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Are Per Diem Payments Included In The Calculation Of An Employee’s Hourly Rate For Overtime Purposes?

The Fair Labor Standards Act (“FLSA”) mandates that companies compensate their non-exempt employees at an overtime rate of one and one-half times their “regular rate.” Section 207(e) of the FLSA requires companies to include “all remuneration for employment” in calculating the employee’s overtime rate. The calculation of an employee’s “regular rate” can be simple for employees who work at a straight hourly rate without any additional compensation. However, what happens when employers also compensate their employees with a per diem? Is the employee permitted to use the per diem amount to raise his regular rate and thus raise his overtime rate?

The Department of Labor (“DOL”) says that there are situations in which an employee is permitted to include his per diem payments in calculating his overtime rate. The DOL regulations state that employers may be required to include the per diem into the overtime calculation when it compensates employees a per diem that is tied to the number of hours worked by the employee or for expenses on a flat rate per day/week basis regardless of whether the worker incurred the expenses versus a per diem that reasonably approximates an employee’s expenses, e.g. a per diem that specifically covers an airline ticket or lodging.

How would a per diem affect an employee’s overtime rate? An example would be if an employee’s hourly rate is $20 per hour and he receives no hourly or flat rate per diem, his overtime rate is $30 (time and one-half of the $20 regular hourly rate). Therefore, if the employee works 60 hours in a given workweek, he is entitled to a total of $1,400 (60 hours at $20 and 20 hours at $10 overtime premium). However, if the same employee works 60 hours and also receives a weekly flat rate per diem of $200, his regular rate jumps from $20 per hour to $23 per hour. While this may not seem significant, it can be when it is owed for a period of weeks, months, or years.

Additionally, if an employee is successful at recovering his proper overtime wages, the Court also will require the employer to pay liquidated damages aka “double damages” which doubles the amount owed to the employee. The Court can also order the employer to pay the employee’s attorneys’ fees and costs.