U.S. Supreme Court rules high-earning professionals are not overtime-exempt if paid hourly

In an opinion issued on February 22, 2023, the Supreme Court held that high-earning professionals must be paid on a salary basis in order to qualify for overtime exempt status under the Fair Labor Standards Act (FLSA). This ruling underscores the importance of the salary-basis requirement to overtime exemption tests under the FLSA, and reminds employers to ensure that their payroll practices meet this requirement for employees otherwise classified as exempt.

Relevant Department of Labor regulations state that highly compensated employees are exempt from overtime pay requirements if:

  1. The employee earns total annual compensation of US$107,432 or more, which includes at least US$684 per week paid on a salary or fee basis;
  2. The employee's primary duty includes performing office or non-manual work; and
  3. The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee.

In Helix Energy Solutions Group, Inc. v. Hewitt, the Supreme Court found that Helix Energy Solutions Group Inc. violated the FLSA by classifying an employee who earned over US$200,000 per year as overtime-exempt but calculated his pay on a daily basis rather than on a salary basis. Although the employee made well over US$107,432 in a year and met the second and third requirements of the above test, the Supreme Court held that the employee was nevertheless not exempt under the FLSA, and thus entitled to overtime pay, because his annual compensation did not include “at least $684 per week paid on a salary or fee basis.”

Employers should not interpret this ruling to mean that all highly compensated executives are now overtime eligible. Rather, as long as such employees are compensated on a salary basis (which the vast majority are) and meet the other requirements, the Supreme Court ruling would not require an employer to pay them overtime.

Although this ruling may have limited applicability to most employers, it is always prudent to regularly review employment classifications when new guidance or decisions are issued.

If you have further questions relating to the recent Supreme Court decision or determining overtime exemption under the FLSA, please contact an author of this post or the Hogan Lovells lawyer with whom you typically work.

 

 

Authored by Kenneth Kirschner, Zachary Siegel, and Heather McAdams.

Contacts
Kenneth Kirschner
Partner
New York
Zach Siegel
Senior Associate
Philadelphia
Heather McAdams
Associate
New York

 

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