“I’ve been paying a few of my employees per diem pay but now one of them is asking for overtime pay, too. I’ve told them the per diem rate pays for everything that day. Am I wrong?”
Your HR Survival Tip
A daily pay rate is called a per diem rate and is popular in only a few industries. Normally, you would be correct that it pays for all the time that employee works that day.
However, you have to remember that California has something “special”… a daily overtime. This means when an hourly (non-exempt) employee works more than 8 hours in any day, you will owe them overtime for the time over 8 hours. So, yes, your response was wrong. Legally, a per diem employee is an hourly employee and eligible for overtime so your per diem rate can only cover the first 8 hours of work.
Federal law and most, if not all, other states have only a weekly overtime calculation. This means they merely look at the total hours for the week and pay overtime for the hours over 40. California also has a 40-hour calculation but it’s in addition to the daily overtime. In California, you first calculate the daily overtime, then also pay overtime on the “regular” hours over 40.
Even if you know per diem pay is the standard for your industry, you will still be subject to California’s overtime law. In California, the only person to benefit from per diem pay is the employee because they’ll get the full day’s pay even when they don’t work 8 hours, plus they’ll get overtime pay if they work over 8 hours.
Why bother to use per diem pay in California when an hourly wage is probably less work, less costly, and easier to ensure compliance?
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