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Diving:

• Employers cannot 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, according to the U.S. Department of Labor. said in a salary opinion letter published on November 8.
• Wage and Hour Administrator Jessica Looman wrote the letter in response to an oil and gas employer’s inquiry about tool and equipment reimbursements the company made to inspectors. According to Looman, the employer paid inspectors $25 a day for such reimbursements, but asked if it could pay “significantly higher” reimbursements and then exclude those payments from the inspectors’ regular pay rates.
• Reimbursement payments must “reasonably approximate” the actual expenses incurred by the employee, Looman said. However, if employers pay inflated reimbursements, they can still exclude the “relatively approximate amount” of expenses incurred from the regular rate while still including the remaining amount.

Diving Perspective:

The letter addresses certain types of per diem payments made to employees and whether the Fair Labor Standards Act allows such payments to be excluded from the regular rate of pay that is used to calculate employees’ overtime pay.

In an article about the opinion letter, Jackson Lewis’ lawyers wrote that while the letter “breaks no new ground,” it serves to remind employers of their FLSA obligations regarding reimbursements. “Per diem reimbursements are widely used by employers, but their treatment under the FLSA is difficult and easy to get wrong,” the attorneys said.

In the letter, Looman noted that the employer sought to reimburse inspectors between $150 and $200 per day, amounts that were six to eight times what it was currently paying them. She said such payments cannot be used to avoid employers’ overtime obligations under the FLSA.

“Please note that expense reimbursement tools and payments cannot be used to artificially reduce employees’ regular rates of pay in an attempt to reduce the amount the employer must pay its employees for overtime,” he wrote Looman. “The FLSA does not permit such schemes.”

Previously, the 9th U.S. Circuit Court of Appeals held in a 2021 decision that the FLSA can require employers to include certain per diems in the employees’ regular salary. the case, Clarke et al. v. AMN servicesconcerned traveling medical practitioners whose per diems were excluded from their regular rate of pay. The 9th Circuit held that such payments were improperly excluded.