Recent Department Of Labor Settlement Highlights Need For Employer Caution When Characterizing Wages As 'Per Diem' Payments

Keywords: DOL, settlement, employer caution, per diem payments

A recent $2 million settlement between the US Department of Labor (DOL) and Hutco, Inc., a major labor services firm, highlights the care that employers must take to accurately characterize "per diem" payments to avoid liability under the Fair Labor Standards Act (FLSA) when calculating the wages due to temporary workers and independent contractors.

Hutco, headquartered in Lafayette, Louisiana, provides skilled and unskilled labor to industries including vessel construction and repair, oil field fabricators, warehousing and distribution, and manufacturing and storage terminals. Following an investigation of Hutco's headquarters, the DOL's Wage and Hour Division determined that Hutco violated the FLSA throughout six branch establishments in Louisiana, Mississippi and Texas, by utilizing improper pay and record-keeping practices causing employees to be denied overtime compensation.1 Specifically, as stated in its News Release, the DOL found that Hutco "mischaracterized certain wages as 'per diem' payments and impermissibly excluded these wages when calculating overtime premiums, thus denying employees earned overtime compensation."

The FLSA requires that non-exempt employees who work more than 40 hours in a work week must be paid overtime wages of one and one-half times their "regular rate" of pay.2 The FLSA broadly defines "regular rate" as the hourly rate actually paid to the employee for "all remuneration for employment."3 The regular rate must reflect all payments that the parties have agreed shall be received regularly during the workweek, exclusive of overtime payments.4 However, per diem payments—"reasonable payments" made to reimburse employees for certain work-related expenses—may be excluded from an employee's "regular rate."5 Such reimbursement payments are excludable so long as they "reasonably approximate" the employee's work-related expenses (e.g., travel or other expenses incurred on the employer's behalf).6 But the DOL has recognized that when the amount of per diem varies with the amount of hours worked, the per diem payments are part of the regular rate in their entirety.7 And where an employee receives per diem payments but does not actually incur additional expenses, such payments "do not constitute bona fide reimbursements and must be included in the employee's regular rate of pay for purposes of computing an overtime premium."8

In finding that Hutco...

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