In Free, the applicant worked as a field interviewer and had to travel all but four weeks of a year. The applicant’s pay included the federal government per diem rates based on where she was staying. The applicant did not have to submit receipts and often never used the full per diem because she ate free meals provided by the hotels she stayed at. The applicant estimated that she spent approximately $175 per week on food versus the approximate $400 she was given. The applicant sustained an admitted work injury in 2016. The applicant disputed the initial calculation of her average monthly wage and argued it should include the per diem allowance.
The Administrative Law Judge (“ALJ”) issued an award holding that the per diem allowance was an employment-related expense rather than wages. The applicant requested review and argued that the unused portion of the per diem allowance should be counted as wages since she did not incur expenses for this portion. The ALJ disagreed and affirmed the award. The applicant appealed and the Arizona Court of Appeals (the Court) affirmed the ALJ’s decision.
The Court found that the facts of the case were undisputed and the sole legal issue was whether an applicant’s unused per diem allowance should be included in the average monthly wage. The Court has previously held that wages should include “anything of value received as consideration for work and anything that constitutes real economic gain to the employee.” Thus, wages do not include amounts paid to the employee to reimburse the employee for employment-related expenses because these reimbursements are not intended as compensation for services rendered. An applicant is only entitled to have reimbursements counted as wages if “the payments are more than sufficient to reimburse the employee for the work-related expenses so that in effect the excess can be considered as extra compensation to the workman for his services performed.” An example where this applied was when an employer paid employees 45% of their income as reimbursement for equipment rental. The Court held this was a sham compensation structure and the reimbursement was not really for expenses incurred but actual wages. These payments may qualify as wages when unjustified, excessive, or sham reimbursements.
In this case, the Court found that the per diem payments issued to the applicant were not excessive, unjustified reimbursements when compared to the reasonable expenses of a worker in her position. The rates paid were based on the federal government per diem rates and reasonably approximate the cost of three meals per day based on the relevant geographical location. The Court held that the ALJ did not err by declining to include the unused per diem food allowance in the average monthly wage calculation and affirmed the ALJ’s award.
Free v. Indus. Comm’n of Ariz., — P.3d —-, 23 Ariz. Cases Digest 18 (July 23, 2020).
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