Dive Brief:
- Employers may not exclude from an employee’s regular rate of pay any payments made to the employee as reimbursement for certain expenses if the employee does not actually incur those expenses, the U.S. Department of Labor said in a wage-and-hour opinion letter published Nov. 8.
- Wage and Hour Administrator Jessica Looman wrote the letter in response to an oil and gas industry employer’s inquiry about tool and equipment reimbursements the company made to inspectors. Per Looman, the employer paid inspectors $25 per day in such reimbursements but asked whether it could pay “significantly higher” reimbursements and then exclude those payments from inspectors’ regular pay rates.
- Reimbursement payments must be “reasonably approximate” to the employee’s actual incurred expenses, Looman said. However, if employers do pay inflated reimbursements, they can still exclude the “reasonably approximate amount” of incurred expenses from the regular rate while including the remaining amount.
Dive Insight:
The letter concerns certain kinds of per diem payments made to employees and whether the Fair Labor Standards Act permits such payments to be excluded from the regular rate of pay that is used to calculate employees’ overtime pay.
In an article on the opinion letter, attorneys for Jackson Lewis wrote that while the letter “doesn’t break new ground,” it does serve to remind employers about their FLSA obligations regarding reimbursements. “Per diem expense reimbursements are widely used by employers, but their treatment under the FLSA is tricky, and it is easy to get it wrong,” the attorneys said.
In the letter, Looman noted that the employer sought to issue inspectors reimbursements of between $150 and $200 per day, amounts that were between six to eight times that which it currently paid. She said that such payments cannot be used to avoid employers’ overtime pay obligations under the FLSA.
“Please note that tool and expense reimbursement payments cannot be used to artificially reduce employees’ regular rates of pay, in an attempt to reduce the amount an employer must pay its employees for overtime work,” Looman wrote. “The FLSA does not permit schemes of this kind.”
Previously, the 9th U.S. Circuit Court of Appeals held in a 2021 decision that the FLSA may require employers to include certain per diem payments in employees’ regular rate of pay. The case, Clarke, et al. v. AMN Services, concerned traveling health clinicians whose per diem payments were excluded from their regular rate of pay. The 9th Circuit held that such payments were improperly excluded.