“I pay most of my employees minimum wage for the time they work. When I ask them to run errands for me or to go somewhere for the business, they use their personal car and I reimburse them $1 per trip. I figure it averages out okay. Are there problems with this calculation?”
My HR Survival Tip
You probably haven’t heard about the trouble Domino’s Pizza has been having, have you? They are in the middle of a lawsuit regarding the FLSA kickback rule. FLSA is the Federal Labor Standards Act, which governs Federal wage and hour law. The kickback rule is not well known but it could affect you and anyone who has employees using their own vehicle when travel is involved.
Domino’s required employees to use their own car for deliveries and paid a flat $1 for each delivery. When employees looked at the actual distance they drove and calculated the mileage using the IRS rate, they were coming up an average of $1.30 short per delivery.
Why is this important? Because you are required to pay employees at least minimum wage and if the employee must pay for something work-related out of their own pocket, they aren’t grossing minimum wage. I know most of you do reimburse employees for expenses, even if it’s just to maintain morale. The FLSA isn’t a law that requires you to reimburse employees (but the IRS may have a different opinion) but this law does enforce minimum wage.
The FLSA is concerned about an employee receiving wages that are “free and clear.” If the employee must put some of their money toward a business expense that isn’t reimbursed, the amount of that expense is basically “kicked back” to the company. So if your employee’s cost for running that errand was $2 and you only pay $1, the employee has kicked back $1 to you. Domino’s employees claim they are giving a kickback to the company of $3.25 per hour, taking them below minimum wage.
If the employee ends up making less than minimum wage after the kickback(s) are calculated, you have a big problem. The FLSA’s concern is with that kickback rule, which can be triggered:
- through deductions from the employee’s wages to pay for an expense that was for the benefit of the employer; or
- by failing to reimburse an employee for those expenses.
This FLSA kickback rule comes up frequently in situations where there are delivery drivers who use their own vehicles, a technician who drives their own truck, a maintenance worker who purchases his own tools, or a production worker who purchases uniforms, for example.
Employees cannot waive their right to receive minimum wage, directly or indirectly. If you are forcing employees to pay for anything (and not fully reimbursing them), remember this kickback rule and do your math!
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