Labor Department Issues Advice for Reimbursing Delivery Driver Travel
September 3, 2020 by Margaret Mead
This week, the Department of Labor issued an Opinion regarding reimbursement of employee drivers’ expenses when they use their own vehicles to deliver food, and addressed the following issues:
- whether it was required to reimburse actual expenses incurred in the deliveries, or if it may reimburse an approximation of the expense incurred;
- whether the IRS standard mileage rate is the only way to reasonably approximate the expense of employee’s use of his/her own vehicle;
- whether alternative methods of approximating vehicle expenses comply with the law; and
- whether the employee may be only reimbursed for variable expenses, such as gas, oil, maintenance, and depreciation, versus fixed expenses, such as vehicle registration.
Issues 1 and 2
An employer violates the Fair Labor Standards Act in any workweek when the employee’s cost of tools needed to perform his/her job cuts into the minimum wage or overtime wages that the employer is required to pay. See 29 U.S.C. §§ 531.35 and 531.3. A reimbursement to cover the employee’s expenses incurred on the employer’s behalf is sufficient if it “reasonably approximates the expenses incurred.” 29 U.S.C. § 778.217(a). A reimbursement based on IRS guidelines, including the annual standard mileage rates, “is per se reasonable.” 29 U.S.C. § 778.217(c).
An employer may use alternative methods of calculating a reasonable approximation of the employee’s expense, but the DOL refused to either approve or disapprove the alternatives proposed by the employer in the Opinion, including: a flat rate for each delivery, a mileage rate calculated by averaging all employee’s costs, an allowance, and a percentage of the net sales of the driver’s deliveries. The DOL also refused to approve or disapprove any of the non-government sources the employer proposed as a basis for determining the employee’s reimbursement.
An employer only has to reimburse for the employee’s fixed vehicle expenses to the extent the vehicle is a tool of the trade used primarily for the benefit of the employer, such as an employer-owned vehicle. Where the employee’s vehicle is his personal vehicle used for other purposes as well as the employer’s, the employer is not required to reimburse fixed costs.
The Takeaway for Employers
Use the IRS annual standard mileage rate to reimburse employees for the use of their vehicles—don’t get creative. The regulations specifically approve this method. Also, remember that you must keep records of the date, time, and nature of amounts added to (or deducted from) an employee’s wages. 29 C.F.R. § 516.2(a)(10).