Posted: March 3, 2021 | News
The Ninth Circuit Court of Appeals held recently that certain weekly per diem benefits must be included in an employee’s overtime pay. The decision in Clarke v. AMN Services, LLC (“Clarke”) is a good reminder to employers to make certain that overtime is being paid at the proper rate. Often employers are unaware that when paying overtime, the overtime rate must include the employee’s normal hourly rate as well as additional compensation received by the employee such as non-discretionary bonuses, commissions, the value of employer-provided lodging, and as discussed in Clarke, per diem benefits in some cases.
In the Clarke decision, employee clinicians (nurses and technicians) worked for a healthcare staffing company on short-term assignments throughout the U.S. The clinicians received an hourly wage as well as a weekly per diem benefit.
The per diem benefits were paid to traveling clinicians to reimburse them for the cost of meals, incidentals, and housing while working away from home. Traveling clinicians were not required to document their expenses to receive the per diem pay but were required to sign an affirmation that the employee’s “tax home” was more than 50 miles away from the assigned work facility.
Most clinicians worked three 12-hour shifts but the maximum weekly per diem benefit compensated traveling clinicians for seven days of expenses. Clinicians did not receive a higher per diem benefit if they worked extra hours or extra shifts but the per diem benefits would be reduced if they worked less than their required weekly shift. There were exceptions to this general rule, however, for example, if the reason for the reduced hours was because the hospital cancelled a shift.
The employer also employed local clinicians who worked at facilities within 50 miles of their homes and these local clinicians also received per diem benefits. For the local clinicians, however, the per diem benefits were included in the regular rate of pay for overtime purposes. This was not the case for the traveling clinicians. Thus, the local clinicians were paid at a higher hourly rate for overtime hours than their traveling clinician counterparts.
Generally, the regular rate of pay for purposes of the Fair Labor Standards Act (FLSA) includes “all remuneration for employment paid to, or on behalf of, the employee.” The FLSA requires overtime pay when an employee works more than 40 hours in a workweek and California law further provides that employees subject to the state’s overtime law must be paid at least one and one-half times their regular rate for any time worked over eight hours in a single day and any hours on the seventh day of work in a single workweek. Labor Code section 510.
The “regular rate” of pay for overtime purposes excludes certain categories of payments, including certain travel expenses. The plaintiffs in the Clarke decision argued that the per diem benefits should have been included in the regular rate of pay because they were wages. The employer asserted that the per diem benefits were instead reimbursement for work-related expenses that the clinicians incurred while traveling and were properly excluded under the FLSA from the overtime rate calculation.
The court held that the per diem benefits functioned as part of the traveling clinicians’ compensation rather than as expense reimbursements, and therefore the per diem benefits should have been included in the employees’ regular rate for purposes of calculating overtime.
This decision relied upon several factors. First, the employer’s policy in reducing per diem benefits was not connected to whether the traveling clinician remained away from home when incurring expenses for the employer’s benefit, but instead the reductions were tied to hours worked while away from home, thereby functioning as compensation rather than expense reimbursement.
Second, the Court found problematic the employer’s policy allowing clinicians to offset missed or incomplete shifts with “banked” hours accrued when the clinicians worked more than the minimum required hours. The Court found no plausible connection between working extra hours one week and incurring greater expenses the next.
Finally, the Court also found important that the employer paid local clinicians the same per diem benefits as the traveling clinicians but treated the local clinician per diem benefits as wages and not as reimbursement for travel-related expenses. The Court determined that the per diem benefits functioned as compensation for labor and that the payments were expected as part of a clinician’s pay package like supplemental wages.
While the unique facts in this case may not have broad application, the importance of including non-discretionary bonuses, commissions, and other forms of compensation required to be part of the regular rate of pay when calculating overtime, cannot be overstated.
This blog is not meant to provide specific legal advice. For advice specific to your business, please contact any of the employment attorneys in our Employment Practices Group who are ready to assist you.
Colleen M. McCarthy, Esq. is a Partner and chairs the Firm’s Employment Practices Group. She has dedicated her practice to representing and protecting employers, with a particular emphasis on risk mitigation through preventative counseling and sound practical advice. For over 20 years, Colleen McCarthy has counseled employers about the complicated employment laws that impact their businesses to ensure that they are in compliance, and to reduce the chance of costly litigation. Colleen McCarthy may be reached by phone at (949) 608-6900 or email firstname.lastname@example.org.