Am I over or under-compensating my driver?

[WoodyAkron]

To start off, I'm not in expediting: I'm an online collectibles dealer.
I'm coming here, because you guys have a really good community, and seem very helpful.
Also, because the community seems to have a very good sense for business and vehicle costs.

Background:
I have a contractor who is compensated as a 1099.
His primary duty is buying collectibles from our various sources and cataloging them at our warehouse.
He's getting $450 per week before vehicle expense. This wage reflects a level of expertise in the collectibles field.
Any day he rolls a wheel, I pay him $65.
I also provide him with any and all gas he has to use.
The vehicle is a mid-2000s Hyundai Santa Fe. We use the roof racks on the vehicle and some plastic tubs to add to carrying volume.
Our cargo is light but bulky, which is why we can use tubs before we overload the vehicle. The tubs, and the straps and winching to secure them, are paid for by me.
His runs about 280 miles on an average day out.

Is $65 per day fair in these circumstances?

 

[BillChaffey]

This is on top of his $450.00 per week, correct?.

 

[greg334]

I would talk to your accountant to see if paying him the per diem rate and taking the mileage costs on the use of the vehicle would be the prudent thing to do.

 

[davekc]

I would do some checking as well. Looks questionable.

 

[WoodyAkron]

This is on top of his $450.00 per week, correct?.

Correct.
Last week he rolled wheels on two days, and his check was $580.

 

[WoodyAkron]

The fact that I should check with my accountant on the tax angles of this is a good point.
Thank you.

To be clear, I opened this thread with the intention of determining whether or not I'm unfairly shifting the cost of operating the vehicle onto him.
When we first began the business, as he's been with me since day one, the notion was that he'd make his living from the base pay, and the $65 would cover depreciation and maintenance on the vehicle.
It is a per-diem, but he is home every night and takes a box lunch with him. It isn't a room & board per-diem.

 

[LDB]

The IRS mileage rate is 51cpm. You are paying 23cpm so that seems somewhat low. At 20mpg that's 14 gal. of gas per day. At $3.79 a gallon, the national average quoted here on the site, that's $53 in gas alone plus tires, oil, depreciation, wear and tear on all the other systems etc. adding up to a good bit more than $65 a day. I'd think it should increase to enough so he doesn't have to dip into his $450 at all for any of the business related miles.

 

[WoodyAkron]

To be clear, the gasoline doesn't come out of the $65.
I physically provide him with the gas from the company's reserve.

 

[greg334]

Who owns the vehicle?

If you do, he should not get anything.

If he does, pay him mileage and that's it if he is not sleeping on the road.

 

[WoodyAkron]

It's his vehicle.
You suggest I pay him mileage.
What cents per mile would you suggest I use?

 

[greg334]

I don't know, I would start by asking the accountant. The reason why is I don't know how you have your business setup and what you are running as (salvage, collector, auctioneer).

If you pay him the full 51 cents a mile to cover the use of the vehicle, it may be a case where he makes a good profit while killing your bottom line but on the other hand, it may be justified if you go through the stops he makes and tell him this or that work is X miles and here is what you are going to get.

Either way, he has to submit a mileage report with the purpose of each stop on it.

 

[LDB]

How many hours per day does he work when not on the road? How many hours on days he is on the road? How many days a week is he on the road, averaged over a year's time? When it sounded like he paid fuel out of the $65 it seemed very low. Since fuel is covered it seems generous but by no means outrageous. If it ain't broke don't fix it and it doesn't sound "broke", just perhaps not absolutely ideal. Changing it might save you a few dollars per road day but is it worth the potential loss of morale in your employee?

 

[purgoose10]

That's a hard call. Like some others have said I would check with my Accountant.

If it were me, I think I would simplify it and buy a vehicle and pay him a salary.

 

[WoodyAkron]

How many hours per day does he work when not on the road? How many hours on days he is on the road? How many days a week is he on the road, averaged over a year's time? When it sounded like he paid fuel out of the $65 it seemed very low. Since fuel is covered it seems generous but by no means outrageous. If it ain't broke don't fix it and it doesn't sound "broke", just perhaps not absolutely ideal. Changing it might save you a few dollars per road day but is it worth the potential loss of morale in your employee?

You're probably going to laugh.
I don't know how many hours per day he works when he's not on the road.
I see the product once he's made it ready for sale and shipment.
I judge his performance based on what he brings in. So far he has never disappointed. We've had bad luck some weeks, and there is substantial seasonality to any business, but I've never seen evidence of his work flagging.
I find that micro-managing employees makes more work for management and for labor, so I avoid doing it.
When he is on the road, the days can be anywhere from 6 hours up to some numbers that would be a serious problem if you tried doing them in a vehicle that had to weigh and scale.
I have offered to pay for hotels, but he's never taken me up on that.
He drives about 1.7 days per week.
One day some weeks, two days most weeks. It's been three days about twice in the last year. When he does two days, one will usually be a long day, while the other will be shorter.
I'm guessing he puts in over 40 hours per week. How much over that, I can't say.

He's asked for an increase in the daily vehicle reimbursement, hence this message board thread.
I'd like to counter his request with numbers that show he's already compensated more than fairly on the vehicle side of things.
I'm not trying to push the reimbursement downwards, just fight it going from generous to too generous.

I was hoping someone might have standard numbers on operating a commercial van (which is the next step up from what he's running) that I could use to support my position.
If I'm in the wrong, I'd love to be shown those numbers too.

 

[WoodyAkron]

That's a hard call. Like some others have said I would check with my Accountant.

If it were me, I think I would simplify it and buy a vehicle and pay him a salary.

That's another option I've considered.
When I started the business, I was looking hard at a used Sprinter, but I wasn't certain my business model was viable when I started.
I'll be meeting with my CPA within the next couple of weeks, so I'll be able to run that past him then.

 

[LDB]

It sounds like you've got a good worker who is giving you a proper day's work and on some of them more than a day's work per day. Is he paid $450 x 52 weeks? Other than gasoline on days he has to drive, does he get any benefits of any sort? Has he ever had a pay increase or has he been at $450 since he started? When is he scheduled for a review and increase? It sounds like he is making maybe $28k a year.

You could suggest to him increasing the driving rate to "an even" $75 a day which sounds like an extra $15 or so a week, not a huge increase but perhaps a morale booster for him. Then again, if he is due for a review and an increase you may want to leave the driving pay alone and increase the regular pay. I don't know if one is better than the other to increase from an accounting standpoint.

 

[WoodyAkron]

Frankly, neither of us has taken a full week off since we started in the business.
He took off 4 days once, but he put in doubles for the 3 days before those 4 days, so that hardly counts as a break. He got paid in full for that week.
Even when I went down to Georgia to visit my family, I wound up on my netbook in my grandma's living room several hours a day running the online end of things.
I would be glad to give him two paid weeks off a year if I could, but I'd rather give him a pay bump or some kind of bonus.
I would hate to turn him into a W2 on accident and get the IRS on me.
He's gotten two raises.
Both times I figured out cost-savings measures for the business.
Both times I gave him the entire projected savings.
He has expressed a feeling that he's completely happy with rate-of-inflation raises for the next 3-4 years, assuming his job duties don't change.

One thing I'm certain of, I will never, ever get another employee with his work ethic for what I'm paying.
If the economy wasn't all hosed-up to begin with, I wouldn't have gotten him at all.

 

[greg334]

"I would hate to turn him into a W2 on accident"

I am offering this advice;

Do not worry about what hours he puts in

Don't worry about the days he takes off

Don't worry about giving him 'raises'

Treat him as a service, which means give him a goal and let him meet it without your direction.

- all of these are employee things and need to avoid.

Treat him as a contractor, have him sign a contract with you and avoid any way to "direct him" in his field of expertise. If you want to give him an incentive, base it on your sales, if a piece is extraordinary and sells for above market price, then make it an incentive to seek out in his field of expertise more like it.

If you are further worried about the IRS, tell him to register as a DBA and work B to B on paper.

 

[paullud]

What kind of collectibles do you sell? Mostly antiques or sports memorabilia? I would look at giving a percentage over a set profit each week or just increasing the driving pay by $10-20 a day since oil changes, tires, and maintenance have gone up. It would seem that you would want to keep him as a happy hard working employee rather than happy hard working competition. In the business model you have setup he is the one with the face to face contact and that people know personally and like. Have you asked how much he is looking for?

 

[WoodyAkron]

Gregg,
Thanks for that advice. It looks solid.

paullud,
I can't disclose what collectibles field I'm in for competitive reasons. I can say that I'm the only operation of my kind in my state. I'm in a weird niche.
He's actually asking for a very small increase in the 'per diem' amount.
I opened the thread trying to pin down what was 'fair' in regards to the actual vehicle expense.
I figured if I came up with 'fair' from the perspective of a third party, I could figure out what break-even was and then know for myself, personally, whether I was paying high or low.
If I'm paying low, I'm glad going up. If I'm paying high, I'm okay with not taking money away from him, but it would be good to recognize that I'm really paying him $30 for the vehicle and then $35 just because I'm being nice.