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A Georgia-based aviation staffing company has been sued under the Fair Labor Standards Act and North Carolina wage law over allegations that it used a “per diem” compensation structure to avoid properly paying overtime to mechanics and technicians.
Lawsuit challenges pay structure
According to the proposed class action complaint, the defendant allegedly split employees’ compensation between taxable hourly wages and untaxed hourly “per diem” payments.
The plaintiff alleged that the structure allowed the company to maintain a flat overall hourly rate even when employees worked overtime hours.
The lawsuit claims that the plaintiff earned a blended rate of approximately $32.75 per hour, but that only a small portion of that amount was treated as taxable wages for overtime calculations. As a result, overtime premiums allegedly were calculated on the lower taxable amount rather than on the employee’s full regular rate of pay.
The complaint further alleges that the company reduced or adjusted per diem payments during overtime hours so that employees effectively continued receiving straight-time pay even when working beyond 40 hours in a week.
DOL, courts scrutinize per diem practices
The lawsuit points to prior court decisions and Department of Labor guidance warning that per diem payments may need to be included in an employee’s regular rate of pay when they function as compensation rather than legitimate reimbursement for expenses.
In a 2024 opinion letter, the DOL stated that reimbursement payments cannot be used to “artificially reduce employees’ regular rates of pay” in order to lower overtime obligations.
Courts have similarly questioned per diem arrangements that vary based on hours worked or that appear designed to offset overtime obligations rather than reimburse actual travel expenses.
Continued litigation risk
The case highlights continuing litigation risk surrounding regular-rate calculations under the FLSA, particularly in industries that rely heavily on travel assignments, staffing models or blended compensation structures.
Although employers may lawfully reimburse employees for travel and related expenses, those payments may need to be included in overtime calculations if they are tied to hours worked or operate more like wages than reimbursements.
Employers using per diem or travel reimbursement structures should review whether those payments reasonably approximate actual expenses incurred and whether compensation practices comply with regular-rate requirements under the FLSA.
Coordination between payroll, HR and legal teams is particularly important where compensation structures involve travel allowances, blended pay arrangements or hourly adjustments tied to overtime work.
