Under 29 C.F.R. § 541.602(a), the Highly Compensated Employee (HCE) exemption, “[a]n employee will be considered to be paid on a ‘salary basis’ . . .  if the employee regularly receives . . .  a predetermined amount constituting all or part of the employee's compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.” (emphasis added).

A key point to remember when evaluating a hybrid compensation structure for HCEs is that while hybrid compensation is permissible, employers must still meet the salary basis test set forth in 29 U.S.C. § 213(a)(1). Recently, in Guilbeau, 178 F.4th 922 (5th Cir. 2026), the Fifth Circuit held on interlocutory appeal that incentive-based day-rate lump-sum payments on top of a guaranteed salary floor did not negate the HCE exemption. In Guilbeau, the employee sued for overtime pay, claiming the exemption did not apply because he was paid both a guaranteed salary and a day-rate. The Fifth Circuit, reversing the lower court, explained that “[i]t is immaterial ‘whether the day-rate portion of Plaintiffs’ compensation was part of the base compensation.’ Under the plain text of Section 602(a), we consider only the ‘predetermined amount’ of pay a worker receives.”