The U.S. Department of Labor has issued an opinion letter intended to clear up some of the confusion currently surrounding the issue of how delivery drivers should be reimbursed for their expenses in accordance with federal wage and hour law.
Across the country, food delivery drivers in particular have been filing class action and collective lawsuits against the companies they work for, arguing to courts that they were not adequately reimbursed because they weren’t paid either their actual expenses or at the IRS business standard mileage rate, note attorneys Michael Ball and Michael Griffaton of the law firm of Vorys Sater Seymour and Pease.
Under the Fair Labor Standards Act (FLSA) employers are required to pay nonexempt employees no less than the federal minimum hourly wage for all non-overtime hours actually worked in a given workweek.
The cost an employee incurs for tools (for delivery drivers, this includes their vehicles), uniforms, or equipment required to perform his or her work cannot bring the employee’s wages below the minimum wage. Therefore, employers must reimburse employees for business-related expenses to the extent those expenses would do so.
However, nothing in the FLSA or its regulations expressly requires that mileage expenses be reimbursed at the IRS mileage rate. Throughout these lawsuits, the source plaintiffs cite for their argument appears in the DOL’s internal agency handbook for its investigators, called the “Field Operations Handbook” (FOH), Ball and Griffaton observe.
The FOH states that, as an enforcement policy, the IRS standard business mileage rate may be used in lieu of actual costs and associated recordkeeping to determine or evaluate the employer’s wage payment practices for FLSA purposes.”
Some courts have adopted plaintiffs’ arguments and held that the FOH requires that employers choose between reimbursing delivery drivers’ actual expenses or reimbursing at the IRS standard rate, the attorneys point out.
The Labor Department’s Aug. 31 opinion letter states, “the FOH does not establish a binding legal standard on the public and is not a device for establishing interpretive policy.” However, the letter is not binding on the courts. A court may find the letter to be persuasive and adopt its reasoning and conclusions. It also could disregard DOL’s reasoning and continue to apply the language in the FOH.
It is also possible that a court would review the applicable regulations and determine on its own that reimbursement at the IRS standard rate is “reasonable” and, therefore, required by the regulations, explain Ball and Griffaton.
In the letter, DOL confirmed that the plain language of the regulations permits employers to reimburse a reasonable approximation of expenses incurred for the employer’s benefit instead of the actual amount of expenses incurred. An employer may use “any appropriate methodology” in order to do so.
A reasonable approximation is important because precise calculations may not be practical, or even possible, depending on the nature of the expense, DOL says. For example, it agrees that it may not be possible to calculate things like exact depreciation, fuel usage and other items with precision—at least not without extraordinary effort—particularly with mixed personal and business usage.
DOL confirmed that nothing in the regulations requires an employer to track the employee’s actual expenses.
DOL confirmed that “the plain language of the regulations also allows employers to reasonably approximate an employee’s expenses through methods other than the IRS business standard mileage rate—a rate that is itself only an approximation of the expenses incurred to operate a vehicle.”
The department also explained that “a regulation that explicitly allows employers to approximate expenses at a rate lower than the IRS standard rate cannot be read to require employers to use the IRS rate.” As a result, Ball and Griffaton emphasize that the IRS rate is optional, and definitely is not required.
DOL also clarified the extent to which an employee’s fixed and variable expenses must be reimbursed. For delivery drivers, a fixed expense is one that must be paid whether or not the vehicle was used to make a delivery, like a vehicle registration fee. Variable expenses would include the cost of gas used to make deliveries.
DOL explains that “generally, employers must reimburse expenses an employee incurs on its behalf or that an employee is required to expend primarily for the employer’s convenience. It need not reimburse expenses normally incurred by the employee for his or her own benefit.”
The attorneys say this means that when the employee’s vehicle is not solely a tool of the trade, employers would be required to reimburse only the variable expenses attributable to the employee’s use of the vehicle for the employer,
For example, if an employee drives an extra 250 miles making work-related deliveries, the gasoline, maintenance and depreciation costs attributable to those 250 miles are incurred primarily for the employer’s benefit rather than for the employee’s own benefit, and as such must be reimbursed.
Because the opinion letter is an official interpretation, an employer may rely on it as a defense to liability for FLSA claims on a charge of failing to properly reimburse employee expenses. However, the court would ultimately decide the parameters of any such defense, Ball and Griffaton warn.