Employee or independent contractor?
Trucking companies often like to call their drivers “independent contractors” for various reasons. First main reason is tax advantage: Independent Contractors are responsible for the entire part of their Medicare / Social Security taxes. They are exempt from state workers compensation. There is also the doctrine of imputed tort liability and the trucking company is not legally responsible for the actions of the drivers.
There are many factors involved in making a determination of whether a particular truck driver is an employee or independent contractor of a particular trucking company. These factors have to be applied on a case by case basis, and there are many gray areas where one factor points one way, and another factor points in the opposite direction. That is why hiring experienced trucking accident attorneys can be so important, to help sort this information out.
Here are some factors courts typically look at in making the determination:
- The trucking company’s “right to control” the details of the driver’s work performance (whether exercised or not)
- Whether driver can set own hours for work or not
- Whether driver can decline certain loads or jobs
- Whether the driver or the company establishes routes
- How the truck driver is paid, whether hourly, weekly, by the mile, percentage of gross revenue, etc.
- Whether the driver can also contract with other trucking companies
- Whether driver must wear a uniform
- Whether driver must adhere to company standards and/or attend safety meetings required by the company
- Whether driver must return the equipment to the company at the end of each day or may keep it at his home or wherever else he chooses
- Wording in the contracts between the driver and trucking company
Let’s take a common scenario in the trucking industry: ABC Trucking operates as a motor carrier and it classifies all of their drivers as independent contractors (IC):
- ABC Trucking determines the order of pick up and delivery as well as days the drivers worked
- ABC Trucking pays the driver a percentage of the gross pay per load
- The agreement with each driver expressly stated that the driver was an independent contractor, not an employee
- ABC Trucking pays for trucks, maintenance and operating costs
- Drivers have the freedom of choosing their routes, as long as deliveries are made on time
- Drivers are responsible for payment of income taxes, social security / Medicare and they receive a Form 1099 from ABC Trucking
In the recent years, many trucking companies, just like ABC Trucking, have come under scrutiny from state and federal agencies. Agencies like the IRS or your State’s Workers Compensation board can and will challenge the independent contractor classification. Once a driver is classified as an employee, the trucking company would be responsible for the employer’s share of payroll taxes (6.2% Social Security, 1.45% Medicare), paid time off, disability, plus the cost to provide workers compensation.
Let’s say an average driver makes $50,000/year. Reclassification to an employee status could cost the trucking company the following:
$3,100 in Social Security taxes (employer portion)
$725 in Medicare taxes (employer portion)
$6,000 for Workers Compensation insurance (assuming $12 rate for every $100 in payroll)
Plus prior year taxes, penalties, and increased cost to comply with labor and healthcare regulations.
For a trucking company with 20 drivers, this means over $200,000 in additional expenses, not calculating your legal, HR and compliance expenses.
Here are the factors the IRS and state agencies can take under consideration in determining whether a driver is an employee or an owner-operator:
Control. ABC Trucking was in complete control of their drivers’ work. Drivers only determine their routes.
Ownership of equipment. The drivers did not own the trucks. They did not have valid and enforceable lease purchase agreements.
Driver’s Profit or Loss. Since drivers did not own any trucks, they did not have “stake in the game”. They did not have any investment in the business and no chance of losing money.
Work Integral to Business. The work of independent contractors is often peripheral to the business; for example, an insurance agency would hire an IT professional to manage their networks (independent contractor). Since the work of the drivers is integral to the trucking business, there is clearly an employer-employee relationship.
Existence of agreement. Even though there is a written “independent contractor” agreement between ABC Trucking and the drivers, the existence of a contract is not enough to substantiate independent contractor status.
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