On November 8, 2024, the U.S. Department of Labor (DOL) issued an opinion letter addressing whether per diem expense payments for tools and equipment can be excluded from the hourly rate when calculating overtime pay under the Fair Labor Standards Act (FLSA).

This opinion letter serves as a reminder for employers to evaluate their expense reimbursement practices to ensure compliance with the FLSA.

Key Points:

• Case Example: An oil and gas services company sought to increase daily expense reimbursements from $25 to $150-$200. The DOL clarified that such a significant increase would not be excludable from the regular rate as it does not reasonably approximate the actual expenses incurred.
• Legitimate Reimbursements: The DOL emphasized that expense reimbursements must be legitimate. Payments not qualifying as bona fide reimbursements must be included in the regular rate of pay.
• Reasonable Approximation: Employers can exclude the actual or reasonably approximate amount of an employee’s incurred expenses from the regular rate. If the reimbursement amount is excessive, only the excess must be included in the regular rate calculation.
• FLSA Requirements: The FLSA requires “all remuneration” to be included in the regular rate when computing overtime pay, with exceptions for legitimate expense reimbursements.
• Recordkeeping: Employers must keep detailed records of reimbursed expenses to show they are legitimate costs incurred by employees.
• Methodology: The DOL does not endorse a specific methodology for approximating expenses but requires that the method reasonably approximates actual expenses.

Employers should ensure that reimbursements are legitimate and reasonably approximate actual expenses to avoid including them in the regular rate of pay.

For additional information: FLSA 2024-01

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