Over the past few years, the U.S. Department of Labor (DOL) has investigated the misuse of per diem payments as a substitute for compensation in a number of industries. At a recent event for employment lawyers in Pittsburgh, an attorney with the DOL indicated that this is still an issue that they were actively investigating, especially within the energy industry where a strong demand has led to increased incentives to attract workers. This issue leads to possible non-compliance with the overtime requirements of the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. § 201 et seq.
The FLSA requires that non-exempt employees be paid a rate of one-and-one-half times their “regular rate” for any time worked beyond 40 hours in a workweek. See 29 U.S.C. § 207(a). The “regular rate” is not limited to the wages that the employee is paid, but includes “all remuneration for employment paid to, or on behalf of, the employee,” with a few exceptions. See 29 U.S.C. § 207(e). Per diem payments are generally not included in the regular rate for purposes of calculating overtime, see 29 U.S.C. § 207(e)(2), but only to the extent that the per diem represents the actual or reasonably approximate amount of the employee’s transportation, meals and lodging. See 29 CFR § 778.217.
The following are some of the situations that may be deemed by the DOL to signal impermissible uses of per diem payments:
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Certain classifications of workers being paid a higher per diem than others;
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Per diem payments paid at the same rate across different markets despite variations in the cost of living in those markets; and
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Workers with an established residence near the job site receiving per diem payments.
Companies offering per diem payments to employees may wish to review their policies to ensure that they comply with the laws regarding overtime. Failure to comply with the rules regarding per diem payments could not only lead to an investigation by the DOL, but it could also be the subject of litigation filed by an employee, both of which could result in substantial liability for unpaid overtime.
