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Companies Must Revisit High-Earner Compensation After the Supreme Court’s Ruling in Helix Energy
By MARGARET H. ALLEN AND TAYLER G. BRAGG
Companies that pay high-earning workers a day rate without overtime must exercise caution following the Supreme Court’s February decision in Helix Energy.
The Court held that when a high-earning employee’s paycheck is based solely on a day rate (so that the individual receives a certain amount if the person works one day in a week, twice as much for two days, and so on), the employee is not paid on a “salary basis,” as that term is used in the Fair Labor Standards Act (FLSA), and is entitled to overtime pay.
The case at issue involved a set of facts familiar to the oil and gas industry. A “toolpusher” who supervised 12 to 14 workers, and who earned over $200,000, sued to recover overtime. The company argued that he was exempt. The dispute turned on whether the worker was paid a salary. The Court held, in a 6-3 decision, that “such an employee is not paid on a salary basis, and thus is entitled to overtime pay.”
To reach this holding, the Court analyzed two regulations. The first regulation, § 602(a), requires a salary to be “paid on a weekly, or less frequent basis.”
Thus, the Court ruled that § 602(a) “applies solely to employees paid by the week (or longer)” and “is not met when an employer pays an employee by the day.”
The second regulation, § 604(b), provides that “earnings may be computed on an hourly, a daily or a shift basis,” if (1) “the employment arrangement also 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 (2) a reasonable relationship exists “between the guaranteed amount and the amount actually earned.”
Companies have two options in the wake of Helix: Either adjust their day rate payments to comply with the Court’s opinion, or pivot to an hourly wage with overtime.
That reasonable relationship “will be met if the weekly guarantee is roughly equivalent to the employee’s usual earnings . . . for the employee’s normal scheduled workweek.” The Court explained that the two conditions of § 604(b) “create a compensation system functioning much like a true salary — a steady stream of pay, which the employer cannot much vary and the employee may thus rely on week after week.”
The Court ruled that the day rate did not satisfy § 604(b), because the company did not guarantee that the worker would receive an amount each week bearing a reasonable relationship to the “weekly amount he usually earned.”
Companies have two options in the wake of Helix: Either adjust their day rate payments to comply with the Court’s opinion, or pivot to an hourly wage with overtime.
Option 1
Pay a “day rate” and comply with Helix. The Court suggested that companies could pay a day rate and comply in two ways. Companies may add to the day rate a “weekly guarantee” that is paid regardless of the number of days actually worked and is roughly equivalent to the employee’s usual earnings for a normal workweek. Or companies may convert the day rate to a straight weekly salary. Under either option, companies may potentially pay workers for days that they do not actually work.
Option 2
Pivot to an hourly wage. For companies that want to pay workers for days actually worked, an hourly wage with overtime might be an attractive option. But an hourly wage with overtime is not risk free, since companies could face overtime actions.
The Court recognized that either option would require compensation for days not actually worked and would thus increase costs for businesses. But the Court was not sympathetic. For those reasons, companies should carefully consider their payment practices and business goals to evaluate how to compensate high-earning workers who were formerly paid a traditional day rate.
