The FLSA "Kick Back" Rule Can Kick You In The Pants
I recently had a client ask if the Fair Labor Standards Act (FLSA) required him to reimburse employees for mileage for using their own vehicles to drive to and from mandatory training. Although many employers reimburse their employees for the employees’ use of their personal vehicles for work-related travel, you are not required to do so under the FLSA. The FLSA requires employers to pay their employees a minimum wage, but it does not address reimbursement of expenses.
There is a narrow exception, however. Under the FLSA, an employee’s wages must be paid unconditionally or “free and clear.” What this means is that if an employee is required to pay back a portion of the wages, either directly or indirectly, and that “kick-back” puts the employee’s final, free and clear wages below the minimum wage, then the employer has violated the minimum wage requirement of the FLSA.
This so-called “kick-back” rule comes up fairly often in cases of delivery drivers who use their own vehicles. You need to particularly be aware of it when an employee who makes at or near minimum wage is required to use his or her own vehicle for the benefit of the employer.
For example, suppose you have an employee who makes the minimum wage of $290 per week ($7.25 per hour for 40 hours). You require the employee to use his own vehicle for work-related purposes, and this travel costs the employee a mere $10 per week. By requiring the employee to kick back this $10 for your benefit, you have effectively paid the employee only $280 for 40 hours, or an effective wage of $7.00 per hour. You could then be found to have violated the FLSA.
This rule can also come into play with employees who make substantially more than the minimum wage but must do significant, work-related travel with their personal vehicles. Suppose an employee makes $10 per hour, or $400 per week. But this employee spends $125 per week in travel for work (and these days, that’s only a couple of tanks of gas). Subtracting the $125 she has kicked back for the employer’s benefit from her wages, the employee has only made $275 per week, or $6.88 per hour.
Bottom Line: Although you’re not necessarily required to reimburse employees for mileage, when you’re dealing with employees who make at or near the minimum wage, or who do substantial travel for.