Employer did not Pay per Diem expenses

[mukkollu]

Hi,
I worked for my previous company for 6 months and resigned. He has to pay me $2400 towards my Per Diem expenses for 1.5 months. He is not replying to my email, not picking up the phone, not returning my phone calls.
When I started contracting, employer said that he will pay part of the salary as Per Diem ($71 per day) and I will get it 45 days late. It is more than 2 months after resignation he did not pay me the amount. I came to know from another employee that the employer is planning to send a recovery notice to me which I did not understand at all. What is the he is trying to recover from me instead of paying me. I did not sign any contract when I joined to company. I have an email from him reg. the pay structure.
What options do I have to recover the money?

[C4us]

You and your former employer may have had an illegal arrangement according to tax law. Wages may not be paid as per diems in order to avoid taxes.

[mukkollu]

You mean I cannot go to DOL to complain about this? My employer is located in CA. I worked as contractor in Texas, where should I complain?

[txh1b]

Looks like you and your employer were both involved in a tax evasion scheme with regards to the perdium. Were you traveling to Texas every week or what?

DOL will accept the complaint if the wages paid to you were below the LCA wages on the H1b.

[C4us]

Did you maintain a home in CA and live in a hotel in TX? How long were you in TX? Where have been your other assignments?

I ask because there was discussion on another forum involving per diems and an obviously illegal scheme where the employee had an apartment where he worked but claimed his employers office address as his home of record.

[mukkollu]

I wan in TX for 6 months. My employer is in CA. I did not travel to TX every week. I rented an apt. in TX.

[txh1b]

I wan in TX for 6 months. My employer is in CA. I did not travel to TX every week. I rented an apt. in TX.

You established your residence in Texas. You clearly do not qualify for this tax evasion scheme. Where your employer is located is not an issue here. If you want to do that, you should pay california state tax, would you be ready for that?

You are claiming Texas residency and not paying any state tax while for the per-dium, you claim to be in a "temporary" location.

[C4us]

You rented an apartment in Texas; you had no residence at your employer's location CA. You were a Texas resident; you should have had a TX DL and car tags. Receiving part of you pay as a per diem sure looks like tax fraud to me.

You need to get this straightened out and pay your taxes properly, Your employer will need to pay social security and medicare taxes as well. If you think the USCIS is a problem just get crosswise with the IRS esppecially on such a obvious case of fraud. They can attach your bank accounts and property for non-payment and fraud.

[knowledgeable]

... reads: "When I started contracting, employer said that he will pay part of the salary as Per Diem ($71 per day) ..."


This clearly identifies that the employee made a "deal" with the employer not to get part of the salary and instead collect it in the form of expenses paid as Per Diem.


This is a way to defraud the government from paying the taxes that the employee as well as the employer would have paid otherwise. These taxes include - State & Federal income tax, SS, medicare, employer's payroll taxes etc.


Now on top of this, if the poster is on H1B, its worst, as no such "deals" are permitted on H1B where the employee should get a direct salary and nothing else.


Regretfully, this is not an uncommon practice.

Now here's the tricky part, in favor of the poster (unfortunately for United States' tax payers) - if the employer agrees to pay ADDITIONAL (over and above the regular agreed upon salary and not in lieu of part of it) Per Diem expenses to the employee for a temporary posting more than 50 miles from the regular place of work, then these expenses are legal. However, the limitation herein is that the posting has to be temporary, which has a period of (I am not sure) but 18 months (this needs to be confirmed by a CPA or an accountant).

Read the per diem expenses claimed by running vice presidential candidate Sarah Palin: http://voices.washingtonpost.com/washingtonpostinvestigations/2008/09/palin_per_diem_travel_expenses.html

Sorry, I'm not going to read and explain this, but this is good information for all:

Updated Per Diem Travel Rates and Rules Take Effect on October 1 There are three deemed substantiation methods for travel within the U.S. Two are for full allowance plans (per diem and high-low) and the third is for meals and incidental plans:

Per Diem Substantiation Method. This is a commonly used method of substantiating an employer's per diem allowance rate. It relies on the federal per diem rates, which are the highest rates the federal government pays its employees. These rates vary by key city and locality.
High-Low Substantiation Method. This method is designed to overcome the problems associated with tracking the different federal per diem rates, and can be used in lieu of the per diem substantiation method. The IRS establishes a per diem allowance rate for lodging, meals, and incidental expenses based on a high rate (for the expensive areas of the country) or a low rate (for all other locations).
Meals and Incidentals Substantiation Method. This is a special method used when the employer pays only the employee's meal and incidental (M&IE) costs. It uses the M&IE component of the federal per diem rates as the federal rate for substantiation purposes.In Rev. Proc. 2008-59 (2008-41 IRB 1), the IRS updated the rules in Rev. Proc. 2007-63 (2007-42 IRB 809) for determining when an employee's lodging, meals, and incidental expenses incurred while traveling away from home on business will be substantiated under Reg. 1.274-5 when the employer (or third party) provides a per diem allowance under a reimbursement or other expense allowance arrangement. Rev. Proc. 2008-59 also revises the list of high-cost localities when using the high-low method. While the updated rates and rules apply to per diem allowances paid to an employee on or after October 1, 2008 for expenses paid or incurred for travel away from home on or after that date, there are transition rules for the last three months of 2008.
Per Diem Substantiation Method
The federal government establishes per diem rates for key cities and localities within the continental U.S. (CONUS), and then uses these rates to pay a per diem allowance to its employees. These rates are known as the federal per diem rate and are a composite of the federal lodging rate and the federal meals and incidental expenses (M&IE) rate, which includes the cost of three daily meals and incidental expenses an employee would incur for a single night's stay. Special deemed substantiation method rules and separate federal rates apply for travel outside the continental U.S. (OCONUS) to nonforeign localities (including Alaska, Hawaii, Puerto Rico, and U.S. possessions), and to foreign localities.
Observation: According to Rev. Proc. 2008-59, the CONUS and OCONUS rates can be found at www.gsa.gov (http://www.gsa.gov/) under "Per Diem Rates."
The term "incidental expenses" has the meaning given in the Federal Travel Regulations, and includes fees and tips given to porters, baggage carriers, bellhops, hotel maids, stewards or stewardesses and others on ships, and hotel servants in foreign countries; transportation between places of lodging or business and places where meals are taken, if suitable meals can be obtained at the temporary duty site; and mailing cost associated with filing travel vouchers and payment of employer-sponsored charge card billings.
High-Low Substantiation Method
The federal per diem rates differ among key cities and localities throughout the U.S. If employees travel to different locations during the year, use of the per diem substantiation method requires the use of different rates, which can be complicated and time consuming. To simplify things, the high-low substantiation method classifies key cities or localities within the CONUS that have a federal per diem rate exceeding a certain amount for all or part of the calendar year as high-cost localities. All other cities or localities are classified as low-cost localities.
Rev. Proc. 2008-59 assigns a per diem rate of $256 to all high-cost localities, $58 of which is for meal and incidental expenses. The per diem for other localities is $158, with $45 deemed to be for meal and incidental expenses.
Rev. Proc. 2008-59, Sec. 5.03, provides an updated list of the high-cost key cities or localities. If a city or locality is not listed, it is a low-cost locality. Certain key cities or localities (mainly tourist areas) are treated as high-cost localities for part of the year. Thus, the time of year is important when determining the high-low cost designation for many seasonal cities or localities.
The list of high-cost localities in Rev. Proc. 2008-59 differs from the list of high-cost localities in Rev. Proc. 2007-63 (changes listed by key cities) as follows:

The following localities have been added to the list of high-cost localities: Jackson/Pinedale, Wyoming.
The portion of the year for which the following are high-cost localities has been changed: Phoenix/Scottsdale, Arizona; San Diego, California; Silverthorne/Breckenridge, Colorado; Steamboat Springs, Colorado; Vail, Colorado; Palm Beach, Florida; Cambridge/St. Michaels, Maryland; Ocean City, Maryland; Martha's Vineyard, Massachusetts; Nantucket, Massachusetts; Jamestown/Middletown/Newport, Rhode Island.
The following localities have been removed from the list of high-cost localities: Palm Springs, California; Yosemite National Park, California; Stuart, Florida; Incline Village/Crystal Bay/Reno/Sparks, Nevada; Conway, New Hampshire; Providence, Rhode Island; Loudon County, Virginia; Virginia Beach, Virginia; Lake Geneva, Wisconsin.Certain Transitional Rules Apply
An employer that used the per diem substantiation method of Rev. Proc. 2007-63 for an employee during the first nine months of 2008 can't use the high-low substantiation method in Rev. Proc. 2008-59 for that employee until January 1, 2009.
Similarly, an employer that used the high-low substantiation method of Rev. Proc. 2007-63 for an employee during the first nine months of 2008 must continue using that method for the rest of calendar year 2008 for that employee. However, the employer can use the rates and high-cost localities in Rev. Proc. 2007-63 in lieu of the updated rates and localities provided in Rev. Proc. 2008-59 for travel on or after October 1, 2008 and before January 1, 2009 if those rates and localities are used consistently during this period for all employees reimbursed under this method.
Meals and Incidentals-only Method
If the employer pays an employee under an M&IE allowance plan, a special meals and incidental expenses-only method can be used as the benchmark rate against which to compare the M&IE allowance (Rev. Proc. 2008-59, Sec. 4.02). This substantiation method is based on the federal M&IE rate for the locality of travel for that day (or partial day), and is designed to be used when lodging expenses are not incurred because:

the payor pays the employee for actual expenses for lodging based on receipts submitted to the payor,
the payor provides the lodging in kind,
the payor pays the actual expenses for lodging directly to the provider of the lodging,
the payor does not have a reasonable belief that lodging expenses were or will be incurred by the employee, or
the allowance is computed on a basis similar to that used in computing the employee's compensation (e.g., number of hours worked, miles traveled, etc.).Closing Thought
See Chapter 10 of PPC's Guide to Compensation and Benefits (http://ppc.thomson.com/SiteComposer2/index.cfm?numProdClassID=189&fuseaction=SHELL&txtfuse=dspShellProductDetail&numTaxonomyID=1021&numTaxonomyTypeID=29&indexbutton.x=23&indexbutton.y=12) for more on per diem allowance plans, which provide a number of important advantages. First, per diem allowance plans eliminate the need for employees to gather documentation and receipts supporting the actual amount spent while traveling on company business. Instead, employers simply reimburse employees at a standard rate without regard to the amount actually spent by the employee. However, employees must keep records to prove the dates, location, and business purpose of the travel expenses before the allowance can be treated as made under an accountable plan.
Furthermore, per diem allowances not exceeding the federal rate are exempt from wage withholding and reporting requirements.
Finally, employees can keep excess advances for days of substantiated travel without disqualifying the otherwise accountable nature of the per diem allowance plan. On the other hand, accountable plans that reimburse actual expenses must require employees to return all excess advances within a reasonable period of time.

[C4us]

The problem is the scheme is to pay per diem in lieu of wages. It would be interesting to see if the per diem is the difference between the LCA minimum and the contracted salary offered to the employee as has been the discussion. The discussion calculated the maximum per diem that could be arranged and still meet the minimum required salary per the LCA. The discussion even included declaring the employer's business address as the employee's home of record to justify paying per diem. This scheme appeared to be promoted in CA, the poster's employers location. The IRS has been made aware of this.

Per diems offered over and above normal salary to compensate an employee for maintaining two households are often offered to contract workers on long term assignment; although these employees may even rent an extended stay hotel apartment, they maintain everything else in their actual home state especially a residence.

In this specific case it sounds like the per diem in the OPs case was in lieu of wages; quoting the OP: " When I started contracting, employer said that he will pay part of the salary as Per Diem ($71 per day) and I will get it 45 days late." This is clearly fraud. If the OP wants to be completely truthful, he will report this employer to the IRS.