Are You Reimbursing Your Delivery Drivers in Compliance with Labor Laws?
Restaurants and food franchisees have faced a growing demand for faster delivery service, resulting in increased awareness of how delivery drivers are being reimbursed for their trips to and from hungry consumers. As a result, there’s more pressure on owners to ensure their mileage reimbursement rates are compliant with both federal and state labor laws. Failure to fairly and accurately reimburse drivers can expose franchisees to potentially costly lawsuits.
So, what do franchisees need to know to maintain compliance with labor laws, and what tools can help them get there?
Understanding Labor Laws and How They Put You at Risk
Under the Fair Labor Standards Act (FLSA), employers are required to pay their employees minimum wage. Many workers in the food service industry are minimum wage employees, including delivery drivers. What separates delivery drivers from their in-store colleagues is that they rely on a vehicle to fulfill their job responsibilities – and in most cases, drivers choose to use their own car. This means drivers are not only using their own fuel to make deliveries on behalf of the franchise, but they are also footing the bill for any maintenance, oil and tire wear costs that are associated with driving for business. If you’re paying an employee at or slightly above minimum wage, these additional costs can very easily create a minimum wage law violation if not properly reimbursed.
Why is this? Because “wage” is calculated by taking an employee’s earnings and subtracting any unreimbursed costs they incur that are necessary to perform their duties. So, as a simplified example, let’s assume that it costs your minimum-wage employee one dollar per mile to operate a vehicle. If you only reimburse 95 cents, you’ve now knocked them 5 cents below the minimum wage. This shortage, multiplied by the number of miles your delivery personnel drive each week, means your employees could be racking up hundreds of unreimbursed dollars of job-related costs– costs that cause their paychecks to fall well below minimum wage, and could expose you to litigation and government penalties.
An example of such a violation occurred in 2013, when 300 delivery drivers brought a case against a Jimmy John’s Gourmet Sandwich franchisee for allegedly violating the Fair Labor Standards Act. The drivers claimed they were made to pay for costs incurred while delivering sandwiches to customers, including gasoline, vehicle parts and fluids, automobile repair and vehicle insurance and maintenance, which effectively brought their pay below minimum wage. Jimmy John’s ultimately entered a costly settlement with its drivers, in addition to paying over $70,000 in legal fees and costs.
Maintaining Additional Compliance with State Labor Laws
In addition to federal laws such as the FLSA, franchisees need to adhere to the labor laws for the state in which they operate. States often have even stricter employee-protection laws that outline specific requirements for expense reimbursements or deductions. These laws have formed the basis for numerous class action lawsuits and multi-million dollar settlements by franchisees.
Of all the states in the U.S., California has long been known to have some of the most intricate labor laws, one of which is California Labor Code Section 2802. In simplest terms, this law states that employees should be reimbursed for each and every expense they are subjected to in the course of their employment. This places a higher burden on franchisees to track and reimburse all expenses, as this requirement comes into play regardless of the employee’s wage.
Similar laws requiring expense reimbursement are also in effect in many other states, including Massachusetts, North Dakota, South Dakota and New Hampshire, and, effective January 1, 2020, in Illinois.
IRS Rate Isn’t Enough
Many employers choose to reimburse their drivers for reasonable expenses using the IRS business mileage standard. While this complies with federal labor laws, the likelihood that drivers will be inaccurately reimbursed is high.
This is because the standard business mileage rate is a fixed, nationally averaged rate that is calculated once each year, based on the previous year’s average costs of operating a vehicle.
Because the IRS rate is not based on current prices or location-specific costs, and vehicle costs like insurance, fuel and vehicle registration vary substantially by geographic area, a flat mileage rate translates to inequitable reimbursements where some drivers win and some drivers lose. (The driver in San Francisco is underpaid relative to her counterpart in Omaha.) Furthermore, franchisees using the IRS rate can still under-reimburse employees in higher cost areas – leaving themselves open to the possibility of employment lawsuits.
Technology: Giving Franchisees Peace of Mind
The most accurate way to reimburse drivers is to leverage data based on each individual, calculating reimbursement rates that most accurately reflect the driving costs each driver incurs. Calculating mileage reimbursement rates manually, however, is a time-consuming process that could lead to reimbursement inaccuracies. This is where technology can help.
Implementing mobile GPS technologies that integrate geographically-specific costs of driving allows franchisees to document exactly where their delivery drivers drove, and the mileage expenses required to get there. These technologies record data automatically in real-time – eliminating any guesswork, fraud or inaccuracy in mileage reporting – and allow franchisees to have data that defends the reimbursement rate they use for each driver. Above all, technology gives franchisees peace of mind knowing they are abiding by the law.
Danielle Lackey is General Counsel for Motus, the definitive leader in mileage reimbursement and driver management technologies for businesses with mobile workers. At Motus, Danielle is responsible for all of the company’s legal affairs, and also serves as executive sponsor of initiatives that bolster IRS and legal compliance for Motus clients.
Downloas the Fair Labor Standards Guide