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Excessive Expense Reimbursements are not a “Golden Ticket” to Reducing Overtime Pay

Written by: David Frankel, Esq. & Maria Matkou, Esq.

On November 8, 2024, the U.S. Department of Labor (“DOL”) published FLSA2024-01 (the “Opinion Letter”), opining as to whether daily expense payments for tools and equipment may be excluded from employees’ regular rates when calculating overtime. Although opinion letters are non-binding, they can provide useful guidance to employers. This article aims to analyze the Opinion Letter, provide suggestions on its effect on the regular pay rate, and overtime calculation.  

Generally, under the Fair Labor Standards Act (the “FLSA”); non-exempt employees must be paid 1.5x their regular rate of pay for all overtime hours worked. The regular rate of pay must include all remuneration for employment paid to, or on behalf of, the employee. Some employers might erroneously exclude or include certain payments made to employees when calculating an employee’s regular rate of pay. For example, this issue often comes up in the context of nondiscretionary bonuses, which employers often erroneously exclude when calculating an employee’s regular rate of pay.

Mistakes can also happen when employers erroneously include certain payments that are to be excluded from the regular rate calculation. Such payments include, among others, reasonable payments for (i) travel expenses, (ii) other expenses incurred by an employee in the furtherance of their employer’s interests and properly reimbursable by the employer, and (iii) other similar payments to an employee, which are not made as compensation for their hours of employment.

The Opinion Letter provides the following important guidance on the expense payments employers in the staffing industry, especially those that employ travel nurses, can greatly benefit from:

  • An employee must actually incur expenses for any related reimbursement payments to be excludable from the regular rate.
  • Only the actual or reasonably approximate amount of the expense is excludable from the regular rate.
  • If a reimbursement is not reasonably approximate to the expenses the employee actually incurred, then the excess reimbursement payment must be included in the regular rate.
  • DOL does not require or endorse a specific method for approximating employees’ expenses for reimbursement. If a method reasonably approximates actual business expenses incurred by employees on behalf of their employer, it will comply with the FLSA.
  • Overtime cannot be avoided by setting an artificially low hourly rate upon which overtime pay is to be based and making up the additional compensation due to employees by other means.

The key takeaway from the Opinion Letter is that the reimbursements to an employee must reasonably approximate the amounts that the employee spent on behalf of the employer, and any excess reimbursements must be included in the calculation of the regular rate and overtime. For per diem payments and mileage reimbursements, employers must ensure that their reimbursement calculation methods are reasonably approximate to the related expenses and do not function as additional compensation to the employee. Otherwise, such additional compensation must be considered in the calculation of the regular rate and overtime.

If you need any assistance regarding overtime pay and expense reimbursements to employees, please reach out to our highly experienced Staffing Team at Becker LLC.