DOL sheds light on expense reimbursements

The amount of business expense reimbursements an employer excludes from overtime calculations must “reasonably approximate” the actual business expenses that employees incur on behalf of their employer, the US Department of Labor (DOL) says.

In Opinion Letter 2024-01, the DOL responded to an oil and gas company that asked whether it could exclude from the regular rate of pay payments to some of its inspectors to reimburse them for the use of their personal cell phones, cameras, computers and other gear. On recent projects, the company had paid inspectors reimbursements of $25 per day. It wanted to know whether it could bump those payments up as high as $150-$200 per day without running afoul of the Fair Labor Standards Act (FLSA).

Because $150-$200 per day would be six to eight times greater than the $25 per day the company currently provides and because the company gave no indication that its inspectors actually incur such significant ongoing expenses when using their personal equipment for work, the DOL opined that these payments would likely violate the FLSA.

Employers that provide excessive expense reimbursements may still exclude from the regular rate of pay the actual or reasonably approximate amount of an employee’s incurred expenses as long as they include the remaining amount, the DOL added. For example, if the employer paid its employees $150 per day but the actual expenses incurred were $25 per day, then the employer could still exclude $125 per day from the regular rate of pay.

The FLSA is “flexible” and does not require or endorse a specific method to approximate employees’ expenses for reimbursement, the DOL said. Whether a particular method approximates actual expenses will depend on the circumstances in each case.

For example, the DOL said in a 2020 opinion letter that employers can reasonably approximate an employee’s expenses for business use of their personal vehicle through methods other than the IRS business standard mileage rate.

The employer in that letter had proposed several alternatives such as a flat rate, a mileage rate customized to the employer and averaging costs among that employer’s drivers, and a fixed and variable allowance based on payments calculated from local data. The DOL neither approved nor disapproved of any of these methods, saying only that they would comply with the FLSA to the extent that they reasonably approximated actual business expenses.