The Wage and Hour Division (WHD) of the United States Department of Labor (DOL) recently issued a letter that examines the nature and scope of non-exempt employees’ right to receive reimbursement for expenses related to use of a personal vehicle for work. (Opinion Letter FLSA2020-12)
A company that employs delivery drivers who use their personal vehicles to transport pizza and other types of food asked several questions relating to whether employers have to reimburse such employees for personal vehicle expenses in order to comply with the Federal Labor Standards Act (“FLSA”). These questions concerned issues such as whether reimbursements must be based on actual expenses; whether the Internal Revenue Service’s (IRS) annual standard mileage rates are the only way employers can reasonably approximate such expenses; whether alternative methods and data sources for approximating expenses should be allowed; and whether drivers who use personal vehicles for deliveries should be reimbursed for fixed vehicle expenses (e.g., registration fees, license fees, and insurance costs, etc.) in addition to variable expenses (e.g., gas, oil, routine maintenance, and repairs, etc.)
In general, the FLSA requires that covered employers pay non-exempt employees no less than the federal minimum hourly wage for all hours worked in each workweek. See C.F.R. § 29 U.S.C. § 206 These wages must be provided “free and clear.” The DOL notes that whether expenses may count toward an employee’s wages depends on whether the expenses were incurred primarily for the benefit of the employee versus the employer. Expenses that primarily benefit the employee may include “reasonable cost” of “board, lodging, or other facilities,” whereas expenses that benefit the employer typically include tools of the trade, required uniforms, or required use of a personal vehicle. However, an employer may violate the FLSA when the costs of expenses incurred for the benefit of the employer are not reimbursed and cause the employee’s wages to fall below the minimum wage rate. Lastly, the FLSA imposes certain recordkeeping requirements on expenses that employers must track in order to later properly add or deduct from employees’ wages.
DISCUSSION
The DOL concluded that the delivery drivers at issue may receive reimbursement based on a reasonable approximation of costs instead of actual expenses. The DOL reached this conclusion because, based on its plain language, the regulation contemplates that reasonably approximating expenses is justifiable. See C.F.R. § 778.217(b)(3) The DOL noted that a thorough explanation of this reasoning is addressed in the case of Wass v. NPC International, Inc., (D. Kan. 2010), where an employer was allowed to reasonably approximate an employee’s vehicle expenses without affecting the amount of the employee’s wages under the federal minimum wage law. Additionally, the DOL reasoned that precise calculations may not be practical or even possible depending on the expense. The DOL also noted that reimbursing a reasonable approximation of costs is supported by the FLSA’s recordkeeping requirements, which mandate only that employer’s keep record of “the dates, amounts and nature of the items” that count as additions or deductions from an employee’s wages—not their “actual expenses.” 29 C.F.R. § § 516.2(a)(10)
Similarly, given the plain language of the regulations, the DOL concluded an employer may calculate reimbursement expenses based on the IRS business standard mileage as the regulation permits employers to reasonably approximate expenses via other methods. The DOL reasoned “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.”
Additionally, the company asked whether employer’s must use the Field Operations Handbook (“FOH”), an “operations manual” that provides WHD investigators and staff with policies already “established through changes in legislations, regulations, significant court decisions, and the decisions and opinions of the WHD Administrator,” for approximating delivery derivers’ reimbursable expenses. Some courts have found that the FOH only provides employers with two choices— reimbursement to an employee at total costs or at the IRS rate. While the FOH does provide for these two ways to calculate expenses, it does not preclude the reasonable approximation of expenses via other methods—including reimbursements at the same or less than the IRS rate. See 29 C.F.R. § 778.217 (c)
The company asked the DOL to approve certain listed methods; however, the DOL declined to opine on whether they complied with the FLSA. This is because whether a particular method (complied with the FLSA) will depend on circumstances in each case. While the DOL does not endorse any particular method of approximating employees’ expenses for reimbursement, it notes that the FLSA is flexible when it comes to the issue and only requires that a method reasonably approximate the employee’s actual expenses.
Lastly, the DOL concluded that there may be varying instances in which fixed vehicle expenses must be reimbursed by the employer; this will depend on whether they primarily benefit the employer versus the employee.
FINAL TAKEWAY
The opinion letter makes clear that employers have some flexibility in how they calculate and reimburse expenses for personal vehicle use by employees. The DOL concludes that sometimes fixed expenses, like variable expenses, can be for the benefit of the employer and not the employee. What, if anything, this opinion letter means for employees engaged in delivery services remains to be seen. Stay tuned for more developments.