It’s common knowledge that an employee’s overtime rate is “time and a half” the regular rate of pay. But that truism begs the question: what exactly is the regular rate of pay? Earlier this week, the Ninth Circuit analyzed whether the Fair Labor Standards Act (“FLSA”) required a company to include per diem payments that it made to its employees (ostensibly for the purpose of reimbursing them for travel expenses) in the regular rate, in addition to the workers’ ordinary hourly pay.
The case is Clarke v. AMN Services, LLC, No. 19-55784 (9th Cir. Feb. 8, 2021), and like many wage and hour cases it arose quite innocuously. AMN Services is a staffing company that places health care workers (primarily nurses and technicians) on short-term assignments. Sometimes the assignments are in the health care workers’ local areas, but frequently they require the workers to travel some distance from where they usually reside. In addition to their hourly rates, AMN Services pays the traveling health care workers per diems that reimburse them for the cost of meals, housing and other incidental expenses when they travel more than 50 miles away from their residences on assignment. AMN Services did not include the per diem payments in the traveling workers’ regular rates when calculating their overtime.
The general rule under the FLSA is that “all remuneration” has to be included in the rate calculation. Among other exceptions, the FLSA allows employers to exclude from the regular rate “payments to an employee which are not made as compensation for his hours of employment.” Expense reimbursements are among the most common types of payment that can be excluded from the regular rate under this provision. So were the per diem payments “compensation for . . . employment” or reimbursement?
The Ninth Circuit said that they were “compensation for . . . employment.” Although AMN Services argued (with some force) that the per diem payments simply covered the cost of the health care workers’ travel-related expenses, the structure of the payments suggested that they were more akin to wages. For example, the amount of the per diems depended in part on the number of hours worked rather than simply the expenses the workers incurred. This “more work = more money” relationship is consistent with compensation, not with reimbursement. In addition, AMN Services made virtually identical per diem payments to its health care workers who were not required to travel more than 50 miles away from home on assignment. The company included these per diems in the local workers’ regular rates and expressly considered them to be part of their overall compensation package. Once again, this made the per diem payments to the travel workers look more like regular “compensation for . . . employment” and less like reimbursement.
There are two big-picture lessons from Clarke. First, more often than not payments from employers to employees are compensation that must be included in the regular rate under the FLSA. Second, and relatedly, courts construe the exceptions to this general rule narrowly and will look past the labels that employers attach to the payments to determine whether they are indeed “compensation for . . . employment.”
If you have questions about regular rate calculations, or about any other aspect of wage and hour compliance, please don’t hesitate to contact one of our attorneys. We’re here to help.