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Maryland Overtime Per Diem Update


Posted by Tamara

Recent court rulings show that state and federal agencies are coming down hard on employers regarding wage and hour issues, including misclassifying employees as independent contractors, exempt status and now overtime. An example is a recent case in the 5th Circuit Court of Appeals.

This case involved Maryland employer United Technisource Inc (UTI), and aircraft painter, Timothy Gagnon. When Mr. Gagnon was hired, the prevailing rate for a highly skilled aircraft painter was $18 per hour. UTI, however, offered Gagnon only $5.50 per hour with a $12.50 per hour per diem. The per diem capped at $500 or exactly 40 hours in the payroll week. In addition, Gagnon was offered $20 per hour for hours in excess of 40 hours per week.

Gagnon accepted this offer and worked for UTI for over a year before filing a wage complaint for unpaid overtime. UTI argued that the law required overtime be paid as 1.5 times Gagnon’s hourly rate of $5.50, which was $8.25 per hour. Instead, they had paid Gagnon nearly three times that amount. Initially, the lower court found for the company.

The court of appeals disagreed. The judges ruled that if Mr. Gagnon worked 40 hours per week, he earned $220 plus $500 per diem for a total of $720. Dividing by 40 gives an hourly rate of $18.00 per hour. His overtime rate, therefore, should have been 1.5 times his “regular hourly rate” of $18 or $27 per hour.

The judges followed the U. S. Department of Labor regulations, which mandate that any per diem rate be included in the “regular hourly rate” for overtime calculations. In addition, under FLSA (Fair Labor Standards Act), an employee cannot bargain or waive rights to minimum wage or overtime.

Ironically, UTI’s attempt at avoiding paying overtime cost them more. The court awarded Mr. Gagnon $9,500 in unpaid overtime plus damages and over $55,000 in attorney’s fees. That means that UTI paid nearly $65,000 to avoid paying approximately $8,000 in overtime payments.

 

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