As a general rule, employee expense reimbursements are not includible in the regular rate for purposes of overtime computation.  When the reimbursements, however, are unreasonable or out of whack (i.e. too high) as regards the particular expense, then the USDOL takes the position that the reimbursements are really a backdoor way of paying the employee a higher wage and not having to pay overtime on that higher wage.  In a recent case testing this concept, the Ninth Circuit has determined that per diem sums paid given to employees for meals, incidentals and housing while they were assigned out of town can be deemed “wages” and therefore includible in the regular rate.  The case is entitled Clark v. AMN Services, LLC, and issued from the Ninth Circuit Court of Appeals.

The per diem payments were given to workers who worked more than fifty miles from their home base.  The policy provided that the workers were given the per diem allowances if they worked only the week’s shifts required under their contract.  If the employees worked more shifts than anticipated, they were allowed to “bank” those additional hours for the next week when they did not work a full week; if they worked fewer shifts, the per diem allowances would be reduced proportionately given the missed shifts/hours.

The Court looked at the issue of whether the employees were receiving the per diem as reimbursement for expenses or whether it was compensation for working hours.  The Court concluded that the monies were for hours worked.  There were three reasons.  The first was that the Company was paying a per diem for seven days’ worth of expenses, whether or not the employee actually had “expenses” e.g. hotel, on those days.

The Court also noted that the workers could “bank” hours and therefore receive the per diem payments for days they did not work and were (obviously) not paying any expenses.  Lastly, and significantly, the Company paid the traveling employees and those that did not travel, the identical per diem allowances.  The Company treated the payments to the workers who did not travel as wages, which indicated that the per diem payments were, really, additional wage payments, rather than valid expense reimbursement.

The Takeaway

The per diem payments here were not connected to expenses actually incurred by the employees and thus were deemed extra compensation, which had to be included in the regular rate for purposes of overtime compensation.  Any expense reimbursements must have some direct and reasonable connection to the expenses actually incurred by the workers in order to pass muster under the FLSA.  Otherwise, these “reimbursements” will be deemed wages and the employer will face unexpected liability and if this policy applies to many workers, the employer will face a class or collective action.

That will involve a lot of “expenses” for the employer…

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