On November 8, 2024, the U.S. Department of Labor (DOL) issued opinion letter FLSA2024-01, offering critical guidance for employers on including daily expense payments for tools and equipment in overtime pay calculations under the Fair Labor Standards Act (FLSA). This guidance is particularly relevant for industries such as oil and gas, where employees frequently work in remote locations and incur various expenses during their duties.
The DOL’s opinion clarifies that while employers may reimburse employees for expenses incurred on their behalf, these reimbursements must be reasonable and correspond to the actual expenses incurred. Common reimbursable expenses include costs related to mileage, meals, and the use of personal tools or equipment. The challenge for employers lies in ensuring these reimbursements do not inadvertently inflate an employee’s regular rate of pay, which can impact overtime calculations.
Under the FLSA, non-exempt employees must receive overtime pay at a rate of at least one and one-half times their regular rate of pay for all hours worked beyond 40 in a workweek (29 U.S.C. § 207(a)(1)). The “regular rate” includes most forms of remuneration but allows specific exclusions. Notably, employers can exclude “reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of [their] employer’s interests” (29 U.S.C. § 207(e)(2)). This exclusion means that expenses incurred for work-related duties may not need to be included in the regular rate calculation.
The DOL emphasized that expense reimbursements are excludable only if employees genuinely incur costs on behalf of the employer. If employees do not have ongoing expenses related to tools or equipment, payments made under the guise of reimbursement may need to be included in the regular rate calculation. Additionally, reimbursements must reasonably approximate actual expenses. For example, if an employer pays $150–$200 per day without evidence of corresponding expenses, such payments will likely need to be factored into the regular rate.
Next Steps
This opinion has significant implications for HR and payroll practices. Employers should take the following actions to ensure compliance with FLSA regulations:
- Evaluate Reimbursement Practices: Employers must structure reimbursement systems carefully to reflect actual expenses incurred by employees. Inflated or arbitrary reimbursement amounts that do not correspond to actual costs could result in FLSA violations.
- Document Payments: Thoroughly document the nature and amount of all payments excluded from the regular rate. Accurate records are essential for compliance and resolving potential disputes over wage calculations.
- Develop Clear Policies: Establish clear, written policies regarding expense reimbursements. Communicate these policies effectively to employees to ensure transparency and understanding.
- Conduct Regular Audits: Regularly review payroll practices to verify compliance with FLSA regulations, particularly concerning expense reimbursements.
- Provide Training: Train human resource personnel and managers on FLSA rules related to expense reimbursements to ensure consistent compliance and mitigate potential liability.
- Consider State Laws: Multistate employers should also review state-specific requirements regarding expense reimbursements, as these may impose additional obligations.
By aligning reimbursement practices with the guidance in FLSA2024-01, employers can ensure compliance with federal regulations while supporting employees. A thoughtful, well-informed approach to managing reimbursements will not only protect the organization but also foster a fair and transparent workplace.
