Supreme Court
The U.S. Supreme Court. Credit: Geoff Livingston

The Supreme Court ruled Wednesday that, under certain circumstances, “highly paid” employees can be eligible for overtime pay if they are paid daily rather than on a salaried basis.

According to the court, even a highly compensated employee — in this case, a nonsalaried worker earning $200,000 — is entitled to overtime pay unless one or more specific overtime exemptions apply.

“The court ruled that the defendant company didn’t pay a salary as defined under the [Fair Labor Standards Act], and therefore a highly compensated employee was not exempt,” the National Law Review reported.

Employees are not “deprived of the FLSA benefits simply because they are well paid,” Justice Elena Kagan wrote for the majority. “Most simply put, an employee paid on an hourly basis is paid by the hour, an employee paid on a daily basis is paid by the day, and an employee paid on a weekly basis is paid by the week.”

To qualify for a “white collar” exemption under the current overtime rule, all of the following tests must be met:

  • The employee must be paid at least $684 per week on a salary basis (as defined in the regulations);
  • The employee’s primary duty must be managing the enterprise or managing a customarily recognized department or subdivision of the enterprise;
  • The employee must customarily and regularly direct the work of at least two or more other full-time employees or the equivalent; and
  • The employee must have the authority to hire and fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees is given particular weight.

Chief Justice John Roberts, along with Justices Amy Coney Barrett, Ketanji Brown Jackson, Elena Kagan, Sonia Sotomayor and Clarence Thomas affirmed the 5th Circuit Court of Appeals’ interpretation of the FLSA’s overtime pay requirement, which sets a salary threshold used to determine which employees are eligible to receive overtime pay when they work more than 40 hours per week. 

Justices Samuel Alito, Neil Gorsuch and Brett Kavanaugh dissented from the majority opinion. Kavanaugh called the majority decision “head scratching.”

“Although the Court holds that [the plaintiff] is entitled to overtime pay under the regulations, the regulations themselves may be inconsistent with the Fair Labor Standards Act,” Kavanaugh said.

“The decision is a wake-up call for all employers to review their OT exemptions to ensure they are compliant with applicable federal and state requirements,” Fisher Phillips attorneys Patrick A. Dalin, Marty Heller and Corina Johnson wrote

The attorneys made the following points:

  • Businesses should review their practices to ensure compliance with Wednesday’s ruling. Work with experienced legal counsel to review employee classifications.
  • Employers must guarantee a substantial portion of employees’ weekly pay (on a salary basis) to satisfy the exemption for highly compensated employees. 
  • Note that not all states recognize the exemption for highly compensated employees.

Watch for changes from the Labor Department. The Wage and Hour Division’s proposed overtime rule is expected to be published in May.