Jeffrey H. Ruzal, Member of the Firm in the Employment, Labor & Workforce Management practice, in the firm’s New York office, was quoted in SHRM, in “DOL Gives Employers Options for Reimbursing Delivery Drivers,” by Allen Smith.
Following is an excerpt:
The IRS business standard mileage rate is optional, not required by the Fair Labor Standards Act (FLSA), when reimbursing delivery drivers, the Department of Labor (DOL) stated in an Aug. 31 opinion letter, one of four recently issued. …
Pizza delivery drivers don’t have to be reimbursed for actual expenses, but instead may be paid a reasonable approximation of the costs of using their personal vehicles for a business, the DOL said in FLSA2020-12. The IRS annual standard mileage rates are not the only way for employers to determine the reasonably approximate expenses, the DOL stated. …
A reasonable approximation may be important because “precise calculations may not be practical, or even possible, depending on the nature of the expense,” the department said. For example, it may not be possible to calculate exact depreciation or fuel usage, particularly when a car is driven for personal and business purposes.
The IRS business standard mileage rate is not legally mandated by DOL regulations but is presumptively reasonable, the DOL stated.
The department noted that the IRS standard is only an approximation of the expenses incurred to operate a vehicle. Moreover, the regulations explicitly let employers approximate expenses at a lower rate than the IRS’ standard rate.
The employer seeking an opinion from the DOL suggested several different methods that might be reasonable approximations of a delivery driver’s actual 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.
- A percentage of the net sales of a driver’s deliveries.
The DOL declined to approve any of these methods but said “to the extent that some or all of these methods may reasonably approximate actual business expenses incurred by employees under certain expenses, they will comply with the act.”
Nonetheless, the DOL said that a percentage of the net sales of a driver’s deliveries is unlikely to be a bona fide reasonable approximation. “A driver’s net sales amount appears to have no bearing on the vehicle expenses that [a] driver incurs to deliver orders,” the department stated.
This opinion letter may be relevant for certain expenses incurred by employees who work from home and use the Internet for work due to the COVID-19 pandemic. “It would likely be difficult, if not impossible, for employees to exactly apportion the amount of Internet usage for work and personal use,” said Jeffrey Ruzal, an attorney with Epstein Becker Green in New York City. “Accordingly, employers can craft policies that provide for a reasonable approximation as reimbursement for work-related Internet usage,” except perhaps in states such as California and Illinois, where a greater degree of precision in determining reimbursements may be required.