Staffing Agencies and Per Diems

By Linda H. Evans,
Senior Associate.

 

Six staffing agencies have been investigated and are working on an agreement with the Department of Labor (“DOL”) to pay $3.5 million in back wages to about 3,000 workers. The workers were employed to work on projects in the Gulf coast area and were paid the minimum hourly wage of $7.25 per hour. The problem came with the other part of the wage package . . . a per diem payment. Per diems are usually paid to cover an employee’s expenses for food and lodging that are incurred for business travel.

 

But in this case, the employees were all local, and they had no such expenses. The improper per diem payments ranged from $75 to $150 per day and, according to the DOL, allowed the staffing agencies to save money by not paying overtime. Besides not being subject to overtime, valid per diem payments are not subject to unemployment insurance, Social Security, and other payroll taxes because they are just reimbursements. Additionally, the employees do not pay taxes or child support on valid per diem payments. And in this case, the DOL claims some employees were able to improperly obtain public assistance based on their hourly earnings of $7.25 per hour. However, once the per diem money is figured into their wages, the employees do not qualify for such assistance.

 

The improper use of per diem payments can have far reaching implications. Overtime pay, Social Security benefits, unemployment benefits, and taxes are all impacted. Public assistance can be overpaid and child support payments can be underpaid due to the incorrect payment of per diems. The back pay owed and the possible penalties, not to mention the investigation itself, can all add up to a major headache for employers!

 

Tips for Employers: If your company makes per diem payments to employees, be sure they are for valid business expenses. Additionally, in this case the staffing agencies claimed it was “industry standard” to make such payments. However, the DOL did not buy that argument. Employees may like the per diem arrangement due to the possible benefits they can obtain as outlined above. But, that won’t let the company off the hook if the DOL comes calling and it finds improper payments were made.

 

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