04.21.2021 | Newsletters

Are Your Per Diem Payments Really Wages in Disguise?

Employees who travel regularly for work are often paid a per diem amount to compensate them for travel expenses incurred. Those payments are not characterized as taxable wages and are not included in calculating the employees’ regular rate of pay for overtime purposes.

That is okay if the per diem is really an expense reimbursement mechanism and not compensation for work in disguise. A recent case analyzing such payments found that the per diem payments at issue were really wages because:

  • the payments were made at a default basis for seven days each week, even though employees generally traveled on three days each week;
  • employees’ per diem pay was docked if they had to leave their work site early due to personal reasons or illness, even though they still incurred the same travel expenses;
  • employees could “bank” hours from a week they traveled more than three days and apply them to a week in which they traveled less than three days so that their per diem pay was not reduced in the shorter week.

If you are using a per diem payment as reimbursement for travel expenses, review your policy to make sure the payments are based on factors that are relevant to the estimation of travel expenses.

(Clarke v. AMN Services LLC (9th Cir. 2021) 978 F.3d 848.)

Related practice team: Labor and Employment

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