Day Rate Pay Does Not Meet Salary Basis Test for Overtime Exemptions

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APPLIES TO

All FLSA-Covered Employers

EFFECTIVE

February 22, 2023

  

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Quick Look

  • Employees paid solely a day rate are not overtime exempt under the FLSA.
  • Employers can bring day rate pay arrangements into compliance by following two methods provided by the U.S. Supreme Court.

Discussion

The U.S. Supreme Court recently said payment of a “day rate” does not satisfy the salary basis test for the white-collar exemption for overtime under the Fair Labor Standards Act (FLSA). In Helix Energy Solutions Group, Inc. v. Hewitt, the employee was a tool-pusher on an offshore oil rig. Regardless of how many hours he worked during the day, he was paid between $936 and $1,341 per day resulting in an annual salary of over $200,000. Despite receiving more than the $455 per week previously required for an overtime exemption under the FLSA salary basis test, the employee claimed he was misclassified as exempt and was entitled to overtime. The Court agreed.

The Court reasoned that day rate employees are not paid on a salary basis because the amount of pay fluctuates based on the number of days worked in a week. In addition, the FLSA’s description of a salary did not apply to a day rate because date rate pay is provided for each day worked. The Court provided two methods in which day rate pay arrangements could be brought into compliance with the FLSA salary basis test. Under the first method, employers could add a weekly guaranteed payment regardless of the time worked per week that meets the minimum weekly required amount under the salary basis test and has a reasonable relationship between the guaranteed amount and the actual amount earned. Under the second method, employers can convert the day rate to a weekly salary for time spent working. Employers who have day rate employees should review the arrangement and make sure it is compliant with the methods offered by the Court.

 

Action Items

  1. Review day rate pay arrangements with legal counsel for compliance with salary basis test described by the Court.
  2. Have appropriate personnel trained on overtime exempt classifications.
  3. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2023 ManagEase