As QSRs rush to deliver, watch out for this costly oversight (Part 1 of 2)
Delivery has become something of a QSR panacea lately as increasing numbers of consumers opt to eat in the office or at home. Quick-serve brands are jumping into the trend with all tires rolling. For instance, just last week, QSR powerhouse, Yum Brands, announced it's partnering with delivery provider, GrubHub, to put Taco Bell and KFC ordering on every phone's speed-dial and every home's table.
Some brands are even considering or already deploying delivery robots and drones, while others have added tricked-out delivery vehicles with warming ovens and other accoutrement to their expanding fleets. And while some partner with third-party services and others add their own drivers, the buzz around this on-the-road trend is very real, and getting moreso each day.
But, before jumping on board this "bus", brands need to consider some of the inherent challenges when employing delivery drivers, including everything from insurance and wages, to driver reimbursement. Under this heading also, one of the most critical challenges which many restaurant owners may not understand revolves around compliance with reimbursement standards as required by the Fair Labor Standards Act (FLSA) and the U.S. Department of Labor (DOL).
Many QSRs, for instance, may not even realize that their current driver reimbursement practices violate FLSA, but a quick Google-based review suggests that lawsuits for this exact violation are on the rise.
While there are not rules about which method of reimbursement to use, employers often get in trouble with the FLSA when the combination of the wages and reimbursement does not equal minimum wage. According to Chapter 30 Section c15 of the FLSA:
"In some cases, it's necessary to determine the costs involved when employees use their cars on their employer's business in order to determine minimum wage compliance."
When employees uses their vehicles for deliveries on behalf of the business, they incur expenses that may reduce their compensation below the minimum wage. When this happens and employers fail to reimburse the full amount of the expenses, companies can be liable under the FLSA.
The Department of Labor — which enforces compliance with FLSA — has been increasing the number of audits it performs every year, while many of those audits are being sparked by employee complaints from those who contend they deserve higher reimbursements.
In fact in 2016, the DOL collected more than $39.7 million in back wages for 44,700 foodservice employees alone. DOL audits are not random, and employers in low-wage industries are frequently targeted for federal wage-and-hour law violations.
Preparation is key
Regardless of how restaurants are reimbursing drivers, preparing for a DOL audit is key to avoiding potentially painful and costly consequences for QSR brands. That's because the best thing you can do to prevent a long and painful audit is to make sure you are paying your workers properly and keeping the appropriate records which the DOL will want as part of any audit.
There is more to compliance, but those two steps will vastly improve your ability to protect your business. Additionally, below are a number of the "best practices" for delivery-based businesses that will go a long way toward ensuring your QSR is FLSA-compliant, even before the threat of an audit arises:
• Review and understand the language of the FLSA to ensure compliance and clear up any areas where you have questions or concerns.
• Properly classify employees so that what they do, and how much they can make is clear.
• Review job descriptions with employees so that what they are doing reflects the individual's true role with the brand.
• Understand state laws, including minimum wage requirements at this level, as well.
• Consider having an attorney perform wage-and-hour audits to ensure employees are being paid fair and accurately.
• Review timekeeping processes to ensure employees' wages are accurately calculated and mileage reimbursements are properly paid.
• Keep accurate payroll records for up to three years quickly accessible so that you can supply them to auditors upon request.
• Consider implementing a GPS system within your POS system to accurately capture drivers' distances and delivery routes.
While QSR owners and operators may not realize that their reimbursement policies and procedures are in violation of FLSA regulations, ignorance of this fact will not diminish the consequences in the event of an audit, which may include back wages and fines.
With the appropriate documentation and technology to accurately calculate reimbursement rates, restaurant owners can protect their businesses, helping them to move forward without the fear and costs brought on by a potentially crippling audit.
It's important to take the necessary steps now to avoid problems moving forward, including a current policy review, recordkeeping improvements and even the consideration of technological assistance with this facet of the business. Next Friday on QSRweb in the second part of this feature, I will detail the process I went through to navigate a DOL audit, and ultimately, how I was able to save my multi-unit franchise business more than $60,000.
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