Certain Per Diem Payments Increase The FLSA Regular Rate

Seyfarth Synopsis: The Ninth Circuit has held that a weekly per diem benefit paid by a healthcare staffing agency to its traveling clinicians is a wage that increases the employee’s regular rate used to calculate overtime pay. Clarke v. AMN Services, LLC.

Facts

Plaintiffs worked as traveling clinicians for a healthcare staffing company. They earned a designated hourly wage, as well as a weekly per diem benefit. They sued the company under the Fair Labor Standards Act (“FLSA”) for unpaid overtime wages, on the theory that the company failed to consider the per diem benefit in calculating the overtime rate. A federal district court granted summary judgment to the company, reasoning that the weekly per diem benefit was not a “wage” but instead was a reasonable reimbursement for work-related expenses such as meals, incidentals, and housing, and therefore was properly excluded from the regular rate of pay. Plaintiffs appealed.

The Ninth Circuit’s Decision

The Ninth Circuit reversed the district court’s ruling, holding that the per diem benefits here functioned as compensation for work, rather than a reimbursement for work-related expenses, and therefore should have been included in the regular rate used to calculate overtime pay.

The Ninth Circuit reasoned that the relevant test, the “function” test, requires a case-specific inquiry based on the particular formula used to determine the amount of the per diem benefits. Other relevant, but not dispositive, factors to consider whether per diem benefits affect the regular rate include whether (i) the payments increase or decrease based on the time worked, (ii) payments occur irrespective of incurring any actual costs, (iii) the employer requires any attestation that costs were incurred, and (iv) payments are tethered to days or periods spent away from home or instead occur without regard to whether the employee is away from home.

The Ninth Circuit analyzed the company’s policies regarding per diem benefits to determine whether the payments served as compensation for work performed. The Ninth Circuit held that the strongest indicator that the payments were in fact compensation for hours worked was that the company paid local clinicians and traveling clinicians the same per diem payments and considered the local clinician’s per diem payments as wages. The Ninth Circuit also cited other factors to conclude that the weekly per diem payment was to compensate the employees for total hours worked, rather than work-related expenses: the company paid a daily per diem rate for seven days of the week, regardless of how many days a clinician worked or the clinician’s reasons for missing a shift; and the clinicians could offset missed or incomplete shifts with hours they had “banked” on days or weeks they worked more than the minimum required hours.

What This Case Means to Employers

Companies who implement per diem benefits should carefully analyze whether such benefits should be included when calculating an employee’s regular rate of pay. If the employer believes that the per diem payments fall under an FLSA exemption, the employer should make sure that its policies and practices are in line with the exemption. Note that historically California law has followed the FLSA with respect to issues concerning the regular rate.