When Per Diem is Not “Per Day”

“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 all time worked that day. Am I wrong?”

A daily pay rate is called a per diem rate and is popular in a few industries. Normally, you would be correct that the per diem rate pays for all the time an employee worked that day. But not in California.

You have to remember that California has something that most other states don’t… a daily overtime calculation. This means when an hourly (non-exempt) employee works more than 8 hours on any day, you will owe them overtime for time worked over 8 hours. Legally, a per diem employee is just 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 other states have only a weekly overtime calculation for time worked over 40 hours. However, California has daily overtime plus weekly overtime. You first calculate any time worked over the “regular” 8 hours in a day, and then you look at any additional time worked past the 40 “regular” hours in a week.

Even if you know per diem pay is the standard for your industry, you are still subject to California’s overtime laws. In California, the only person to benefit from per diem pay is the employee because they get the full daily rate even when they don’t work 8 hours, plus they get overtime if they work over 8 hours.

Unless you’re stuck with using per diem pay, we prefer using an hourly wage because it is less work, less costly, and easier to ensure compliance.

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