Many agencies provide their employees with per diem stipends while the employee is traveling for work.  Is your agency including this amount when calculating the regular rate of pay for overtime under the FLSA?  In Sharp v. CGG Land, Inc. (10th Cir. 2016) 840 F.3d 1211, the Tenth Circuit confirmed that agencies may properly exclude per diem stipends from the regular rate calculation.

Background

In the Tenth Circuit case, the employer, CGG Land Inc. (“CGG”), provided seismic mapping services in remote areas around the United States.  To provide these services, CGG required its employees to travel to and stay at, or near, a job site for four to eight weeks.  While traveling, CGG employees often worked more than 40-hour weeks and CGG calculated their overtime based on the regular rate of pay.  CGG provided its employees, who traveled for work, with a $35 per day stipend for meals.  CGG did not include this stipend when calculating the employee’s regular rate of pay.

A group of CGG employees filed a collective action, alleging that CGG had violated the FLSA by underpaying their overtime hours because it had improperly excluded the daily meal expense from the regular rate.

Court’s Analysis

In analyzing the employees’ claim, the Court looked first at the language of the FLSA and the applicable regulations to see how the regular rate is defined.  The Court affirmed that the regular rate is all remuneration paid to, or on behalf of, an employee, subject to eight exceptions.  One of those exceptions is travel expenses, which the regulations define as “living expenses” incurred while the employee is “traveling over the road for his employer’s business.”  In other words, travel expenses do not have to be calculated into the regular rate.

The employees argued that the meal stipend did not fall under the travel expenses exception because (1) meals are not a living expense; (2) once at the job site the employee is no longer “traveling over the road”; and (3) the per diem stipend is a “scheme” to pay an artificially low hourly rate to keep overtime pay low.

Meals are a living expense.  The Court disagreed with the employees and found that meals and the cost of food while traveling for work are a “living expense.”  The Court relied primarily on U.S. Department of Labor opinion letters that had already analyzed this issue and determined that eating a meal away from home is an additional expense incurred by the employee for the employer’s benefit.

While at a job site, employees are traveling.  The Court also declined to adopt the employees’ hyper-literal interpretation of the term “traveling over the road” in the regulations.  The employees essentially argued the plain language of the regulations only excluded travel expenses incurred while in transit, and that once they reached a job site, they were no longer “traveling,” and any per diem stipends paid while they were at the job site should be included in the regular rate.  The Court held that “traveling” included more than just time spent in transit from one job site to another, but more broadly includes time away from home.

Per Diem Stipends are not a Scheme.  Lastly, the Court held that CGG’s meal stipends were not a scheme to underpay workers by setting an artificially low hourly wage.  This holding was based, one, on the fact that the employees had agreed that the stipends were a reasonable amount that approximated their meal expenses and, two, on the fact that the stipends were not tied to the amount of hours the employee worked.

Conclusion

Per diem stipends for meals may be excluded when calculating the regular rate under the FLSA.  Even though this is a Tenth Circuit case, it is likely that California courts (which are in the Ninth Circuit) will follow this decision in light of the Court’s sound conclusion and reasoning.

In this case, CGG was calculating the regular rate correctly, but is your agency doing the same?  If you are a Human Resources, Payroll, or Finance employee for your agency, it is important to stay on top of the latest legal developments that impact what should be included in the regular rate and what may be properly excluded.  Take this opportunity to look at your agency’s overtime practices and consult an attorney to find out if your FLSA calculations comply with the law.