At a time when the food service industry is more focused on its delivery-driven business than ever, the Department of Labor’s (“DOL”) newly issued guidance on mileage reimbursements to delivery drivers could not have come at a better time. The letter clarifies that multiple different methods of calculating mileage expenses may be deemed acceptable, and that fixed expenses (such as vehicle registration and license fees) generally do not have to be reimbursed.
The Fair Labor Standards Act (“FLSA”) requires employers to reimburse their non-exempt staff for mileage expenses if the cost of those expenses would otherwise drop the employees’ earnings below minimum wage. In the August 31, 2020 opinion letter (the “Opinion Letter”), the DOL clarified a point that has been a source of confusion for many: for what exactly is the business on the hook and how is it calculated? Particularly for situations in which employees utilize their vehicles for both personal and business use—such as pizza delivery drivers—calculating actual mileage expenses can be cumbersome. For example, it may be difficult to calculate exactly how much fuel a driver used during his shift or how much his vehicle depreciation should be attributed to a particular delivery route. Under DOL guidance, employers may use the Internal Revenue Service (“IRS”) business standard mileage rate (57.5 cents per mile for 2020) as a safe harbor, but the Opinion Letter makes clear there are certainly other reliable and reasonable means by which to calculate reimbursement of expenses. This is a key point for employers of delivery drivers, as the actual mileage expense may, in many cases, be significantly lower than the IRS standard rate.
The author of the request for the Opinion Letter posed four potential methods for approximating a delivery driver’s expenses:
- A flat rate per delivery based on the average miles driven per dispatch and the average vehicle expenses per mile;
- A mileage rate customized to the employer and averaging costs among that employer's drivers;
- A fixed and variable allowance, which is used by the IRS and is based on fixed and variable payments calculated from local data; and
- A percentage of the net sales of a driver's deliveries.
Though the DOL declined to provide blanket approval for any of these methods, the DOL recognized that different employers within different geographical regions serving different populations may have very different “data…inputs, processes, formulas, or other methods from which [their] approximation is derived,” and each may be acceptable based on the particular circumstances. The DOL did note that a percentage of net sales alone appears, on its face, unlikely to be deemed a reasonable method of calculation given that net sales tend to have “no bearing” on fuel usage or wear-and-tear to the vehicle. Whatever method an employer chooses, consistency is key, and documentation is imperative. Remember to keep all records used in calculating those reimbursements and have your calculation methods reviewed by counsel.
Notably, the Opinion Letter also discusses an employer’s obligation to reimburse its delivery staff for certain fixed expenses, like vehicle registration and license fees, that a driver would incur regardless of employment. According to the DOL, a requirement to reimburse such fixed expenses will depend on whether those expenses were “incurred primarily for the employer’s benefit,” going on to state 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.” (Emphasis added.)
The full Opinion Letter can be viewed here, but readers are encouraged to seek legal advice to ensure full compliance with the FLSA.