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September 9, 2021
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In Hewitt v. Helix Energy Sols. Grp., Inc., the Fifth Circuit Court of Appeal reviewed when a highly compensated employee may be paid a daily rate of pay and still be exempt from overtime under the Fair Labor Standards Act (FLSA). Specifically, even though earnings may be computed on a daily basis, the employee’s pay must also be guaranteed to be at least the minimum weekly required amount paid on a salary basis, regardless of the number of hours, days, or shifts worked, and there must be a reasonable relationship between the guaranteed amount and the amount actually earned. (29 C.F.R. § 541.604(b).)
There, an oil and gas industry employee was paid a daily rate of $1000 and his employer claimed he was a highly compensated employee exempt from overtime. However, highly compensated employees must be paid on a salary basis. An individual cannot be a “highly compensated employee” unless their total annual compensation satisfies the salary-basis test. The court stated that “the only way for an employee to have his pay “computed on a daily basis” “without violating the salary basis requirement” is to comply with § 541.604(b).” Ultimately, rather than look at the amount of pay, the court looked to the statutory and regulatory procedural requirements instead. “There is no principled basis for applying or ignoring § 541.604(b) based on how much the employee is paid.”
- Review pay structures to ensure compliance with FLSA overtime exemptions.
- Update offer letters to be consistent with FLSA requirements.
- Train appropriate personnel on required pay structures.
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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.
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