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Department of Labor and Per Diem Payments - The IRS continues its audits

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traveltax:
Though this is a Department of Labor ruling, it is a coordinated effort with the IRS. Staffing agencies are a primary focus of staffing agencies in current audits and many of the issues regard poor screening of an employee's tax home status.

http://www.dol.gov/whd/media/press/whdpressVB3.asp?pressdoc=Southwest/20140710.xml

Rennhack:
Thank you for sharing that article.  I read the document, and as I understand it, the applicable part for our industry would be when an employer decides to give an employee 'taxable' per diem for jobs that extend beyond a year, they must then include that extra income as part of the base wage and use it in determining the over time rate.

Example:

John gets a job in January that is expected to last 6 months, and pays $20/hr ST and $30/hr OT as well as $100/day per diem.

In March, it becomes obvious that John's job will last beyond 12 months.  John and his employer then begin to pay taxes on the per diem. -- The wrinkle being that now the per diem must be considered part of his 40/hr base pay, which increases his over time rate.

The $700/week per diem works out to $17.50/hr for 40 hrs. That would increase his over time rate form $30/hr to $30+26.25= $56.25

Is that how you understand the article.

traveltax:

--- Quote from: Rennhack on Jul 16, 2014, 10:02 ---Thank you for sharing that article.  I read the document, and as I understand it, the applicable part for our industry would be when an employer decides to give an employee 'taxable' per diem for jobs that extend beyond a year, they must then include that extra income as part of the base wage and use it in determining the over time rate.

Example:

John gets a job in January that is expected to last 6 months, and pays $20/hr ST and $30/hr OT as well as $100/day per diem.

In March, it becomes obvious that John's job will last beyond 12 months.  John and his employer then begin to pay taxes on the per diem. -- The wrinkle being that now the per diem must be considered part of his 40/hr base pay, which increases his over time rate.

The $700/week per diem works out to $17.50/hr for 40 hrs. That would increase his over time rate form $30/hr to $30+26.25= $56.25

Is that how you understand the article.

--- End quote ---

That's one part of it and I have other thoughts as well
1) "per diem" is not defined here. If per diem is a broad statement for anything tax free then it fails to address the common practice of excluding taxable housing / meal allowances from OT calculations when the employee does not have a tax home
2) In staffing, there is a movement toward establishing separate entities for workers that do not qualify for per diem. Forcing the OT on per diems indirectly treats per diems as wages which then incriminates you with the IRS. You cannot simply "roll up" the wage for those without a tax home as that then leads to wage recharacterization issues

BetaAnt:
If your employer states the project is greater than 12 months, per diem is taxable? What happens if the project crashes before the 12 months? Refund of taxes paid?

If your employer has a short term project that suddenly expands, do you owe taxes on the previous per diem?

If your employer states a project is greater than 12 months but, you only commit for 51 weeks, is per diem taxable?

PD is one of those mysterious payments subject to the whims of the employer and IRS and, interpretation by the employee (which can cause problems).

Some one needs to publish "The Dummies Guide to Per Diem, Expenses, and Taxes for Consultant Workers".

radbrat:
As it applies to the individuals that do travel, and are legitimate per-diem prescribers.  What is the take on local workers that get more per hour to compensate for the lack of per-diem. They can be compensated $100-150 dollars more per week due to the increase in wages. Just because you are getting tax free per-diem, your total wage/earnings can be a liability due to the expenses incurred. Locals make out due to the lack of expenses that they have to compensate for.

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