Whether a six-figure supervisor is exempt from the Fair Labor Standards Act overtime rules is probably not something that’s kept you up at night — unless you pay your employees a lot of money without paying them a salary (e.g., day rates).
Or you’re just an FLSA nerd like me.
Fortunately, the Supreme Court has agreed to address it.
Here’s why this is an issue.
The Fair Labor Standards Act regulations contain a special rule for “highly compensated” employees who are paid total annual compensation of $107,432 or more. The “highly compensated employee” exemption applies if:
- The employee earns total annual compensation of $107,432 or more, which includes at least $684 per week paid on a salary or fee basis;
- The employee’s primary duty includes performing office or non-manual work; and
- The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.
Let’s assume that our $200K supervisor satisfies the second and third bullets. Will he apply for the “highly compensated employee” exemption if the employer pays the supervisor at least $684* per week without regard to the number of hours worked, but as a daily wage rather than a weekly salary?
(*At the time of this particular case, the weekly salary level was $455.)
Last year, the full Fifth Circuit Court of Appeals said no.
“Earning a certain level of income is necessary, but insufficient on its own, to avoid the overtime protections of the FLSA. The employee must also be paid on a salary basis, as well as perform certain duties.”
But the Fifth Circuit did offer a workaround. That is, the “minimum guarantee plus extras” provision in the FLSA regulations provides that, when determining whether a highly compensated individual is exempt, “[a]n exempt employee’s earnings may be computed on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement, if 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 a reasonable relationship exists between the guaranteed amount and the amount actually earned.”
In this particular case — a supervisor in the oil and gas industry paid lofty day rates — the Fifth Circuit concluded that the company could not establish a reasonable relationship between the daily amount and the supervisor’s earnings.
Instinctively, you’d think that the FLSA does not exist to provide overtime windfalls to folks in big six-figure jobs. The dissenting judges in the Fifth Circuit reasoned that the majority’s “counterintuitive” result is at cross-purposes with the FLSA, “a statute designed to elevate the workingman.” But, both the Secretary of Labor and the Supreme Court have said that “employees are not to be deprived of the benefits of the [FLSA] simply because they are well paid.”
Except now the Fifth Circuit’s ruling conflicts with the First and Second Circuits, which do not apply the “minimum guarantee plus extras” provision in the FLSA regulations to the special rule for “highly compensated” employees.
And you know what a circuit split means?
The Supreme Court has agreed to decide this relatively obscure wage and hour issue.
And FLSA wonks can rejoice in this jurisprudential bounty!