DOL Provides Guidance on Reimbursement for Business-Related Use of Personal Property
The U.S. Department of Labor recently released an opinion letter, FLSA2020-12, that offered employers guidance on the common issue of reimbursement of an employee’s use of personal property, such as a personal vehicle, for business purposes. Opinion letters respond to a specific employer’s inquiry, but may be relied upon by other employers with regard to the topic at issue.
Under the Fair Labor Standards Act (FLSA), employees must receive wages, paid at no less than the minimum wage rate and “free and clear.” Wages include the reasonable cost of board, lodging and “other facilities” primarily for the benefit of the employee, but not such items that are primarily for the employer’s benefit. The cost or expense of those items, which may include tools of the trade, required uniforms, or the use of a personal vehicle, may not reduce the employee’s wages below the minimum wage rate, including any required overtime premium.
Recordkeeping. Employers are not required to keep records of an employee’s expenses, but are required to record “the dates, amounts and nature of the items” that result in deductions or additions to a non-exempt employee’s pay. This includes records used to determine “the original cost, operating and maintenance cost, and depreciation and interest charges” to the extent that such costs are involved in the deductions or additions to pay.
“Any Method” That Reasonably Approximates Expenses is Acceptable. Under the FLSA, reimbursement of expenses incurred on the employer’s behalf or for the employer’s benefit is sufficient if it “reasonably approximates the expenses incurred.” With regard to the reimbursement for a delivery driver’s use of their personal vehicle, the DOL states that reliance on IRS guidelines for such reimbursements, including the annual standard mileage rate” “is per se reasonable.” But the DOL makes clear that the IRS rate is not the only method of reasonable approximation. The employer here sought the DOL’s input on various other methods and sources of data used for calculating the reimbursement; the DOL, however, refused to provide such specific approval (although it did note that using a percentage of the net sales of a driver’s deliveries is unlikely to be a reasonable approximation of expenses). Instead, the DOL notes that, to the extent any method reasonably approximates business expenses, it would be acceptable, and that each determination would depend on “a myriad of particulars.” The DOL further observes that costs (such as gas prices) may vary by geographic area, potentially rendering national data averages of “little practical use.”
Reimbursement for Fixed and Variable Expenses. The DOL states that whether reimbursements must include fixed expenses (i.e. costs that do not vary with the amount or way the asset is used – in the case of a vehicle, insurance, depreciation, registration and license fees, etc.) depends on whether the item is solely a tool of the trade (i.e. used primarily for the employer’s benefit). In situations where there is mixed personal and business use, the employer is required to reimburse only the variable expenses. In the case of a personal vehicle, this might include costs that vary with the amount and distance driven, such as gas, periodic maintenance like oil changes and tire rotations/replacement, and depreciation attributable to the business travel.
Of additional interest, in its analysis, the DOL also addresses uniforms v. required dress styles – the costs of required uniforms cannot reduce the wage below the minimum rate, whereas certain required styles of dress that may also be worn outside the job do not require reimbursement. The DOL notes that “the more distinctive the clothing and the more likely an employee would be to find it distasteful, uncomfortable, or inappropriate for everyday use, the more likely it is that the clothing would be found to be a uniform for which the employer would have to pay.”