“Simply labeling a payment as ‘per diem’ does not necessarily exclude it from the calculation when determining overtime rates”
Wage & Hour Division District Director – New Orleans, Louisiana
Given the amounts involved, both in overtime wages and payroll related expenses, these schemes to misclassify wages and “per diem” expense reimbursement are often viewed as low risk and high reward maneuvers. To avoid suspicion and questions from employees, employers will frequently try to convince workers that it is also in their best interest to avoid wages/income to save on taxes…suggesting that the per diem will get them tax free pay. Of course, they do not mention the negative impact this will have on the workers’ overtime pay rate.
This issue was also addressed in a recent post titled: Per Diem Pay – Should it be Included in My Overtime Pay Calculation
The post discusses a case in which per diem payments varied based on the number of hours worked and were not included in overtime pay calculations.
The court determined that a heavy-construction maintenance and fabrication company and its owners improperly calculated employees’ overtime rates by excluding per diem amounts from their regular pay rates. The court explained that per diem payments should have been included in the overtime pay calculations because:
- The per diem amounts varied by the number of hours worked and therefore the per diems did not “reasonably approximate the expenses incurred.”
- Proportionate reductions for working less than a full day are not permitted, and
- The per diem policy was designed to encourage work attendance, not merely compensate for expenses incurred.
In an earlier, and somewhat similar case, a natural gas pipeline construction company in Pennsylvania – entered into a consent judgment agreeing to pay $177,466 in back wages, with an equal amount in liquidated damages, to 306 employees across the nation. The company failed to pay required overtime to equipment operators, welders, and helpers as a result of making additional payments to these employees beyond their base hourly rates, but failed to factor these payments into their regular rates to calculate proper overtime compensation. These extra payments were called “per diems,” but in reality these payments had no relationship to any travel or work-related expenses employees actually incurred. Excluding these payments from employees’ regular rates resulted in them being paid for their overtime at rates lower than those required by both PA and federal wage laws.
What to Do If Your Wages Have Been Paid as Per Diems
If you have been receiving per diem payments that are either unrelated to any actual expenses incurred in performing your job or change based on the number of hours you work and are not included in your overtime pay calculation, there is a good chance that you and your coworkers could be missing out on significant overtime wages.
If you have questions or believe that you have been the victim of wage theft due to an improper per diem pay scheme, contact us
for a free and confidential review of your situation.
As illustrated by a recent case in which a non-destructive testing contractor paid almost $500,000 in back overtime wages to over 400 employees, the improper classification of wages as per diem payments has been a long running problem for workers in many industries and is yet another form of wage theft.
The employer – which provides non-destructive testing services at 22 locations in Texas, Louisiana and Florida – improperly classified wages as per diem payments to its employees who provide inspections, maintenance and repair services for industrial refining, chemical and offshore applications. The pay practice resulted in violations of the overtime labor laws when the employer failed to include those amounts in employees’ regular rates of pay when calculating overtime. Excluding those amounts resulted in overtime being paid at rates lower than those required by federal law.