The Sixth Circuit Court of Appeals is looking at an employer’s delivery driver expense plan. Under federal law a business can reimburse delivery drivers through a reasonable approximation of their expenses rather than using a mileage expense method, as long as the total reimbursement, along with any wages does not reduce the driver’s take home pay below minimum wage.
In the case at hand, two pizza delivery companies (one in Ohio and the other in Michigan) reimbursed their delivery drivers by way of a per delivery fee between $1 and $1.50. The Plaintiff’s allege this method did not cover their costs and as such actually dragged their pay below minimum wage.
Normally the U.S. Department of Labor’s compliance handbook instructs employers to reimburse mileage in accordance with the IRS mileage rate – this year at $.665 cents per mile. This would be in addition to the driver’s wages. Probably what most other employers do for their workers outside of the delivery business.
Employers do not even have to reimburse mileage at the IRS established rate. This too is an approximation of wear, tear, and gas costs and based upon new vehicles not older ones so it is not an exact cost rate.
Employers can reimburse less than the IRS rate and employees could use that low rate to declare the rest on their taxes for a tax deduction. Other employers could pay a greater milage reimbursement than the $.665 cents per mile, but that additional reimbursement would also have to be reported on the employee's taxes with a corresponding tax paid on the excess reimbursement monies.
So what is the problem in this case? The Fair Labor Standards Act (FLSA) states that “reasonable payments for employee expenses on behalf of the employer are outside the wage calculation for both overtime and minimum wage purpose…Still not a problem for most employers. But that regulation would require employers to pay employees at least the federal minimum wage of $7.25/hr. If an employee is paid $7.25 an hour, they cannot be forced to bear the expense of bringing “tools to the job.” In this case, the tool would be the use of their personal car. Under this regulation, when workers “must provide their own tools” this includes the use of their personal automobile. The non-reimbursed cost of those tools has to be included toward payment of the minimum wage.
The facts of this case have apparently not been judicially reviewed before. The judges looked to the DOL’s compliance handbook which is not “interpretive” and also a DOL Opinion Letter issued back in 2020 that backs the proposition that employers can reimburse employees on just a “reasonable approximation” of their “tool” costs.
The Courts’ decision in this case may rely on whether the DOL agency’s opinion can be relied upon as binding and given deference over the arguments of other parties. The concept of Chevron deference by the Courts is also being challenged in other cases and could be overruled by other Courts, including the U.S. Supreme Court – but that is another matter.
For those businesses that use delivery drivers in some capacity, this case may challenge any reimbursement scheme that differs from using the standard IRS milage reimbursement rate. Stay tuned.
Source: LAW 360 Employment Authority. 6th Circuit Unsure of Best Method for Reimbursing Drivers (10/18/2023)