For non-exempt employees, overtime is calculated at one and one-half the employee's regular rate of pay. The regular rate includes all compensation earned by the employee in a given week. Last month, the Fifth Circuit of Appeals concluded that an employer had intentionally violated overtime pay requirements by categorizing most of an hourly employee's compensation as a per diem expense reimbursement.

In Gagnon v. United Technisource, the plaintiff was an aircraft painter who was paid an hourly rate set at minimum wage, with an agreed-upon overtime rate at about four times this amount. However, the employee was also paid a per diem rate based upon hours worked (up to 40 in any week) that was set at about three times minimum wage. The employer characterized this per diem payment as reimbursement for expenses incurred by the employee, and did not take it into account when calculating overtime pay.

The Fifth Circuit concluded that the per diem pay plan was an intentional attempt to evade the FLSA's overtime requirements. The prevailing wage rate for similar painters was about three times the minimum wage rate paid by the employer. The court stated that no skilled craftsman would work for this rate of hourly pay. In addition, the per diem rate was capped at the point where overtime pay began.

The inflated overtime rate did not constitute one and one-half the employee's regular rate when the per diem pay was added to the hourly wage. The Fifth Circuit concluded that this was an intentional FLSA violation, and affirmed award of three year's back wages doubled, plus attorneys fees and costs. This case demonstrates that the overtime pay rate must include all compensation paid to the employee, including most bonuses, incentive pay, commissions and other non-wage payments.