The first part of this series on some of the compensation challenges faced by delivery-centered brands focused on the need for operators to remain compliant with the Fair Labor Standard Act. In this second and final part, you'll learn from one personal experience why it can pay big to prepare now for the possibility of an FLSA-related Department of Labor audit.
Mileage reimbursement is a growing area of problems being uncovered by U.S. Department of Labor audits of pizza and other delivery-centric companies. While many operators may pay their drivers based on a percentage of sales or even a flat rate, if your restaurant brand is targeted for a DOL audit, the agent may request all the reimbursements you've paid out through those previously mentioned methods, be converted instead into mileage rate equivalents. This is being requested so the DOLy can determine whether drivers were properly paid.
For multi-unit franchises with hundreds of drivers and vehicles, this kind of calculation can be a daunting challenge. Problems occur with FLSA compliance when the combination of drivers' wages and drivers' reimbursements — minus expenses for operating their vehicles — fails to equal minimum wage.
A daunting task
As a former multi-unit restaurant franchisee in Ohio, I faced just such an audit, focused on delivery driver reimbursement. The DOL — which oversees the enactment of FLSA requirements — asked me to convert all reimbursements paid as a percentage of sales over the previous two years into a mileage rate equivalent. With more than 100 drivers in my fleet, this was a challenge to say the least.
I set out to develop a method to document and calculate a comparable mileage rate to determine my own compliance. I took information from Kelley Blue Book, Edmunds.com and other reputable sites, and outlined key data for each of the vehicles used for delivery. The data included fair market value, miles per gallon and annualized cost to maintain the vehicles.
I looked back at all my records over the two-year audit period and reviewed a sample size of 1,300 deliveries. I then documented the annual costs for more than 100 makes and models of vehicles to determine their exact mileage reimbursement rates. I was able to calculate an average number of miles per hour of delivery time for each driver.
"The DOL ... asked me to convert all reimbursements paid as a percentage of sales over the previous two years into a mileage rate equivalent. With more than 100 drivers in my fleet, this was a challenge to say the least. "
The process also included:
• Tracking and mapping each of the 1,300 deliveries to calculate actual miles traveled per delivery.
• Using clock-in and clock-out times for each driver to calculate daily hours worked to ultimately determine number of miles driven per hour.
• Reviewing payroll reports to show the amount each driver was actually paid.
The process of calculating the mileage took two weeks of 12-hour days, after which I loaded all data into a spreadsheet to determine that a 33-cent-per-mile average rate should have been used to reimburse drivers. At the time, the IRS standard rate was 56.5 cents per mile.
I provided the information and calculations to the DOL. Following a two-month investigation, the 33-cent-per-mile rate was permitted to determine back wages.
"Originally, the DOL levied a back-wage payment of $86,000. But, since I provided adequate documentation and evidence, my payment was only $26,000, a savings of more than $60,000. "
The moral of this story: Build a future-safe methodology now
After the DOL reviewed my payroll records, it was determined that some of my drivers were owed back wages. Drivers with a wage shortfall from my four restaurants were paid based on the agreed upon 33-cent-per-mile rate.
Originally, the DOL levied a back-wage payment of $86,000. But, since I provided adequate documentation and evidence, my payment was only $26,000, a savings of more than $60,000.
In addition, I received a verbal commitment that my method to calculate mileage reimbursement rates could be used for future drivers as long as I maintained adequate documentation and evidence for each vehicle in my fleet.
From my experience, I identified the critical need to have a system in place to accurately calculate and document mileage rates for delivery driver reimbursement and I developed a cloud-based solution called Mileage Scout that other restaurant operators can use to calculate and document their driver mileage reimbursement rates to both save money and comply with current legal standards.
Being prepared with the right documentation is the key to ensure compliance now and in the future. With an increasing number of audits focused on mileage reimbursement, owners need a solution that simplifies the record-keeping and documentation for the drivers and the vehicles in their delivery fleets.
But the bottom line is that by complying from the outset, operators will always have the records and information they need to respond quickly and accurately to any request. And perhaps most importantly, that could save their businesses lots of cash that could be put to far better use.
Brian Schaaf is an entrepreneur and former multi-unit restaurant owner with over 15 years in the restaurant industry. Having successfully settled a Department of Labor audit, Brian created Mileage Scout to help other restaurant owners properly calculate and document the mileage reimbursement rates that are owned to their drivers so they can comply with legal standards atthe lowest legal rates. MileagesSout.comwww