Editor’s note: This blog post was originaly published on June 2014. We are sharing it again in light of a case in which six Gulf Coast staffing agencies agreed to pay more than 3,000 workers nearly $3.5 million in back wages after U.S. Department of Labor Wage and Hour Division investigators found that the staffing agencies mislabeled their employees’ wages as per diem payments. Read the press release.
As more and more companies begin outsourcing key business functions and enlisting the help of staffing agencies to provide workers, a fissure forms in the workplace, disrupting traditional employment relationships. Without a direct employee-employer relationship, these companies oftentimes mistakenly relinquish employer responsibilities which can have an adverse impact on workers who might experience a loss of benefits, inadequate health and safety protections, and sometimes lower pay.
The Wage and Hour Division promotes compliance with a number of laws which impact almost every industry in the United States. One way to reach the 7.3 million establishments and 135 million employees covered by WHD laws in the U.S. is through planned initiatives like the one launched 2 years ago in the temporary staffing industry by the division’s New Orleans District Office. Recognizing the valuable and the important role that these employers play in today’s economy, the Wage and Hour Divisions’ Southwest and Southeast Regions began directed investigations to address concerns about the industry practice of misclassifying a portion of worker’s earnings as per diem payments.
Per Diem Pay Schemes
The investigations under the temporary staffing initiative uncovered evasive per diem schemes through which companies misclassified a portion of workers’ earnings as per diem payments. Per diem payments are compensation for living expenses incurred on behalf of the employer, such as transportation, meals, and lodging. These payments were not included in employees’ gross wages for purposes of determining the regular rate of pay on which overtime is paid. By characterizing the wages as per diem, the employers were attempting to pay overtime premiums on an artificially low regular rate due to the exclusion of alleged per diem payments from regular rate determinations. Therefore, workers were denied correct overtime compensation resulting in violations of the Fair Labor Standards Act. The per diem payments are also not considered wages which means they were excluded from both state and federal taxes.
The Cost of Failing to Comply
Schemes such as per diem mischaracterization are illegal, and the Wage and Hour Division is actively pursuing unlawful pay practices such as these. In the past two years, employers have paid millions in back wages after investigations revealed bogus per diem payments. Such was the case for three agencies operating along the Gulf Coast:
- B&D Contracting, Inc., Houma, LA based labor recruiting and staffing agency that caters to the oil field services and maritime fabrication facilities along the Gulf Coast, agreed to pay $1.6 million in back wages to 1,543 current and former employees.
- Hutco, Inc., a major industrial services employment agency headquartered in Broussard, LA agreed to pay $2 million in back wages to 2,267 employees assigned to client work sites throughout Louisiana, Mississippi, and Texas.
- Savard Marine Services, Inc., construction services employment agency out of Baton Rouge, LA, agreed to pay 107 workers $59,209 in back wages.
In addition to paying their workers the wages they were rightfully due, these employers signed compliance agreements committing to specific assurance measures to prevent future violations of the FLSA. The Wage and Hour Division also made referrals to report companies’ practices to the Internal Revenue Service and applicable State Workforce Commissions. In the end, cutting costs and shorting workers comes with a hefty price tag.
Changing Compliance Behaviors
The good news is that employers in the industry are responding to the findings of this initiative by choosing to comply. During investigations in 2014, the division found that some companies had changed their pay practices before an investigator even knocked on their door. This type of response is the change in employer behavior we work to accomplish every day. Inspiring employers to comply with the law proactively is essential to achieving compliance across industries and shared prosperity.
Want to Learn More?
Employers who are committed to compliance should take proactive steps to learn more about the requirements of the law. Visit the Wage and Hour Division website, or call 1-866-4US-WAGE.
Cynthia Watson is the regional administrator for the Wage and Hour Division’s Southwest region.