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Overtime Still Applies - Highly Paid Employees Entitled to Overtime Wages

Matthew S. Veech

by Matthew S. Veech

October 27, 2021

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The Fifth Circuit recently held that a daily rate employee who made over $200,000 per year was nevertheless entitled to overtime wages.  There are two key takeaways from this case for employers.  First, employers should not assume they will not have to pay overtime simply because and employee is highly paid.  Second, when employers have highly paid employees employers should be mindful of the way the employee pay is structured in order to avoid future overtime claims.

In evaluating this issue, the analysis often starts with the highly compensated employee exemption in 29 C.F.R. § 541.601.  That exemption can exempt from the overtime pay requirements employees that make over $107,432 per year—with a guaranteed weekly pay of at least $684 per week from overtime pay. However, in Hewitt v. Helix Energy Solutions Group the Fifth Circuit determined that Mr. Hewitt, despite earning in excess of $200,000 per year, still was not covered by the highly compensated employee exemption because he was not paid on a “salary basis.”

To be considered an employee paid on a “salary basis,” 29 C.F.R. § 541.602(a) requires an employee to be paid a pre-determined amount on a weekly or less frequent basis. Section 541.602(a) also requires the employee to be paid a full salary “for any week in which the employee performs any work without regard to the number of days or hours worked.”  It is this requirement of pay on a “salary basis” that Helix could not show.

Mr. Hewitt was employed as a tool pusher for Helix and was paid a daily rate of $963. The Fifth Circuit’s analysis in Hewitt focused on whether Mr. Hewitt, as a daily rate employee, could ever be considered as being paid on a “salary basis” pursuant to § 541.602(a) thereby exempting him from the overtime pay requirements under the FLSA. To answer this question, the Fifth Circuit applied the salary basis test found in 29 C.F.R. § 541.604(b), which sets out the following requirements:

  • The employment agreement includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days, or shifts worked; and
  • A reasonable relationship between the guaranteed amount and the amount actually earned.

In applying this test to Mr. Hewitt, the Fifth Circuit found the salary basis test was not met because Mr. Hewitt had no minimum weekly guaranteed pay. Mr. Hewitt was paid a daily rate for days he did work, but this pay was contingent on the amount he worked in a given week. In addition, Mr. Hewitt’s daily rate was paid with no “reasonable relationship” to the amount of hours Mr. Hewitt actually worked. For example, whether Mr. Hewitt worked one hour or ten hours on a particular day, he was paid the same amount. Because of this, the salary basis test was not satisfied.

The Fifth Circuit pointed out how easily Helix could have avoided this issue by simply providing Hewitt a guaranteed weekly payment that was independent of whether Hewitt worked any days that week or not. However, because it failed to do so, the Fifth Circuit held that Helix was required to pay Hewitt overtime wages.

Helix argued that it was not required to satisfy the two-factor test set forth above because the highly compensated employee exemption applied to Mr. Hewitt. The Fifth Circuit rejected this argument, stressing that for any overtime exemption to apply, there must be a guaranteed weekly payment of $684 paid “on a salary basis.” Because Hewitt was not paid on a salary basis, Helix simply could not satisfy the salary basis test so its reliance on the highly compensated employee exemption failed.

However, it was worth noting that there was a concurring opinion and a dissenting opinion in the Hewitt matter so this matter may very well wind up at the U.S. Supreme Court.

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