Per Diems Should Have Been Included in Calculation of Overtime

By Kenneth J. Diamond April 21, 2021
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health care worker at laptop

A health care staffing agency should have included weekly per-diem benefits in its traveling clinicians' regular rate of pay for purposes of calculating their overtime pay, according to the 9th U.S. Circuit Court of Appeals.

The plaintiffs worked as clinicians for AMN Services LLC. They were paid an hourly wage and received a weekly per-diem benefit. On behalf of two certified classes of traveling clinicians who worked for AMN at facilities more than 50 miles from their homes, they alleged their weekly per-diem benefits were improperly excluded from their regular hourly rate of pay under the Fair Labor Standards Act (FLSA), thus decreasing their wage rate for overtime hours. In response, AMN asserted that the per-diem benefits were not wages but instead reasonable reimbursement for work-related expenses (e.g., meals, incidentals and housing) incurred while traveling on assignment and thus were properly excluded under the FLSA from any overtime rate calculations.

The federal district court granted summary judgment for AMN. In reversing that ruling, the 9th Circuit stated it was AMN's burden, as the employer, to establish that its per-diem payments qualified as an exemption from the regular rate of pay. The 9th Circuit explained that determining whether per-diem payments must be included in the regular rate of pay is a case-specific inquiry that turns on whether the payments function to reimburse employees for work-related expenses or instead operate to compensate employees for hours worked.

The 9th Circuit determined that several features of AMN's per-diem payment policies indicated that they functioned as compensation for hours worked. First, AMN's pro rata deductions from its weekly per-diem payments were not tied to whether employees remained away from home incurring expenses for AMN's benefit. Rather, the deductions connected the amount paid to the hours worked while still away from home, thereby, in the 9th Circuit's view, compensating employees for hours worked.

Second, the traveling clinicians could offset missed or incomplete shifts with hours banked in longer weeks and thus received the maximum per-diem payment in weeks when working less than the minimum required hours. The 9th Circuit concluded that the only reason to consider banked hours in calculating a weekly per-diem payment was to compensate employees for total hours worked rather than reasonable expenses incurred on days spent away from home for work.

In addition, the 9th Circuit noted that AMN paid its local clinicians the same per diems it paid its traveling clinicians and treated the per diems for local clinicians as wages, not reimbursement for travel-related expenses. The 9th Circuit found AMN's explanation that providing per diems to local clinicians encouraged them to work the required hours applied equally to traveling clinicians and indicated that the per-diem payments compensated all clinicians, whether local or traveling, in the form of a bonus for good work attendance.

Based on its review of such factors, the 9th Circuit held that AMN had failed to demonstrate that its weekly per-diem payments were properly excluded from the FLSA's regular rate of pay when calculating overtime, and, as such, the traveling clinicians were owed additional wages for the overtime hours they worked.

Clarke v. AMN Services LLC, 9th Cir., No. 19-55784 (Feb. 8, 2021).

Professional Pointer: It is not unusual for employers in certain industries to provide employees with per-diem benefits. This case illustrates that if such benefits are not properly structured, they will be considered wages and thus must be included in the regular rate of hourly pay when calculating overtime amounts owed.

Kenneth J. Diamond is a shareholder with Winterbauer & Diamond PLLC, the Worklaw® Network member firm in Seattle.

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