On the 8th of this month the Ninth Circuit Court of Appeals issued a ruling that certain per diem payments must be included in an employee’s regular rate of pay. Although the Ninth Circuit covers only Alaska, Arizona, California, Guam and Hawaii, the ruling is nonetheless worth noting to those of us fortunate enough to live and work in the Fifth Circuit.
As you know, under the FLSA a non-exempt employee must be paid overtime at the rate of time and a half times the employee’s regular rate of pay. This fact begs the question: what constitutes the regular rate of pay?
The short answer is: it depends.
In the case before the Ninth Circuit, Clarke v. AMN Services, LLC, AMN, a staffing company sometimes placed its employees at facilities that required them to drive a long distance from their homes. In addition to their hourly rates, AMN paid the employees who traveled more than fifty miles from their homes per diems that were intended to reimburse them for the cost of meals, housing, and other expenses. Being aware of 29 CFR 778.217, AMN Services did not include the per diem payments in the traveling workers’ regular rates of pay when calculating their overtime.
29 CFR 778.217 states in relevant part that:
(a) General rule. Where an employee incurs expenses on his employer’s behalf or where he is required to expend sums by reason of action taken for the convenience of his employer, section 7(e)(2) is applicable to reimbursement for such expenses. Payments made by the employer to cover such expenses are not included in the employee’s regular rate (if the amount of the reimbursement reasonably approximates the expense incurred). Such payment is not compensation for services rendered by the employees during any hours worked in the workweek.
(b) Illustrations. Payment by way of reimbursement for the following types of expenses will not be regarded as part of the employee’s regular rate…
(5) The actual or reasonably approximate amount expended by an employee as temporary excess home-to-work travel expenses incurred (i) because the employer has moved the plant to another town before the employee has had an opportunity to find living quarters at the new location or (ii) because the employee, on a particular occasion, is required to report for work at a place other than his regular workplace.
The Ninth Circuit held that these per diem payments should have been included in the employee’s regular rate of pay because the structure of the payments suggested that they were more akin to wages rather than reimbursements. For example, the amount of the per diem payments depended in part on the number of hours worked by the employee rather than the expenses the worker incurred. In addition, AMN Services made identical per diem payments to its employees who were not required to travel more than 50 miles away from home on assignment. The company included these per diems in the local workers’ regular rates and expressly considered them to be part of their overall compensation package.
The Ninth Circuit’s opinion is not groundbreaking, but it is a good reminder that we should take a hard look at our per diem and reimbursement policies and practices to determine if they should be included in the regular rate of pay or not. Considering that the FLSA provides for 100% liquidated damages and the recovery of attorney’s fees, and that the Louisiana “payday” statute allows for the recovery of ninety day’s penalty wages and attorney’s fees, failing to properly calculate an employee’s regular rate of pay can be a very costly error.