Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
On August 31, 2020, the U.S. Department of Labor’s Wage and Hour Division (WHD) issued an opinion letter finding that employers of delivery drivers need not reimburse mileage at the IRS “standard” reimbursement rate.
Under the Fair Labor Standards Act (FLSA), employers are required to pay non-exempt employees at least the minimum wage for all hours worked and overtime pay for hours worked over 40 in a workweek. The cost an employee incurs for tools, uniforms or equipment required to perform the work cannot bring an employee’s wages below the minimum wage. Employers, therefore, must reimburse employees for business-related expenses to the extent that such expenses would bring wages below the minimum wage.
Food delivery and other companies that employ drivers have faced class and collective actions alleging that drivers who earn at or near the minimum wage were not adequately reimbursed for automobile expenses. Existing WHD guidance provides that reimbursement at the IRS mileage rate complies with the FLSA, but some plaintiffs argued that reimbursement at the IRS rate was legally required.
The WHD’s new opinion letter makes clear that employers are not required under the FLSA to reimburse delivery driver auto expenses at the IRS rate. Instead, an employer may reasonably approximate an employee’s actual expenses through other methods. The guidance does not approve or disapprove of other proposed methods of approximation, but it explains that the FLSA and WHD regulations do not limit the sources an employer may consider to determine whether a reimbursement reasonably approximates actual expenses.
In addition, the guidance specifies that employers need only reimburse delivery drivers for variable expenses attributable to the employee’s use of the vehicle for work. For example, if an employee drove an extra 250 miles primarily for the employer’s benefit, rather than for the employee’s own benefit, the variable expenses that the employer would be required to reimburse would be the gas, maintenance, and depreciation costs of the vehicle attributed to those 250 miles. Thus, it is likely that fixed expenses – such as lease payments, insurance (to the extent an employer does not require an insurance rider or greater coverage than state law), sales and use taxes, vehicle registration and license fees, and driver’s license fees – could be excluded from the expense calculation.
Moving forward, because the opinion letter is an official interpretation, an employer may rely upon it for the complete Portal-to-Portal Act Section 10 defense against all monetary liability for FLSA claims. That is, a court can order an employer to change its practices going forward, but cannot award any back pay or other monetary damages if the employer relies on the letter in good faith to establish its reimbursement policy. Employers with questions on how to establish a good faith defense to FLSA claims based on the new opinion letter should consult with counsel.