February 08, 2021

What’s in Your Regular Rate of Pay?

Most everyone knows the Fair Labor Standards Act (FLSA) requires employers to  pay time-and-one-half for hours worked over 40 in a work week. But time-and-one-half of what?  It may not be just the employee’s hourly rate of pay but must include the employee’s “regular” hourly rate of pay. The regular rate may include additional compensation such as certain bonuses, incentive payments, shift differentials, and per diems.   The latter was in dispute in a case resolved by the 9th U.S. Circuit Court of Appeals.

The employer paid certain clinicians a per diem.  Generally, per diems that are provided to reimburse an employee for business expenses the employee incurs are not considered wages or compensation for work and need not be included in the regular rate of pay.  Here, however, the employer provided the per diem to clinicians on days they did not travel, did not work, and did not incur any business expenses.  For these and other reasons, the appellate court reversed the decision of the lower court and found the payments to be wages that should have been included in the employees’ regular rate of pay for overtime calculations.

Know the rules. This is far from the first time per diem (or other) supplement payments to employees have been challenged when not included in the regular rate of overtime calculations.  Failure to do so cost one employer $1.4M and another $2M.

Want more information?  Check out FiveL Company’s January 27th archived webcast, “Don’t Play with My Pay...” $25 per person.