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Who is entitled to overtime? A new Supreme Court decision puts employers on notice

Good morning,

CFOs are concerned about compliance risks. And at a time when talent, pay, and compensation are top of mind, the highest court in the U.S. is weighing in on employment laws.

“Frankly, every employer should review their wage and hour compliance on a fairly regular basis because the laws are complicated, as evidenced by this Supreme Court decision; and the laws are subject to different interpretations and change,” says Alex Granovsky, a labor and employment attorney at Granovsky & Sundaresh PLLC.

The Supreme Court ruled on Feb. 22 that Michael Hewitt, a “tool-pusher” at Helix Energy Solutions, an oil and gas company based in Houston, who earned more than $200,000 a year, still qualified for overtime pay under the Fair Labor Standards Act (FLSA).

The court sided with Hewitt in a 6-3 vote. From 2014 to 2017, Hewitt worked for Helix on an offshore oil rig, about 84 hours a week. He supervised 12 to 14 workers and was paid from $963 to $1,341 per day. But Hewitt didn’t receive any overtime pay.

The more than $200,000 was Hewitt’s total compensation. He wasn’t paid a salary, but was paid a day rate, Granovsky explains. The more days he worked, the more money he made, and vice versa. “In a lot of ways, if you think about it, that's almost identical to being paid an hourly rate,” Granovsky says.

The issue that was “teed up” for the Supreme Court was “whether or not this employee, by being paid well over $200,000 a year, and being paid a day rate, met the FLSA’s executive exemption for overtime,” he explains.

Employees exempt from the FLSA overtime rule typically must be paid a salary above a certain level and work as a "bona fide executive" (satisfying salary and duty requirements), administrative, or professional role. In the case of Hewitt, Justice Elena Kagan wrote in her opinion that Helix paid him by the day and not weekly. This did not meet the FLSA's salary-based criteria for an executive exemption. Kagan wrote that the exemption at issue "applies solely to employees paid by the week (or longer); it is not met when an employer pays an employee by the day, as Helix paid Hewitt."

So, what are some of the implications for companies regarding the court’s decision? “Anything other than an actual salary, where you are paid the same, irrespective of the quality or quantity of your work, will not suffice for the purpose of an employee being exempt,” Granovsky explains. The crux of Hewitt's employer’s argument was the amount of money he made, but that’s “irrelevant,” he says. “It’s the manner in which you are paid,” Granovsky says.

A new paper by the National Bureau of Economic Research argues there's evidence of “an almost five-fold increase” in listings for salaried positions with managerial titles by firms seemingly in an attempt to avoid paying overtime wages. This includes “the listing of managerial positions such as 'directors of first impression,' whose jobs are otherwise equivalent to non-managerial employees (in this case, a front desk assistant)," according to the report.

Regarding employment law, what should CFOs keep on their radar for 2023? “The severance agreements that came down from the National Labor Relations Board (NLRB); that's a big one,” Granovsky says. On Feb. 21, the NLRB ruled that employers may not offer severance agreements that require employees to broadly waive labor law rights.

"But the wage and hour is a very sticky issue because there's a lot of gray areas," he says. "When it comes to the Fair Labor Standards Act, a failure to maintain accurate records of wage payments and hours worked and things like that can really hurt an employer."

Compliance is certainly a big deal.

See you tomorrow.

Sheryl Estrada

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This story was originally featured on Fortune.com

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