Court: Employee entitled to overtime pay despite 6-figure income

A new Supreme Court ruling serves as a useful reminder to employers that they must pay employees on a “salary basis” in order to avoid overtime requirements under the Fair Labor Standards Act (FLSA), even for highly compensated individuals.

In this case, an oil rig worker was paid on a daily-rate basis of approximately $1,000 per workday and earned over $200,000 annually. Although he was classified as an “executive” and earned significantly more than the $684 weekly salary threshold under the FLSA’s white-collar exemptions, the employee claimed that he was entitled to overtime premiums because he was paid a daily rate rather than a weekly salary.

The Supreme Court sided with the employee, ruling that a daily-rate compensation scheme did not constitute a “salary” under the FLSA. The Court observed that the standard meaning of a salary “connotes a steady and predictable stream of pay, week after week after week.” Thus, employees are paid on a salary basis only if they receive a full predetermined amount “for any week in which they perform any work, without regard to the number of days or hours worked.” Because the employee’s earnings depended on how many days he worked in a week, the Court held that he was not paid on a salary basis. Furthermore, although this case involved a highly compensated individual, the Court specifically noted that employees “are not deprived of the benefits of overtime compensation simply because they are well paid.”

Disputes related to overtime pay often focus on the “job duties” test and whether an employee is properly classified as working in a “bona fide executive, administrative, or professional capacity.” As this case shows, however, employers should remember that such employees must also be paid on a salary basis for any overtime exemptions to apply under the FLSA.

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