Hybrid Pay and FLSA Overtime Exemptions: Key Takeaways for Fifth Circuit Employers (and Beyond)

In its June 12, 2026, decision in Guilbeau v. Schlumberger Technology Corporation, the U.S. Court of Appeals for the Fifth Circuit provided clarity for employers on whether hybrid pay structures combining a fixed salary with variable day-rate pay satisfy the Fair Labor Standards Act's (FLSA) "salary basis" test.

The FLSA and the "Highly Compensated" Employee Exemption

The FLSA and its regulations require employers to pay covered employees overtime – 1.5 times their regular rate – for hours worked beyond 40 in a workweek.¹ "Highly compensated" employees – those that earn at least $107,432 per year – are exempt from the FLSA's overtime-pay requirements if they are paid on a salary basis at least $684 per week and "customarily and regularly" perform at least one of the exempt duties of an executive, administrative or professional employee.²

There are two ways to establish "salary basis" status. First, under Section 602(a), an employee is paid on a salary basis if they regularly receive, on a weekly or less frequent basis, a predetermined amount that is not subject to reduction because of the quality or quantity of work performed.³ Second, under Section 604(b), an employee whose pay is computed on an hourly, daily or shift basis may still be treated as salaried – provided the arrangement guarantees at least the minimum weekly amount on a salary basis and a "reasonable relationship" exists between that guarantee and the employee's actual earnings.⁴ Courts have generally found a reasonable relationship where the employee's actual weekly pay does not exceed roughly 1.5 times the guaranteed amount.

Whether Section 602(a) or Section 604(b) applies is key when determining whether an employee who is paid pursuant to a hybrid pay structure falls within the "highly compensated" employee exemption or is owed overtime pay.

The Fifth Circuit's Decision

In Guilbeau v. Schlumberger Technology Corporation,⁵ the Fifth Circuit addressed this issue. The employer, an oilfield services company, used a hybrid pay structure for certain employees it treated as exempt from overtime pay requirements. These employees received a fixed biweekly amount that did not vary based on hours or days worked, plus variable pay – such as a "rig day rate" for days working on a rig or a "standby day rate" for days they were on-site but not working on a rig. Variable pay often made up the majority of these employees' total compensation.

Trever Guilbeau and another employee brought a collective FLSA action seeking unpaid overtime. The employer moved for partial summary judgment, arguing that one of the plaintiffs was ineligible for overtime pay because he was a salaried exempt employee. The U.S. District Court for the Western District of Texas denied the motion but certified the employer's subsequent motion for an interlocutory appeal, bringing the issue before the Fifth Circuit.

The central question for the Fifth Circuit was whether Schlumberger's hybrid pay structure qualified as payment on a "salary basis," thereby exempting the plaintiff from the FLSA's overtime requirements. The answer turned on whether the structure fell under Section 602(a) or Section 604(b). The court held that Section 602(a) governed because the plaintiff received a guaranteed biweekly lump sum that exceeded the minimum salary threshold, was predetermined, and did not depend on the quantity or quality of his work. Because that predetermined sum was calculated by the week, it satisfied Section 602(a), which – unlike Section 604(b) – contains no "reasonable relationship" requirement. Had Section 604(b) instead applied, the plaintiff's pay would not have qualified as salary basis, because his ratio of total pay to guaranteed pay was roughly 5.9-to-1 – far beyond the reasonable-relationship limit.

Critically, the court found the day-rate portion of the plaintiff's pay immaterial to the salary-basis analysis. Under the plain text of Section 602(a), only the predetermined salary matters – not the nature or amount of the variable pay – even where, as here, the variable pay made up the majority of total compensation. The court further noted that the Tenth, Eleventh and Third Circuits have taken the same approach, making the decision instructive for employers operating outside the Fifth Circuit as well.

Accordingly, the Fifth Circuit held that the employer's hybrid pay structure fell within Section 602(a), entitling the company to partial summary judgment on the plaintiff's overtime claim.

Conclusion and Considerations

Guilbeau's holding applies broadly and offers helpful FLSA guidance for employers generally. Employers – both within and beyond the Fifth Circuit – should consider the decision when evaluating whether employees qualify for the FLSA's "highly compensated" exemption or are instead owed overtime.

The decision is also instructive for employers weighing whether to adopt a hybrid pay structure and, if so, how to design its fixed and variable components. To preserve the exemption, employers should ensure that the guaranteed portion of any hybrid arrangement is a predetermined weekly (or less frequent) salary that meets the applicable threshold (currently $684 per week under the FLSA) and is not reduced based on the quality or quantity of work. Where the guaranteed amount is instead tied to an hourly, daily or shift rate, employers should confirm that a reasonable relationship exists between the guarantee and actual earnings – or risk losing the overtime exemption.

For further questions regarding the Fifth Circuit's decision or a specific matter, contact the authors.

Notes

¹ 29 U.S.C. § 207(a)(2).

² Hewitt v. Helix Energy Sols. Group, Inc., 15 F.4th 289, 290 (5th Cir. 2021), aff'd, 598 U.S. 39 (2023).

³ 29 C.F.R. § 541.602(a).

⁴ 29 C.F.R. § 541.604(b).

⁵ Guilbeau v. Schlumberger Tech. Corp., No. 25-50594, 2026 WL 1707066 (5th Cir. June 12, 2026).

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.