Updated: Apr 8, 2021
The Fair Labor Standards Act (FLSA) may require employers to include per diem payments when calculating workers' regular rates for overtime purposes, the 9th U.S. Circuit Court of Appeals ruled (Clarke, et al. v. AMN Services, No. 19-55784 (9th Cir., Feb. 8, 2020)).
Traveling clinicians for a healthcare staffing company alleged their employer violated state and federal law by excluding their per diem payments from their overtime rate. The payments operated as wages, the workers argued, and thus should contribute to their regular rate. The company, however, said that the payments were instead "reasonable reimbursement for work-related expenses."
The court held that AMN Services improperly excluded the per diem payments in its overtime calculations, as the payments "functioned as compensation for work rather than as reimbursement for expenses incurred." While a combination of factors informed the court's decision, the factor it found "perhaps most [telling]" was that the company gave both local and traveling workers per diems. "That both local and traveling clinicians receive per diems also supports Plaintiffs' assertion that these payments are expected as part of a clinician's pay package and so function as supplemental wages," the court opined. The 9th Circuit covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington.
The U.S. Department of Labor mandates that employers pay certain employees overtime for all hours worked beyond 40 in a workweek. To calculate overtime pay, the agency tells employers to give workers at least 150% of their regular rate of pay. DOL offers a seemingly simple equation to determine a worker's regular rate: divide total compensation for the workweek by total hours worked in the workweek.
But, as the 9th Circuit's opinion demonstrates, what constitutes total compensation is sometimes complicated. "Under the FLSA," says DOL, "the regular rate includes ‘all remuneration for employment paid to, or on behalf of, the employee.'" But certain exceptions apply. Employers need not count, for example, gifts, vacation pay and employer contributions to benefit plans.
As for reimbursements, DOL holds that payments made "of the actual or reasonably approximate amount of expenses that an employee incurs" while on the job can be excluded from the regular rate. Examples can include travel expenses, credentialing exam fees and business supplies.