Recently, the U.S. Supreme Court, in Helix Energy Solutions Group, Inc. v. Hewitt, examined the “salary basis” test under federal law and made an impactful determination regarding exempt and non-exempt employees. Employers in California must fully grasp the decision as the state often echoes federal law when analyzing and establishing its wage and hour laws. The following text outlines the differences between non-exempt and exempt employees in California, the salary basis test, how the recent decision at the federal level impacts the state of California and employees in California, and when to consult with an experienced employment attorney.
The Differences Between Exempt and Non-exempt Workers in California
According to California law, all employees are presumed non-exempt, meaning workers are not exempt from Labor Code provisions. The term “exempt employee” refers to a worker not protected by California’s wage and hour laws. The laws provide non-exempt workers overtime pay, minimum wage requirement protections, meal breaks, and rest periods. A typical exempt employee is one whose duties and compensation or pay exclude them from specific wage and hour requirements. In any case, the employer bears the responsibility when assessing whether an employee is exempt, and merely providing them with a title does not automatically qualify them.
White-collar executive, administrative, or professional employees are exempt from the Fair Labor Standards Act (FLSA).
The Department of Labor issued regulations that set forth the requirements for employees to meet these exemptions, which include:
- The duties that he or she has.
- The salary they receive.
- The method of their compensation, such as salary, wage, or commission.
California also has exemptions for specific categories of employees from overtime and other wage and hour requirements, including the white-collar positions mentioned. In California, employees who are classified as exempt are governed by California’s Wage Orders and section 515 of the California Labor Code. In many matters, California turns to federal law for guidance. However, despite the resulting parallels between federal regulations and California laws, there are unique nuances. Employers and employees should be equally aware of these differences when analyzing exemption status in the Golden State. For example, California law has a higher salary threshold for exempt employees than federal law. Employers must also ensure their exempt employees receive meal and rest breaks.
What is the Salary Basis Test, and How is it Applied?
California’s law adheres to or exceeds federal law’s salary basis test and follows that test quite extensively. The federal salary basis test is a requirement for employees to be considered exempt from certain overtime rules. It sets a minimum salary amount that must be paid to an employee in order for them to be considered exempt. In meeting the means test, an employee must be paid a minimum salary of $684 per week or $35,568 annually. This test applies to employees who perform certain types of job duties considered “white collar” or managerial in nature (such as executives, administrative professionals, and professionals) in some fields.
As a result, under federal law, employees who meet the salary basis test and perform their required job duties are exempt from the designated overtime requirements and other provisions, i.e., minimum wage. Employers must follow this rule because failing could lead to legal action, such as lawsuits or investigations from the Department of Labor. As an employee, if you believe your employer has improperly classified you as exempt and denied provisions such as overtime pay, consider pursuing legal action to recover those wages. Understanding the federal salary basis test is critical for employers and employees to ensure fair and lawful treatment in the workplace. However, there has been a recent case that may have set a precedent regarding the test.
200,000 Employee Found Non-exempt by Federal Laws, Including The Salary Basis Test
The salary basis test made headlines in a recent legal matter involving a six-figure employee ultimately deemed non-exempt.
In Helix Energy Solutions Group, Inc. v. Hewitt, the plaintiff worked as a “tool-pusher” on an offshore oil rig for Helix Energy Solutions Group. He worked 12 hours a day, seven days a week, for a 28-day “hitch” before having 28 days off. Helix paid the plaintiff on a daily-rate basis, which started at $963 per day and increased to $1,341 per day, amounting to more than $200,000 on an annual basis. The plaintiff claimed, despite considerable compensation, because he was paid daily did not satisfy the salary basis required to be labeled as “exempt” and, therefore, should be paid for his overtime.
According to federal regulations, if a person receives a predetermined amount each pay period on a weekly, or less frequent basis, that constitutes all or part of the worker’s compensation, and that payment is not subject to reduction because of deviations in the quality or quantity of the work conducted, that person is considered to be paid on a salary basis. Alternatively, exempt employees are entitled to receive their full salary regardless of the number of days or hours they work in a given week. (29 C.F.R. § 541.602-a).
The U.S. Supreme Court held that the plaintiff was, in fact, not paid on a salary basis, and as such, explained that Helix had not paid the plaintiff a “predetermined amount” each pay period, but rather his pay varied depending on the amount and quality of work he performed. The Court further held that the plaintiff’s pay was not “guaranteed,” as he could earn more or less based on his performance. Therefore, the plaintiff was not exempt from overtime requirements. As a result, Helix had to pay for the overtime work, despite his cumulative pay of 200,000 each year.
If you believe your employer is improperly labeling you at work according to state or federal laws or is otherwise withholding compensation or underpaying you for your position, contact an experienced California Bay Area employment attorney as soon as possible. Our office can provide a complimentary and confidential consultation with our skilled legal team.
