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An employer that violated the Fair Labor Standards Act (FLSA) by failing to pay its workers the legally required overtime rate could not deduct from the damages assessed a travel bonus that the employer paid to its workers at remote jobsites during overtime hours, the U.S. District Court for the Western District of Virginia held.
In January 2016, an investigator with the U.S. Department of Labor commenced an investigation at Mountain Masonry Inc. The investigator reviewed boxes of pay stubs that contained descriptions of work performed and listed deductions. The investigator also reviewed a separate box of pay stubs that contained no descriptive information regarding the purpose of the payments that the owner identified as pay stubs representing reimbursements for travel expenses or per diem payments. The investigator asked the owner why there were no overtime payments noted on the payroll documents, and the owner replied that his employees did not work much overtime.
Employees told the investigator that Mountain Masonry had a practice of issuing two separate paychecks per pay period. The first check represented payment for 40 hours per week, with appropriate deductions withheld. The second check represented payment at the regular hourly rate for any hours worked in excess of 40 hours, plus $3 per hour for each hour that the employee worked at a distant job site. The owner described the additional $3-per-hour payment as a per diem or travel bonus.
The investigation revealed that 112 employees were paid at their regular pay rate for hours worked in excess of 40 hours per week instead of at a rate of 150 percent of their regular wage as the law requires. As such, the investigator calculated that Mountain Masonry owed workers $98,198.11 in back wages incurred from October 2013 through June 2016. The investigator did not deduct the travel bonus payment amounts from the amount of back wages owed because she concluded that they were not intended as compensation for hours worked. Mountain Masonry conceded that the investigator correctly calculated the number of overtime hours worked and agreed that the secretary of labor was entitled to judgment. However, Mountain Masonry contended that it should have received a credit against the back wages owed for the per diem payments made to workers.
[SHRM members-only toolkit: Calculating Overtime Pay in the United States]
The FLSA provides that employers that fail to pay workers a rate of one and one-half times their regular pay rate for hours worked in excess of 40 per week must pay damages in the amount of "the payment of wages lost and an additional equal amount as liquidated damages." A regulation interpreting the FLSA further provides that "payment by way of reimbursement for certain types of expenses will not be regarded as part of the employee's regular rate." These excluded payments include reimbursements for "the actual or reasonably approximate amount expended by an employee, who is traveling 'over the road' on his employer's business, for transportation (whether by private car or common carrier) and living expenses away from home.''
The district court characterized the per diem payments as "something of a hybrid." On the one hand, workers received the payments only when they were working at remote jobsites, and the court noted that $3 per hour, or $36 per day for a 12-hour workday, was a reasonable reimbursement for meals and expenses incurred while traveling.
On the other hand, the court indicated that the payments were not calculated on a daily or weekly basis but were expressly tied to the number of hours worked, making the payments look more like compensation that should be included in the workers' regular hourly rate.
Ultimately, the court concluded that the travel bonus payments were not intended to function as overtime compensation because the workers received an extra $3 per hour for every hour worked at a remote jobsite rather than just for hours worked in excess of 40 per week; therefore, Mountain Masonry was not entitled to credit for the payments. Ironically, the court pointed out that treating the per diem payments as compensation rather than travel reimbursements would not entitle Mountain Masonry to a credit because the payments would become part of the workers' regular rate, thereby increasing the amount of overtime payments owed.
R. Alexander Costa v. Mountain Masonry Inc., W.D. Va., No. 1:16-CV-00042 (Jan. 2, 2018).
Professional Pointer: Overtime pay may not be waived. An employer announcement that no overtime is permitted or that overtime work must be authorized in advance will not undermine an employee's right to overtime pay. An employee may be disciplined, however, for working unauthorized overtime in violation of a policy prohibiting unapproved work.
Roger S. Achille is an attorney and professor at Johnson & Wales University in Providence, R.I.
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