When Do Expense Reimbursements Get Included In The Regular Rate For FLSA Overtime Purposes—Maybe The Supreme Court Will Tell Us?

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The issue of whether expense reimbursements should be included as “wages” when computing the regular rate for overtime has been around for many years. Sometimes, an employer will seek to “disguise” wages as expenses in order to avoid overtime. Sometimes, expense reimbursement is just that. These principles are possibly to be explored by the US Supreme Court where an employer has sought to have the Court rule that per diem payments are not wages and non-includible in the regular rate. The case is entitled AMN Services LLC v. Verna Clarke et al., and has been submitted to the US Supreme Court for consideration.

The Company has argued that the Ninth Circuit erred when it found these per diem payments includible. The Company argues the Circuit has created a new and unworkable standard for employers to follow on this issue, which will result in “massive overtime liability.” The Company contends that this “tail-wagging-the-dog approach makes little sense and is certainly not compelled by the FLSA, which actually requires very nearly the opposite.”

The Ninth Circuit adopted a so-called “payment-function” test to make this determination. This test looks at the: 1) the relationship between payment and hours; 2) if the Company did not incur any costs but nonetheless made the reimbursements; and, 3) if the employer mandates that the employee attests to the expenses incurred, whether or not the costs were incurred. The plaintiff nurses argued that other courts had utilized this standard and there was no “conflict” created within the Circuits that required the Supreme Court to become involved. The plaintiffs also allege that the expenses payments were tied to hours worked, which converted these payments to wages.

The Company argues that it is not obliged to include these per diem payments as its compensation practices comply with the FLSA regulations on this issue. Under those regulations, expense payments can be excluded from the regular rate if these expenses are incurred while in the course of employment, if they were reasonable in the amounts paid and if the expenses were appropriate for reimbursement. The Company asserts that the payments were for meals, lodging and other expenses incurred in the employees doing their jobs, i.e. advancing the employer’s interests. The Company also rejected the employees’ reliance on the U.S. Department of Labor’s Field Operations Handbook, which approves the payment-function test, contending that this Handbook has no legal weight or authority.

The Takeaway

If the decision stands, health care employers might respond by hiring fewer nurses and/or reducing their wage rates so, even with these errant monetary inclusions, their labor costs do not rise. The Ninth Circuit test is, simply, unworkable and places intense pressure on employers to try to adjust their compensation practices to this standard. It will also lead to lots of unwanted litigation. The Company’s brief stated that this decision created “an untenable situation that only an FLSA plaintiffs’ lawyer could love.”

As if we needed that…

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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