Best Ohio Overtime Attorney Answers: What are per diem rates for wages? How do per diem wages work in conjunction with overtime wages? How much leeway does my employer have in determining my per diem wages?
Some employers pay certain employees a “per diem” amount each week, usually to cover certain expenses such as fuel, lodging or other miscellaneous expenses. This per diem amount is usually considered separate from the employer’s “regular rate of pay” and therefore is not included as part of the calculation for overtime compensation or other forms of compensation required under the Fair Labor Standards Act (“FLSA”). However, employers run into problems, and lawsuits, when they abuse these per diem payments. In fact, the Department of Labor recently announced that a labor recruiting/staffing company catering to oilfield services and maritime fabrication facilities along the Gulf Coast had agreed to pay over $1.6 million to more than 1,500 current and former employees. This resulted from DOL’s determination that per diem sums were wages that the employer should have included in its calculations of the employees’ overtime premium pay.
So what is the problem with per diem payments to employees? Well, first we need to understand how employees are supposed to be paid under the law. A non-exempt employee’s FLSA overtime compensation must be based upon her “regular rate” of pay. This includes all “remuneration for employment” that is not otherwise excludable from the regular rate. One such exclusion includes these “per diem” payments which are generally defined as “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.” The DOL interprets this to refer to reimbursements that reasonably approximate the sums an employee expends on the employer’s behalf and for its benefit. Once again, this would normally include reimbursements for expenses like lodging, travel, fuel, airfare, etc.
If the “per diem” amount paid each week to the employee legitimately includes these types of reimbursements, then the employer is legally complying with the FLSA. However, the problem arises when the employer starts inflating the per diem payment in order to reduce the employee’s regular rate of pay, thereby impacting the employee’s overtime wage rate and other owed compensation.
So how would this play out in a real-life scenario? Well, let’s look at an example. Say an employee receives a “per diem” payment of $25 for each day of work, but when looking closer at that number, the evidence shows that the employee rarely if ever incurs expenses that would justify a $25 reimbursement. Now we know there is a problem, especially if the employee works over 40 hours per week.
For example, say the employee earns $10.00 per hour and gets a $150 per diem payment per week. Let’s say that the $150 per diem payment is unjustifiable as the employee does not incur any weekly expenses. Let’s also say that the employee works 50 hours per week. The question becomes, should the employee’s “regular rate” remain $10.00 per hour or should it be higher given the unlawful per diem payment? If the Court finds the per diem payment to be unlawful, here is how the new “regular rate” could be calculated:
- (50 hours x $10.00 per hour) + $150 per diem = $650
- $650/50 hours = $13.00 per hour
So now, instead of calculating the employee’s overtime (time-and-a-half) rate based on $10.00 per hour, the rate should be based on $13.00 per hour. So the overtime rate for the 10 hours of overtime would be $19.50 instead of $15.00. Obviously, over time that could mean a significant difference for an employee.
Let’s look at the example decided by the United States Fifth Circuit Court of Appeals in Gagnon v. United Technisource Inc.. At the time of the case, Timothy Gagnon was an experienced and specifically skilled craftsman in the field of prepping and painting the exterior and interior of aircrafts. United Technisource hired Gagnon and gave him an employment a contract to pay him $5.50 per hour for “straight time” and $20.00 per hour for overtime. This seems strange in two regards. First, skilled workers don’t take jobs for what was minimum wage at the time. And second, why would an employer pay almost four times the regular rate for overtime pay when it only had to pay time and a half? The answers become clearer as you look at the rest of the pay structure. United Technisource also agreed to pay a so-called hourly per diem to Gagnon in the amount of $12.50 per hour. Then when United Technisource gave Gagnon a raise, they added the $1.00 per hour to the so-called hourly per diem. This was not based on the increased costs for reimbursements. To me, and the Fifth Circuit Court of Appeals, this so called per diem looked like wages. If you add the $13.50 per diem to the straight pay of $5.50, it comes to $19.00 per hour, which is comparable to what other in this field made for other employers. Thus, over time at $20.00 per hour is clearly not time and half on a $19.00 rate of pay. If the regular rate of pay was $19.00 per hour, Gagnon’s overtime pay should have been $28.50, which means that he was being cheated out of $8.50 an hour. If Gagnon was regularly working 50 hours per week, that is $85.00 lost dollars per week and $4,420.00. If United Technisource had done this to ten employees, they are saving almost $45,000 before having to pay payroll taxes.
Do you have a question about per diem payments or other wage and hour issues at work? If so, the best course of action is to call the right attorney at 866-797-6040 to schedule a free and confidential consultation. At Spitz, The Employee’s Law Firm, you will meet with an employment lawyer who will be able to tell you what your legal rights are and the best way to protect them.
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.
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