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Top Wage & Hour Lawyer Reply: Should I Be Paid Overtime For “Per Diem” Work?

On Behalf of | Jul 9, 2014 | Wage: Minimum Wage, Wage: Overtime, Wage: Tipped Employees |

Best Ohio Overtime Wage Attorney Answer: What is the “regular rate” of pay use to calculate overtime? Can my employer pay me per diem instead of overtime? How do I know if I am being paid properly? What should I do if my job will not pay me overtime?

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As our wage and hour attorneys have previously blogged, employers often use several tricks to avoid paying their employees overtime. It should come as no surprise then that employers also use other tricks to avoid paying the proper overtime rate when they do have to pay overtime.

Calculating overtime all comes down to determining what an employee’s regular rate of pay is. This can be simple if your pay is limited to an hourly rate. Typically, you only need to multiply your regular hourly rate by 1.5 times to get an overtime rate. So, as an example, if you make $10 per hour, $10 x 1.5 = $15 per hour for each hour worked over 40. Because the overtime rate is tied to your regular rate of pay, the more you make per hour, the more your overtime rate will be. However, things become much more complicated when other forms of pay are combined with an hourly rate, or when an employee is paid something other than an hourly rate. Unfortunately, employers sometimes use these alternate forms of payment to cheat employees out of the proper overtime rate.

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Take, for example, the case of Gagnon v. United Technisource Inc. Gagnon worked for United Technisource (“UTI”) painting the exterior and interior of airplanes. UTI paid Gagnon $5.50 per hour for his work, plus a flat rate of $12.50 “per diem” for each hour worked up to 40 per week. So, essentially, Gagnon was being paid $18 per hour. At this rate, time and a half would be$27.00 per hour. But, UTI tried to convince its employees that it did not have to include the “per diem” amount, but would graciously agree to pay them $20.00 per hour for overtime. By doing this, UTI was effectively paying only $2.00 per hour more over the normal rate. UTI thought it could do this because of language contained in the Fair Labor Standards Act (“FLSA”) that states that per diem payments are not counted towards the “regular rate”:

[t]he “regular rate” at which an employee is employed shall be deemed to include all remuneration for employment paid to, or on behalf of, the employee, but shall not be deemed to include…reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer’s interests and properly reimbursable by the employer.

Thus, UTI believed that if it just simply called a large chunk of Gargon’s hourly rate something else, in this case a per diem payment, it could avoid paying him the full amount of overtime he was entitled to. However, there was strong evidence that UTI’s methodology for calculating pay was a deliberate ploy to avoid paying the proper overtime rate. For example, at some point during Gargon’s employment at UTI, he received a raise, but the increase was only applied to his per diem rate, not his hourly rate. Likewise, there was evidence that the typical rate aircraft painters such as Gargon received for such work was about $18.00 per hour, which was equal to the combined hourly rate and per diem rate Gargon was receiving. At the District Court level, Gargon prevailed on his FLSA claims, and the Court ordered UTI to pay Gargon unpaid overtime in the amount of $4,266.82, liquidated damages of an equal amount, attorneys fees of $55,908, and $3,568.57 in cost. UTI then appealed, only to lose on this issue again. The United States Fifth Circuit Court of Appeals minced no words in describing what it believed was a deliberate scheme to avoid paying overtime to Gargon:

Here, [UTI] has tried to avoid paying Gagnon a higher “regular rate” by artificially designating a portion of Gagnon’s wages as “straight time” and a portion as “per diem.” Although per diem can be excluded from an employee’s regular rate, 29 U.S.C. § 207(e)(2); see also 29 C.F.R. § 778.217(b), the “`regular rate’ of pay … cannot be left to a declaration by the parties as to what is to be treated as the regular rate for an employee; it must be drawn from what happens under the employment contract.” 29 C.F.R. § 778.108. The Department of Labor has recognized that when, as here, the amount of per diem varies with the amount of hours worked, the per diem payments are part of the regular rate in their entirety.

Furthermore, we are suspicious of [UTI’s] claims that Gagnon’s employment contracts were not a scheme to avoid paying overtime. It is difficult to believe that a skilled craftsman would accept a wage so close to the minimum wage when the prevailing wage for similarly skilled craftsmen was approximately three times the minimum wage. We are similarly troubled by the fact that the combined “straight time” and “per diem” hourly rates approximately match the prevailing wage for aircraft painters. Further, it is suspect that a “raise in all pay” was effectuated by increasing the hourly “per diem” rate rather than the “straight time” rate. Finally, we can conceive of no reason why a legitimate per diem would vary by the hour and be capped at the forty-hour mark, which not-so-coincidentally corresponds to the point at which regular wages stop and the overtime rate applies.

We find this case analogous to other cases in which employers have sought to artificially lower an employee’s regular rate by mischaracterizing a portion of it as a bonus or where employees were paid low “straight rates” for the first hour or two worked—usually set around minimum wage—after which they earned one and one half times the straight rate, and were consequently paid no premium for their actual overtime work.

Not only did UTI lose its appeal, but it also racked up additional attorneys fees that it had to pay for its attorneys and for Gargon’s wage and hour attorney:

We also note that there remains the question of attorney’s fees for this appeal. “An additional fee to compensate counsel for their services in connection with the appeal can be awarded in a [FLSA] case when the appellate court considers such an award appropriate.” We consider such an award appropriate in this case and instruct the district court to include these fees in its determination.

The takeaway from this case is that employers are often willing to be creative to avoid paying their employees the proper wage. However, with the right attorney, employees have the power to fight back and get what they are owed. If you have any doubts about whether you are being paid properly, you should call the right attorney to schedule a free and confidential consultation at 866-797-6040. Spitz, The Employee’s Law Firm and its attorneys are experienced and dedicated to protecting employees’ wage rights under the Fair Labor Standards Act (FLSA) and Ohio wage law. The opportunity to meet directly with a wage and hour lawyer is just a phone call away. Your best choice is not to wait.

If you believe that your employer is not paying you all of your wages for all of your lawfully earned overtime compensation at a rate of one and half times your normal wages as requires under the Federal Fair Labor Standards Act or Ohio Minimum Fair Wage Standards laws or you are an nonexempt employee that has been misclassified as exempt or independent contractor, contact the attorneys at Spitz, The Employee’s Law Firm today for a free and confidential initial consultation. The wage and hour lawyers at Spitz, The Employee’s Law Firm will provide you with the best options for your overtime pay dispute situation. If you even think that you may be entitled to overtime pay that you are not being paid, call 866-797-6040.

Disclaimer:

The materials available at the top of this overtime, wage and hour web page and at this employment law website are for informational purposes only and not for the purpose of providing legal advice. If you are still asking, “Am I entitled to overtime?”, “Does my job have to pay me for …”, “My paycheck is not right…” or “What do I do if…”, the your best option is to contact an Ohio overtime attorney to obtain advice with respect to FLSA questions or any particular employment law issue. Use and access to this employment law website or any of the links contained within the site do not create an attorney-client relationship. The legal opinions expressed at the top of this page or through this site are the opinions of the individual lawyer and may not reflect the opinions of Spitz, The Employee’s Law Firm, Brian Spitz, or any individual attorney.

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