A recent $2 million settlement between the US Department of Labor (DOL) and Hutco, Inc., a major labor services firm, highlights the care that employers must take to accurately characterize “per diem” payments to avoid liability under the Fair Labor Standards Act (FLSA) when calculating the wages due to temporary workers and independent contractors.

Hutco, headquartered in Lafayette, Louisiana, provides skilled and unskilled labor to industries including vessel construction and repair, oil field fabricators, warehousing and distribution, and manufacturing and storage terminals. Following an investigation of Hutco’s headquarters, the DOL’s Wage and Hour Division determined that Hutco violated the FLSA throughout six branch establishments in Louisiana, Mississippi and Texas, by utilizing improper pay and record-keeping practices causing employees to be denied overtime compensation.1 Specifically, as stated in its News Release, the DOL found that Hutco “mischaracterized certain wages as ‘per diem’ payments and impermissibly excluded these wages when calculating overtime premiums, thus denying employees earned overtime compensation.”

The FLSA requires that non-exempt employees who work more than 40 hours in a work week must be paid overtime wages of one and one-half times their “regular rate” of pay.2 The FLSA broadly defines “regular rate” as the hourly rate actually paid to the employee for “all remuneration for employment.”3 The regular rate must reflect all payments that the parties have agreed shall be received regularly during the workweek, exclusive of overtime payments.4 However, per diem payments“reasonable payments” made to reimburse employees for certain work-related expenses—may be excluded from an employee’s “regular rate.”5 Such reimbursement payments are excludable so long as they “reasonably approximate” the employee’s work-related expenses (e.g., travel or other expenses incurred on the employer’s behalf).6 But the DOL has recognized that when the amount of per diem varies with the amount of hours worked, the per diem payments are part of the regular rate in their entirety.7 And where an employee receives per diem payments but does not actually incur additional expenses, such payments “do not constitute bona fide reimbursements and must be included in the employee’s regular rate of pay for purposes of computing an overtime premium.”8

In finding that Hutco improperly mischaracterized certain wages as per diem payments, the DOL determined that Hutco committed “FLSA record-keeping violations involving the accuracy of employees’ wages and actual hours worked.” In its settlement agreement with the DOL, Hutco agreed to pay $1,916,850 in back wages to 2,267 employees, including welders, fitters, tackers, electricians, blasters, painters, forklift operators and warehouse personnel. Hutco’s payment of these back wages is ongoing, and the Louisiana Workforce Commission is reviewing the case.

In addition to the monetary settlement, Hutco agreed to comply with the FLSA by undertaking specific measures such as: (1) setting standards to accurately identify and compensate workers who qualify for bona fide per diem payments; (2) paying accurate overtime and ensuring per diem payments are not automatically excluded from overtime calculations; (3) informing employees about their pay and employment conditions; and (4) obtaining written acknowledgement from employees that they understand the criteria for receipt of per diem payments. Furthermore, Hutco agreed to maintain accurate records “demonstrating which employees received bona fide per diem payments and that such payments are based on applicable Internal Revenue Service guidelines, or upon a reasonable approximation of the expenses incurred.”

Temporary workers and independent contractors may face particular risk in suffering employer violations of the FLSA’s wage-and-hour laws. In announcing the settlement with Hutco, the DOL Wage and Hour Division’s acting deputy administrator, Mary Beth Maxwell, emphasized, “Temporary employment arrangements can make the worker-employer relationship difficult for workers to understand. As a result, temporary workers face the risk of not being treated as employees in terms of the wages and legal protections guaranteed under federal law.”

The Hutco settlement reinforces the importance that all employers review their overtime calculation protocols to ensure proper calculation of regular rate and overtime pay, especially concerning wages paid to temporary workers and independent contractors. Employers providing a per diem payment for expense reimbursement must be careful not to exclude the per diem payment from the regular rate calculation if the per diem amount is based on hours worked.

For more information about Hutco’s settlement or any other matter raised in this Legal Update, please contact Robert P. Davis, Andrew S. Rosenman or Alexandra L. Newman.


1 US Department of Labor—WHD News Release (May 6, 2013), http://www.dol.gov/opa/media/press/whd/WHD20130618.htm (visited May 13, 2013).
2 29 U.S.C. § 207(a)(1).registration rules have yet to be finalized by the SEC.
3 Id. § 207(e).
4 Bay Ridge Operating Co. v. Aaron, 334 U.S. 446, 461 (1948).
5 29 U.S.C. § 207(e)(2); see also 29 C.F.R. § 778.217(b).
6 29 C.F.R. § 778.216(a), (b)(3), (c).
7 Gagnon v. United Technisource, Inc., 607 F.3d 1036, 1041 (5th Cir. 2010); see also Dep’t of Labor, Field Operations Handbook, § 32d05a(b) (2000) (“Situations may be encountered where the employer makes per diem or other subsistence payments, or pays an allowance to offset the additional expenses incurred by an employee because he is required to work at a distant or isolated location and must live away from home. Such payments may be excluded from the regular rate of pay to the extent that they do not exceed a reasonable approximation of actual additional expenses involved in such situations.”).
8 US Department of Labor—WHD News Release, supra, note 2.