Meal Reimbursements Excluded from Regular Pay Rates

​Employer reimbursements for daily meal expenses incurred by employees while traveling away from home for the employer's benefit may be excluded from the employees' regular rate and overtime rate calculations under the Fair Labor Standards Act (FLSA), held the 10th U.S. Circuit Court of Appeals.

CGG Land (U.S.) Inc. provides seismic-mapping services at remote locations throughout the country. CGG's hourly employees were required to travel away from their homes and stay in hotels near these remote job sites for four- to eight-week intervals.

During these intervals, CGG paid each employee a $35 per diem for meals, including on days spent traveling to and from the remote job locations. When an employee worked more than 40 hours in a week, CGG also paid overtime based on the employee's regular rate of pay. CGG did not include the $35 meal reimbursement in the regular rate calculation.

The employees sued CGG, claiming that CGG violated the FLSA by not factoring into the regular rate calculation the $35 payment for daily meal expenses while working away from home. As a result, the employees claimed, CGG undervalued their pay in calculating their overtime compensation. CGG argued that the $35 payments were travel expenses that the FLSA specifically exempted from the regular rate. Both parties moved for summary judgment.

[SHRM members-only toolkit: Calculating Overtime Pay in the United States]

The district court granted summary judgment for CGG, agreeing that the $35 payments were exempt from the regular rate calculations under the FLSA, citing 29 U.S.C. § 207(e)(2). The 10th Circuit affirmed.

Under the FLSA, an employee's regular rate—and, consequently, the overtime rate—must include all payments to the employee, save eight specific exceptions, the 10th Circuit stated. The exception at issue on appeal excluded from the regular rate reimbursements for reasonable "living expenses" incurred by an employee who is "traveling over the road" away from home for the employer's benefit.

On appeal, the employees made three arguments. First, they argued that the phrase "living expenses" does not include the cost of food. The 10th Circuit rejected this argument. The appeals court ruled that the cost of food is a living expense because it is an additional expense that the employee incurs while traveling away from home for the employer's benefit.

The employees then argued that the FLSA exempts living expenses only while the employee is "traveling over the road." Therefore, the $35 payments were not exempt on days when the employees were at the remote job sites because they were no longer traveling over the road, the employees claimed.

The 10th Circuit rejected this "hyper-literal interpretation" of the term "traveling." The proper focus, said the court, is whether the $35 payments were reimbursements for travel expenses incurred in furtherance of the employer's interests—not whether the employee was literally in transit during meal times.

Lastly, the employees claimed that the $35 per diem payment was a scheme to set an artificially low hourly rate and underpay overtime wages. The appeals court rejected this contention because the per diem rate did not fluctuate with the number of hours worked and because the employees stipulated in the district court proceedings that $35 was a reasonable amount for meal expenses while working remotely.

Sharp v. CGG Land (U.S.) Inc., 10th Cir., No. 15-5113 (Nov. 4, 2016).

Professional Pointer: Employers should examine the items for which they reimburse nonexempt employees who travel to determine whether certain items may be excluded—or must be included—in an employee's regular rate. Consider whether the amount is tied to the number of hours worked, is reasonable in relation to the expense and was incurred while traveling away from home for the employer's benefit.

Andrew G. Chase is an attorney with Seaton, Peters & Revnew, P.A., the Worklaw® Network member firm in Minneapolis.

Was this article useful? SHRM offers thousands of tools, templates and other exclusive member benefits, including compliance updates, sample policies, HR expert advice, education discounts, a growing online member community and much more. Join/Renew Now and let SHRM help you work smarter.