Ninth Circuit Issues Important Decision on Per Diem Pay 
Ninth Circuit Issues Important Decision on Per Diem Pay 

On February 8, 2021, the United States Ninth Circuit Court of Appeals issued a decision clarifying the circumstances under which a per diem benefit must be included in the regular rate of pay for overtime purposes under the Fair Labor Standards Act (FLSA).  The court held that since per diem benefits functioned as compensation for work rather than as reimbursement for expenses incurred by traveling healthcare clinicians, they were improperly excluded from the clinicians’ regular rates of pay for purposes of calculating overtime pay under federal law. Clarke v. AMN Servs., LLC (9th Cir., 2021) No. 19-55784, 2021 WL 419473.

The clinicians’ employer, AMN Services, is a healthcare staffing company that places hourly workers on short-term assignments throughout the country.  The per diem payments were designed to provide traveling clinicians with reimbursement for the cost of meals, incidentals and housing while working away from home, and were available when the clinicians confirmed that their “tax home” was more than 50 miles from their assigned facilities.  Local clinicians also received per diem payments, but for those employees, the per diems were included in as part of their wages for overtime purposes.

The court defined the issue as whether the per diem payments functioned as compensation for work performed as opposed to reimbursement of incurred expenses.  The court held that the per diem payments were compensation for work performed, and that they were therefore required to be included in computation of the “regular rate of pay” for overtime purposes, because:

1)  the employer made pro rata deductions in the per diem payments that were unconnected to whether the employee remained away from home incurring expenses for its benefit (such as for clinicians who were too ill to work), which indicated that the deductions were connected to the amount paid for hours worked while away from home;

2)  the clinicians were permitted to offset missed or incomplete shifts with hours they “banked” on days or weeks in which they worked more than the minimum required hours, which demonstrated that there was no plausible connection between working extra hours one week and incurring greater expenses the next; and

3)  AMN paid local clinicians the same per diems it would have paid if the clinicians were traveling, which showed that the per diems functioned as wages and provided incentives for employees to work the minimum required hours. 

The court accordingly agreed with the employees’ assertion that the payments were expected as part of the clinicians’ pay package and so functioned as supplemental wages.   Significantly, although the case was decided under the FLSA, the court stated its understanding that the same general analysis applied under the California Labor Code.  Employers can accordingly expect the decision to be cited in support of unpaid overtime claims asserted under California law.

Categories: Wage & Hour

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