Per Diems and the Regular Rate of Pay: What to Know for Your Overtime Calculation
Author: Andrew P. Burnside (New Orleans)
Published Date: November 5, 2015
The United States District Court for the Northern District of Oklahoma in Sharp v. CGG Land (U.S.) Inc., No. 14-cv-0614 (October 19, 2015), recently ruled in favor of an employer that had excluded per diem payments from a regular rate calculation under the Fair Labor Standards Act (FLSA). The plaintiffs filed suit alleging that per diem payments for meal expenses provided to the plaintiff class were not properly included in their regular rate of pay.
Dane Sharp worked as a truck driver and “vibe” operator for CGG Land (U.S.) Inc. In these positions, Sharp was regularly required to travel to remote work sites. The employer paid or reimbursed workers for travel and lodging expenses. In addition, for each day that employees worked while traveling, they received a per diem or “hot shot” payment of $35 in addition to pay and reimbursements as a “reasonable approximation of meal expenses incurred by employees while working at the remote work site.” Employees received the $35 payment regardless of their position, the number of hours worked, or whether they incurred additional expenses while working.
The employer did not include the “hot shot” payments when calculating employees’ regular rate of pay for purposes of paying them overtime compensation for hours worked in excess of 40 in one week. Sharp, on behalf of himself and other workers, filed a collective action complaint alleging that because employees worked in excess of 40 hours per week and because this $35 per diem was not included in their regular rate, that the employer had improperly calculated their overtime wages.
The Trial Court
The parties did not disagree on whether the $35 per diem was a reasonable reimbursement for employees’ meal expenses. The only issue before the court on summary judgment was whether the “hot shot” payments should be included in calculating employees’ regular rates of pay for the purposes of paying overtime compensation. At issue was a statutory exception to the FLSA’s requirement to pay employees overtime for hours worked over 40 in one week: specifically, the requirements of 29 U.S.C. § 207(e)(2), which excludes certain payments to employees—including payments for travel expenses when incurred in furtherance of an employer’s interests—from an employee’s regular rate of pay. The employer argued that the per diem payments were properly excluded from the calculation of employees’ regular rates of pay for the purposes of overtime payments because the $35 constituted a travel expense that was incurred by the employees in furtherance of their employer’s interest—that is, the workers “were required to expend sums solely by reason of action taken for the convenience of [their] employer.” The court distinguished per diem cases where the payment of the per diem was tied to the number of hours worked by the employee.
The court focused on the fact that the plaintiffs were required to travel to remote work sites “exclusively to perform work for defendant and were thus away from home inherently for the convenience of defendant.” Thus, the court concluded that the meal expenses that the workers incurred were likewise for the benefit of the employer and in the employer’s interest. As a result, the court granted summary judgment in favor of the employer and held that the per diem payments met the FLSA statutory exception contained in 29 U.S.C. § 207(e)(2) and were properly excluded from the plaintiffs’ regular rate calculation.
Litigation of per diem payments continues to be a hot topic, especially in the energy sector, where per diems are common. Employers should review their per diem policies and continue to be cognizant that any per diem payments made to employees must be reasonable in value and reflect expenses incurred in the employer’s interest. In addition, employers should ensure that the employee incurred the expense for the convenience of the employer.
Drew Burnside represents employers in federal and state courts, as well as federal and state administrative agencies, in employment law matters. Drew is admitted in Louisiana and Texas. Drew has received an “AV” Preeminent Peer Review Rating by Martindale-Hubbell and was on the editorial board of Tulane Maritime Law Journal at Tulane University. He is a chapter editor of and contributing author to The Family and Medical Leave Act treatise, published by BNA. Drew also was contributing...