Trucking & Taxes – November 2021
A truck driver’s status is classified based on a variety of factors. Generally, companies can only classify truck drivers as independent contractors if the truckers have control over how and when they perform their duties.
Yes, a trucker may be misclassified as an independent contractor if the company sets the driver’s hours, controls mileage rates and/or load assignments. The same goes if the trucking company restricts the trucker from working for other carriers.
However, many states have their own employment laws and classifications regarding independent contractors, a truck driver’s employment status may vary between states, especially California.
What are the differences between independent contractors and employees?
Truck driver independent contractors and employees do have the same skill set, yet those classified as employees are entitled to substantially greater benefits and protections.
Independent contractors are truckers hired on for a specific project or job. They can typically complete the work during hours they choose, as well as routes and when to do the job so long as they meet the client’s deadline.
The U.S. Department of Health and Human Services does explain a company has limited control in how an independent contractor performs the job, so long as it is completed on time. Independent contractors are typically paid by the job.
Employees don’t typically have the same flexibility as independent contractors but are paid a set hourly rate and receive various other benefits, such as 401(k), truck maintenance and overtime.
What are the differences between owner-operators and company drivers?
There are a few significant differences between owner-operators and company truck drivers:
Typically, a company driver:
- Doesn’t have control over their own schedule.
- Doesn’t have to pay for truck maintenance costs.
- Does receive steady paychecks.
- Does have job security.
- Doesn’t have to worry about startup costs.
As a company driver, you may earn less money because driving jobs are typically paid based on a set mileage rate. You may have some pay increases over time, but that may be limited. In addition, truck drivers classified as employees usually have less time at home.
Benefits for owner-operator include:
- Potential higher pay rate (there are even certain tax advantages).
- You choose your own equipment.
- Setting your own schedule.
Downside, there are startup costs associated with buying a truck and spending one’s own money to take care of it. You may even find that there is greater stress due to the financial risks and pressures associated with truck maintenance. Also the stress of finding your own loads and/or dependency on the carrier with whom they are contracted to provide you loads. Owner-operators do not receive benefits like health insurance and more through a company and must pay for these things themselves. Also, owner-operators are not guaranteed minimum wage.
Are you wondering if you have been misclassified as an independent contractor?
These are factors that are considered to be the biggest factors used by a court or labor commissioner to figure out whether an owner-operator is an employee or a true independent contractor. Note these are not all the factors but are the most important.
No. 1. Level of control of the driver:
The most important question is how much control a trucking company has over the owner-operator. The more control the trucking company has over the owner-operator, the more likely it is that the owner-operator is an employee.
Some of the examples that show control and employment relationship:
- Company owns the driver’s truck, tells him where he has to go for maintenance.
- Company sets the driver’s schedule (i.e., company requires him to work six days on and two days off).
- Company schedules pickup and delivery of the driver’s loads.
- Company gives the driver preferred routes for his hauls, and if driver wants to change the route, he has to get permission from company first.
- Company instructs the driver on how to deliver loads.
- Company monitors the driver’s truck by GPS.
- Company holds all required licenses in the company’s name.
- Company prohibits the driver from having a passenger.
- Company prohibits the driver from taking any loads for another company.
Some of examples that show no control for an independent contractor relationship:
- Driver works under minimal supervision of company.
- Driver can hire others to haul for him.
- Driver can work any schedule.
- Driver can take any route he pleases.
- Driver has required licenses in his or her name.
- Driver can pull for other companies.
No. 2. Driver’s opportunity to make a profit:
Another factor in the independent contractor vs. employee test is “the alleged employee’s opportunity for profit or loss depending on his managerial skills.”
An independent contractor is basically running their own business. They run that business to make a profit. If the independent contractor thinks that they can make more money by, for example, hiring others or changing routes or using cheaper mechanics, then it is within their discretion to do so. But if there is no real opportunity for the worker to make a profit or loss, then the worker is more likely an employee.
Some of the examples that show an employment relationship:
- Driver cannot choose their own mechanics, tires, fuel or insurance.
- Driver cannot subcontract out their work.
Some of the examples that show a profit opportunity and an independent contractor relationship:
- Driver chooses their own mechanics, tires, fuel and insurance.
- Driver can hire others to perform the work.
- Driver can run the business in order to increase their profit. LL
This article has been presented by TruckerTaxTools.com, a division of Taxation Solutions Inc. – Tax Relief. Barry G. Fowler, EA, president of Taxation Solutions, has been providing IRS tax debt resolution and bookkeeping services to the trucking industry for more than 21 years. If you would like a free consultation, contact them at 877-966-2477. Their website is TruckerTaxTools.com. This article does not give and is not intended to give specific accounting and/or tax advice as everyone’s tax situation is different. Please consult with an expert at TruckerTaxTools.com, the leader in trucker taxes.