We charge a standard $2.00 per delivery that goes directly to the driver as compensation for auto expenses. In the past, when we were audited for worker’s comp, this dollar amount was not considered part of our payroll. Reason being, this money did not come from the business, but instead went directly from the customer to the driver. My position was it’s the same as a tip. Well, the insurance company says this is no longer the case. They look at it as a forced tip and therefore it’s treated as part of my payroll. This inflates my payroll substantially, costing me several thousand in additional insurance premiums. Anyone have similar situation and are there any “loopholes” to get around it? Thanks
Exactly the same here, we charge 2.00, it goes to the driver. BUT our insurance company does not charge us that portion. I would shop it around…
The money is “milage”. As long as the driver can show that the amount received was equal to or less than the higher of actual vehicle costs including depreciation and insurance or the federal mileage rate, nothing about it is taxable to anyone. This can require some changes in how you report or reconcille these payments, but it saves money for both the business owner and the employee to do so.
Go back and tell them it is mileage for the business use of the driver’s personal vehicle and it is not a wage or tip and make sure you are jumping the reporting hoops.
better off not charing in the long run.
Just went thru our WC audit and when I questioned the inclusion of the delivery charge thew auditor flipped open the statutory list of inclusions and the DC is included as compensation…in Florida at least. Another thing that has increased our WC bill is Floriduh’s annual increase to the minimum wage. We pay our drivers the minimum wage plus the DC. They’re at $7.67 an hour. They’re a huge chunk of our WC bill, plus they’re a higher rate than cooks and counter help. Do any of you pay them a tip credit wage?
Accountable plan reimbursements
If your employer has a policy that covers reimbursements or allowances for mileage, you need to determine whether the policy is an accountable plan before claiming any deduction. Assuming that all mileage covered under the policy solely relates to your employer’s business, the IRS treats the policy as an accountable plan if you must account to your employer for your business automobile expenses and return any excess reimbursement within a reasonable period of time.
If these conditions are met, your employer doesn’t have to report the reimbursements as taxable wages on your W-2, which means you don’t pay income tax on them. But, since you receive tax-free mileage reimbursements, it means you’re precluded from also taking a deduction for the same mileage expenses. However, if your reimbursement or allowance doesn’t cover the entire expense, you can deduct the unreimbursed portion as if no reimbursement policy exists. Your Form 2106 will show your expenses and the amount of employer reimbursement; the difference between the two will be your deduction.
Other reimbursement policies
Your employer may reimburse you for using your car at work, but, if the payments aren’t made pursuant to an accountable plan, your employer has to include them on your W-2. As a result, the reimbursements will be reported on your tax return in the same way as your wages. Although you will pay income tax on your reimbursements, you can deduct all mileage expenses despite receiving reimbursements.
The short version is that using s flat $2.00 per delivery will not work unless you also track miles driven and reconcile with either actual expenses or miles driven.
If you do that, mileage paid is NOT wages and not subject to taxes.
Good point! One of our franchisees just got “class actioned” by a driver who made a claim of not making minimum wage. The owner will eventually win but the store has been closed due to all this. There is no Blackjack Pizza in Grand Junction CO anymore.
Tips are that bad in GJ? Our drivers generally make more than minimum in tips alone! I take it that the store in GJ was not forcing drivers to declare all tips?
We charge a delivery charge… but it is paid to the store not the driver. Mileage is calculated using another method and is not connected to or determined by the amount of the delivery charge. (We also charge the delivery charge for deliveries made in company cars)
Thank you everyone for your responses. We’ve been in business for 10 years and somewhere along the line my accountant had us put the delivery charge on the driver’s paycheck so it was taxable, similar to tips. I forwarded the TurboTax info to my accountant for review. Barring any changes, this will be the first time I’ll have to pay additional premium on my audit due to the mileage charge. FYI…my drivers make $6.00/hour, plus $2.00 Delivery Charge, plus tips and rest assured, they easily make the most money. Granted, gas prices and wear and tear.
Bingo! I was just about to post and saw you pointed it out.
It is CRITICAL not to use mileage as pay. There have been more than one class action on this.
I am familiar with a program that can help calculate a formula in how much you should pay. It is specific to the franchisee/owners operation. Right down to the type of vehicle.
I am not sure if this is available outside of one of the Big 3. But if anyone is interested I can make a call and see if the program is available to others.
It is my understanding the program has been tested and the federal government accepts it calculations.