Per Diem payments – payments intended to cover the daily expenses of an employee – count towards an employee’s regular rate of pay for calculating overtime according to the First Circuit. In Newman v. Advanced Technology Innovation Corp., the First Circuit found that if an employer calculates per diem on an hourly basis, then it should be used to calculate overtime. Employees who are owed overtime must be paid 1.5 times their regular rate of pay for every overtime hour worked, so including the per diem payments as part of the “regular rate” used for calculating overtime would increase overtime wages due.
Advanced Technology Innovation Corp. is a Massachusetts based company that provides technical professionals in engineering and IT to its customers. Its employees spend a great deal of time on the road, and the company had a policy of reducing the per diem payment based on the number of hours worked. Two former employees complained that this would reduce the amount the employee was owed if they worked overtime. Per diem payments are not usually included as part of a regular rate of pay, but the First Circuit held that because, in this instance, the company had calculated per diem payments based on the number of hours worked, this should factor into overtime calculations.
So, if an employee is regularly paid $20 per hour they would ordinarily receive $30 per hour for overtime, with no extra per diem payments. However, if the employee also receives an extra $4 per hour as part of per diem payments, they should receive an extra $6 per hour for daily expenses.