Hundreds of hourly employees sued their former employer alleging that they were due additional overtime pay. They asserted that the company failed to include their $35 daily travel meal reimbursement in their regular rate of pay when calculating time-and-one-half, meaning they were paid less overtime than they were due. The Tenth Circuit Court of Appeals, whose decisions apply to Wyoming, Colorado, Oklahoma, Kansas, New Mexico, and Utah, recently analyzed their claim.

Calculating Regular of Pay

The Fair Labor Standards Act (FLSA) requires employers to pay employees at one and one-half times the employee’s “regular rate” of pay for all hours worked in excess of 40 per workweek. An employee’s regular rate of pay includes all remuneration paid to the employee, subject to certain exceptions. If a part of an employee’s pay is left out of the “regular rate” calculation, the employee’s overtime rate will be undervalued.

A large group of former hourly employees for a nationwide seismic-mapping services company filed a lawsuit claiming that the company violated the FLSA by failing to include an established meal allowance, which was paid to employees while traveling, in the employees’ regular rate of pay.  In their collective action, the parties asserted that the company required employees to travel away from home and stay in hotels near remote job sites for four to eight weeks at a time. Employees then typically returned home for about two to four weeks before traveling to another remote location. They often worked more than 40 hours per week while at the remote location, triggering overtime pay.

Per Diem For Meals

The company provided its employees with a $35 per diem for meals for all days at the remote location as well as the days spent traveling to and from the remote job location. The company did not pay the $35 meal reimbursement on days that employees worked from their home location or when food was provided at the remote job site.

Exception To “Regular Rate” For Traveling Expenses

The regular rate of pay generally must be calculated to include all remuneration for services paid to the employee.   One exception to this rule is that employers can exclude from the regular rate all reasonable payments for traveling expenses incurred by an employee in the furtherance of his employer’s interests and properly reimbursable by the employer. The regulations state that this exemption includes the “reasonably approximate amount expended by an employee, who is traveling ‘over the road’ on his employer’s business, for . . . living expenses away from home . . . .” 29 C.F.R. § 778.217(b)(3). The company argued that the $35 meal payments were exempt travel expenses and therefore, need not be included in the calculation of the employees’ regular rate.

Meal Reimbursement Was Exempt Travel Expense

The employees countered by arguing that the $35 payments were not exempt travel expenses because the employees were no longer traveling while they worked at the remote job sites for four to eight weeks at a time. They also argued that the phrase “living expenses” did not include the cost of food. The Tenth Circuit disagreed on both arguments.

The Court reasoned that the employees’ position that they were no longer “traveling over the road” when they reached their remote job site was a “hyper-literal interpretation.” The Court instead read “traveling” more broadly to include not just time in transit, but also time away from home. On the employees’ argument that the cost of food did not qualify as a “living expense,” the Court agreed with prior determinations by the U.S. Department of Labor to find that the cost of food away from home is an additional expense that the employee incurs while traveling for the employer’s benefit and therefore, is a living expense. The Court ruled that the $35 per diem meal reimbursements were exempt travel expenses and need not be included in the employees’ regular rate when determining overtime pay. The Court upheld summary judgment in favor of the company. Sharp v. CGG Land Inc., No. 15-5113 (10th Cir. Nov. 4, 2016).

Travel Time Rules

Similar to the travel expense issue in this case, employers often struggle with rules related to whether time spent traveling is compensable for non-exempt employees. The answer can be tricky because it often depends on the kind of travel involved and whether it is outside the normal hours of the employee. Here is a summary of the travel rules.

Non-Compensable Travel Time

Ordinary commute time from home to work and back home is not considered work time. In other words, the time spent by a non-exempt employee to get from home to work at the beginning of the regular workday and then to return from work to home at the end of the workday is not counted in the employee’s hours worked and therefore, is not paid time. This is true whether the employee ordinarily works at a single, fixed work site or at different job sites. 

Compensable Travel Time 

Non-exempt employees must be paid for the time they spend in travel as part of their principal work activities. For example, traveling from one job site to another, or from one sales call to another during the workday, is considered work time and must be paid as hours worked. In addition, any work that an employee must perform while traveling must be counted as hours worked. For example, a driver or driver’s helper is considered working while traveling on the road and must be paid for such time.

A similar rule applies to travel for purposes of a special assignment. If a non-exempt employee who regularly works at a fixed job site is sent to another work location for a special assignment and returns home the same day, travel for that special one-day assignment is work time and must be paid. In that situation, the employer may deduct the time that the employee would normally spend commuting to the regular work site, only paying for the travel time that is in excess of that employee’s ordinary commute travel time.

Perhaps the trickiest calculation involves overnight travel. When travel away from home occurs during the employee’s normal work hours, the travel time is counted as work time. The employee is simply traveling instead of performing his or her regular duties. When travel time occurs during the corresponding work hours on non-scheduled work days, that travel time is also counted as work time. For example, if an employee regularly works Monday through Friday from 9 a.m. to 5 p.m., any travel time for business purposes that takes place on Saturday or Sunday during those hours must be considered work time. However, if that travel time occurs outside of regular work hours and the employee is a passenger on an airplane, train, boat, bus, or car, then that travel time need not be considered work time and need not be paid.

Remember though, if an employee performs work duties outside of regular hours while a passenger traveling on company business, the employee is working so you must pay for those hours. For example, if an hourly employee works on an accounting spreadsheet while on a flight home from a business trip, those hours must be counted as hours worked for the workweek even though the employee is a passenger on the flight.

Check Your Calculations

As you can see from these rules, employers face many challenges when it comes to properly paying non-exempt employees while traveling for business purposes. To help sort it out, you should first look to the rules to properly count all hours that should be included as compensable work time. Then, if an employee exceeds 40 hours in any given week, ensure proper calculation of his or her regular pay rate so that time-and-one-half is correct for calculating overtime pay. Careful attention to these two steps will help you avoid disruptive (and costly) wage claims.