when they work more than 40 hours a week. For an employee to be exempt from overtime, they must satisfy a duties test and the salary basis test. The Helix case focuses on whether highly compensated employees (i.e., those earning at least $100,000 per year) can satisfy the salary basis test when they are paid on a daily rate basis.

Michael Hewitt worked as an oil rig supervisor for Helix Energy.  He would work 12-hour days for 28 consecutive days followed by 28 days of unpaid time off. Hewitt was paid a daily rate for each day worked.  Because Hewitt earned more than $200,000 annually, Helix Energy classified him as a highly compensated employee and treated him as exempt for overtime purposes. Hewitt sued Helix Energy alleging he was entitled to overtime pay under the FLSA.

Helix Energy argued Hewitt was exempt from the FLSA’s overtime requirement because he qualified as a highly compensated employee (under 29 C.F.R. § 541.601) for the “bona fide executive” exception (under 29 U.S.C. §213(a)(1)). However, even highly compensated employees must be paid on a salary basis to qualify as a bona fide executive. Therefore, the critical question for the Supreme Court was whether Hewitt’s daily compensation met the salary basis test under § 541.602(a).

The Supreme Court ultimately held § 541.602(a) only applies to employees paid a predetermined, predictable amount in week (or longer) increments regardless of the number of days or hours actually worked. The Supreme Court’s interpretation embodies the initial purpose of the “salary” framework: paycheck security regardless of the quality or quantity of work. Therefore, payment on a daily rate basis is not considered a salary for federal wage and hour purposes. Accordingly, despite Hewitt’s $200,000 annual compensation, his daily rate pay did not meet the salary basis test, and he was entitled to overtime pay under the FLSA.

Moving forward, most employees paid on a daily rate basis cannot be exempt from overtime pay requirements under the salary basis test.

Next Steps

Employers using a daily rate pay structure should confirm this structure meets the salary basis test or should pay those employees overtime. Montgomery Purdue’s Employment and Labor attorneys are available to assist employers with wage and other workplace requirements.

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