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Diving brief:

• Employers cannot exclude from an employee’s regular rate of pay any payment made to the employee as reimbursement for certain expenses if the employee does not actually incur those expenses, the U.S. Department of Labor said. United. said in an op-ed on wage and hours published on November 8.
• Wage and Hour Administrator Jessica Looman wrote the letter in response to a request from an oil and gas industry employer regarding tool and equipment reimbursements the company made to inspectors . According to Looman, the employer paid inspectors $25 per day in reimbursements, but asked if it could pay “significantly higher” reimbursements and then exclude those payments from the inspectors’ regular pay rates.
• Reimbursement payments must be “reasonably approximate” to the actual expenses incurred by the employee, Looman said. However, if employers provide inflated reimbursements, they can still exclude from the regular rate the “reasonably approximate amount” of expenses incurred while including the remaining amount.

Dive overview:

The letter concerns certain types of per diems paid to employees and asks whether the Fair Labor Standards Act allows these payments to be excluded from the regular rate of pay used to calculate employees’ overtime pay.

In an article about the opinion letter, Jackson Lewis’ lawyers wrote that while the letter “does not break new ground,” it serves to remind employers of their FLSA reimbursement obligations. “Per diem expense reimbursements are widely used by employers, but their treatment under the FLSA is tricky and easy to get wrong,” the attorneys said.

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

“Please note that tool and expense reimbursements cannot be used to artificially reduce employees’ regular pay rates, in an effort to reduce the amount an employer must pay its employees for overtime,” Looman wrote. “The FLSA does not authorize projects of this type.”

Previously, the 9th United States Court of Appeals ruled in a 2021 decision that the FLSA could require employers to include certain per diem payments in the employees’ regular rate of pay. The case, Clarke et al. v. AMN Servicesinvolved traveling health clinicians whose per diems were excluded from their regular rate of pay. The 9th Circuit held that such payments were improperly excluded.