Per diem payments, sometimes also called a “daily allowance,” are made to workers in many industries. Per diem payments are supposed to cover for expenses incurred in furtherance of the employer’s business that would otherwise be reimbursable to the employee, and when used properly they can save workers the hassle of preparing expense reports for their employers.
However, some employers may want to use “per diem” payments as a means of paying wages, which could lead to violations of state and federal overtime laws. Labor laws that set forth minimum wages require all eligible employers to pay employees overtime at “not less than one and one-half times” the employees’ regular rates of pay. True per diem payments are excluded from the regular rate of pay. But if a per diem benefit functions as compensation for work performed rather than as genuine reimbursement for expenses incurred, the per diem payments need to be calculated in the employees’ regular rate of pay because they are functionally “wages” for the purpose of overtime laws.
If an employer wrongly treats wages as per diem payments, the employees’ overtime rate of pay would be unlawfully reduced. The employee might also be undercompensated for PTO under certain circumstances, such as where the employer’s policy provides for payment at the “regular rate of pay,” or when an employee receives a payout of earned-but-unused vacation pay at the end of employment.
The question of whether a per diem payment is functionally a “wage” or truly a reimbursement for expenses can be difficult to answer. An accurate assessment ultimately depends on the facts and circumstances of the particular case, but courts resolving the issue have looked at some of the following factors:
- The amount of per diem payments in relation to other compensation;
- How the employer treats the per diem payments;
- Whether the employer requires substantiation of any expenses incurred by the employee;
- Whether employees receive per diem payments regardless of their working location and any need to cover expenses;
- Whether the per diem payments do not reasonably approximate actual expenses; and
- Whether the per diem payments vary with the hours worked.
If you are being paid per diem or a daily allowance and you suspect your employer may be using “per diem” payments to reduce your regular rate of pay for labor pay purposes, contact an experienced labor lawyer immediately because you could recover the unpaid wages in a civil lawsuit against your employer.