Recently, the Ninth Circuit Court of Appeals held that an employer’s per diem expense reimbursement payments functioned as compensation for work rather than business expense reimbursements. Therefore, the employer was required to factor those per diem payments into employees’ “regular rate of pay.” An employee’s regular rate of pay is used to calculate overtime under Federal and California State law. It is also used to calculate double-time, sick leave,
In Clarke v. AMN Services, AMN, a healthcare staffing company placed hourly-paid clinicians on short-term assignments. Each week AMN paid traveling clinicians a per diem amount to reimburse them for the cost of meals, incidentals, and housing while working over 50 miles away from their homes. AMN did not report these payments as wages and classified them as tax-exempt.
To calculate the per diem payment, AMN looked at a number of different factors including the extent to which clinicians worked their scheduled shifts. Under the per diem policy, the payments could decrease if clinicians worked less than their scheduled shifts, and work hours in excess of those scheduled could be “banked” and used to “offset” missed or incomplete shifts. AMN also provided “local” clinicians per diem payments under the same policy, but such payments were reported as taxable wages.
The Ninth Circuit determined that these characteristics indicate that the per diem payments were functionally compensation for hours worked, and not expense reimbursements. The court relied heavily on AMN’s decision to pay both local and traveling clinicians under the same per diem policy but treat payments to local clinicians as wages. The Court also noted that “AMN offers no explanation for why ‘banked hours’ should effect” per diem payments, and found “the only reason to consider ‘banked hours’ in calculating” per diems is to compensate clinicians for hours worked.
The process of submitting, reviewing and processing expense reimbursements is cumbersome. It also can be a fertile area of labor law liability. Generally, an employer must reimburse an employee when it knows or had reason to know the employee incurred a necessary business expense. Thus, employers may be obligated to reimburse employees even if they do not actually request reimbursement. Consequently, some employers adopt a flat-sum reimbursement policy in which the amounts paid are at least partially fixed, such as AMN’s per diem policy. These payments are often issued automatically, without obtaining documentation of the expenses from employees.
The Clarke case should be of concern to employers with business expense policies that include flat-sum or automatic reimbursement payments. The employer may incur substantial liability if reimbursement payments, in whole or in part, are deemed to function as wages that must be factored into the regular rate of pay. Employees are likely to argue such payments were actually “wages” and claim they were not properly reimbursed for their business expenses. A careful legal review of an employer’s flat-sum or automatic reimbursement policies and procedures is in order to assure the dangers illustrated in the Clarke decision are not present.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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