Newman VS Advanced Technology Innovation corp Case # 13-1132

NedRN · Nov 7, 2015

Per diem means by the day. Travel companies often break it down by some number of hours worked (often 36 but can be any number) so they can better designate a missed hour penalty. The usual risk for them is that the IRS will give them grief as they shouldn't be able to "claw back" a daily stipend based on missed hours. This case is unusual in that it is not IRS related, but a civil suit with a logical decision.

Does it make any difference to me? Nope. I think any traveler would be foolish to accept an overtime rate based on a low hourly rate. Generally that represents a pay decrease if you work overtime. Typical total pay per hour for travelers is $40 to $50 an hour including stipends. If overtime is based on (for example) your regular hourly rate of $20 an hour is $35 an hour, guess what? You have just taken a pay cut of of $5 to $15 an hour for your extra work.

You can sue or perhaps be part of a class action lawsuit after the fact, but it is much easier to just negotiate overtime before accepting a contract in the first place.

On April 18, 2014, the U.S. Court of Appeals for the First Circuit held in Newman v. Advanced Technology Innovation Corp., that a per diem payment that is based on the number of hours worked by an employee must be considered part of the regular rate of pay for calculating overtime. In Newman, two former employees claimed they were owed additional overtime pay under the Fair Labor Standards Act (FLSA), because their employer failed to include per diem payments when calculating their regular rate of pay. The per diem payments were intended to reimburse the employees for travel expenses incurred, and the employer had a practice of reducing the per diem payment depending on the number of hours worked by the employee. The district court for Massachusetts granted summary judgment for the defendant, explaining that per diems generally are excluded from the calculation of an employee's regular rate for overtime purposes.
On appeal, the First Circuit reversed and ordered that judgment be granted in favor of the plaintiffs. Although the FLSA states that an employee's regular rate of pay does not include, reasonable payments for traveling expensesâ€ incurred by employees, the Department of Labor had taken the position in a handbook that a per diem payment is part of the regular rate of pay when it is calculated based on hours worked. The First Circuit accepted this position, and because the employer had adjusted the per diem payments based on hours worked, the Court concluded that the per diems should have been included in the plaintiffs' regular rate of pay for overtime purposes.
The decision in Newman is a reminder that in order to properly treat a per diem as a non-wage, the method of calculating the per diem should not be based on hours worked. A per diem can be partially discounted and still not be considered a wage, but the discount must not be hours-based. The Newman decision also warns that courts will pierce the labels parties affix to the paymentsâ€ and consider the realities of how employees are being compensated. To be safe, employers should carefully examine how their per diem policies are written and enforced in order to ensure that they do not incur unanticipated overtime liability