Aug. 30, 2004
The issue of auto reimbursement for pizza delivery drivers has reared its controversial head again, but this time in an unprecedented fashion.
On June 20, seven lawyers representing delivery driver Franklin Castillo filed a complaint in the Superior Court of the State of California (Los Angeles) claiming Pizza Hut, Inc. failed to reimburse him fully for work-related auto expenses.
The seven-count complaint also accuses Pizza Hut of not providing adequate meal and rest breaks and not paying him mandated two-hour shift minimums when he was sent home early.
According to the 14 page complaint, Castillo receives 50 cents per delivery run, which he alleges is well below the actual cost he absorbs operating his personal vehicle on behalf of Pizza Hut.
Lawyers representing Castillo are confident the suit will become a class action representing as many as 1,000 Pizza Hut drivers working the chain's 270 California units. But Pizza Hut senior vice president and general counsel Robert Millen called the complaint "a head-scratcher," and said the company will move quickly to have it dismissed.
"As I understand it, the plaintiff's class action attorneys have literally cooked up a theory where they believe the drivers are owed more money," Millen said. "I don't know of any legal support for that. It seems to be in defiance of the (Internal Revenue Service) regulations on this issue, as
well as the well-established practice in this industry for the past 20 years."
Count the Cost of Driving
According to the American Automobile Association, driving a personal vehicle for an employer's purposes can be costly.
* Driving a four cylinder 2004 four-cylinder Chevrolet Cavalier 10,000 miles a year costs its owner 56.8 cents per mile in wear and tear. Fifteen thousand miles annually costs 44.8 cents, and 20,000 miles costs 39.2 cents.
* For a 2004 six-cylinder Ford Taurus SEL Deluxe:
10,000 = 71 cents/mile
15,000 = 58.4 cents/mile
20,000 = 52.1 cents/mile
* For a 2004 eight-cylinder Mercury Grand Marquis LS:
10,000 = 79 cents/mile
15,000 = 65.4 cents/mile
20,000 = 58.5 cents/mile
Combined national average
10,000 miles = 68.9 cents
15,000 miles = 56.2 cents
20,000 miles = 49.9 cents
Gary Soter, one of Castillo's lawyers, agreed it's a common pizza industry practice to pay drivers 50 cents per order, but he called the practice illegal.
"It violates California law," said Soter. "California law requires employers to reimburse employees for all expenses necessarily incurred in the direct discharge of their responsibilities. Fifty cents per delivery doesn't cover that. Companies know it, and they've been under-reimbursing their drivers for years."
Sebastopol, Calif., attorney Pete Singler, who represents pizza franchisees from multiple concepts, disagreed with Soter's claim that California laws mandate full reimbursement for all auto-related expenses. He said pizza operators have two basic ways to reimburse drivers who use their personal vehicles for work: paying them a straight, per-mile rate based on the IRS's minimum of 36.5 cents; or a set amount per delivery. The latter, he added, can be troublesome to calculate.
"Under California law, if you do the per-stop compensation, the other problem you have is whether they're making minimum wage," said Singler. "What some guys out there are doing is saying they'll pay X amount per stop. But if it turns out their total compensation doesn't add up to minimum wage ($6.75 per hour in California), you've got a problem."
Millen called Pizza Hut's 50-cents not only a "lawful" amount, but one "consistent with IRS rules and labor rules of this area for the delivery of pizzas." He also emphasized that Pizza Hut drivers receive at least minimum wage or above as a base pay, plus tips.
Pizza Hut spokesperson Patty Sullivan added that since the company pays drivers at its corporate stores (franchisees are free to pay more if they choose) 50 cents per customer order delivered — not 50 cents per run as stated in Castillo's complaint — reimbursement per run could be $1 to $1.50. When combined with minimum wage and tips, the total package is fair, she said.
When asked how Pizza Hut arrived at the 50 cent corporate standard, she said she didn't know exactly.
"It's a combination of human resources information and statistics we've compiled, plus we factor in other real-life issues that go into creating that number," she said. "I can assure you it's not arbitrary and that when it comes to compensation, Pizza Hut works very hard to make sure the decision is fair."
IRS media relations spokesperson John Lipold said by phone from Washington, D.C., that he wasn't aware of any government regulations for delivery-driver reimbursement. The IRS has no power to set or enforce reimbursement standards, he said. All the agency can do is set deductions drivers and operators are allowed to take on their tax returns.
"As I understand it, and based on 2004 rules, (drivers) will be allowed to deduct 37.5 cents per mile," said Lipold. "They can do that or they can claim the expenses related to driving their cars, but they can't do both."
How much is fair?
Reimbursement rates at some U.S. pizza operations run as high as $2 per run. But while that may sound generous to some, its just 13 cents higher than a straight IRS-calculated reimbursement based on a five-mile roundtrip delivery. Many drivers motor well beyond that per delivery, while others working in more urban
areas drive less.
To do it per stop makes for an accounting nightmare. We just thought it was simpler to do it by the mile.
-- Attorney Pete Singler (also a Round Table Pizza franchisee) commenting on why his stores pay delivery drivers a straight 36.5 cents per mile.
Either way, it's far less than the American Automobile Association's 2004 cents-per-mile estimates for operating a car (which include charges for depreciation, wear, maintenance and fuel). For example, driving a 2004 four-cylinder Chevy Cavalier 15,000 miles a year will cost the owner 44.8 cents per mile. A six-cylinder Ford Taurus driven the same distance would cost 58.4 cents per mile, and an eight-cylinder Mercury Marquis would cost 65.4 cents.
On a five-mile roundtrip delivery run, pizza delivery drivers behind the wheels of those cars would "spend" $2.24, $2.92 and $3.27 respectively.
Tim Lockwood, a pizza delivery driver and treasurer of the Association of Pizza Delivery Drivers, said the reimbursement issue centers on some operators' desire to avoid shouldering the cash burden required to operate their business independently.
"If they were to pay out the 36 cents a mile, they'd have to pay a lot more up front," said Lockwood. "Pizza Hut would lose the interest they currently make on that money if they did that."
Lockwood said that while any pizza company that paid an IRS mileage rate could reclaim that money on its taxes, most instead put the onus on drivers to do it themselves.
"There's no reason we should have to wait until March for that, because it's our money to begin with," Lockwood said. "It doesn't help us in April if the car breaks down and we're not getting the money we need to fix it until next year's tax refund."
For operational simplicity Singler recommends his pizza clients pay their delivery drivers 36.5 cents per mile.
"To do it per stop makes for an accounting nightmare," he said. "It's simpler to do it by the mile."
"If 36 cents is fair, I'd be grateful for that."