Here is something of importance

Fkatz

Veteran Expediter
Charter Member
This is a message to all OWNERS AND FLEET OWNERS WITH 1 OR MORE TRUCKS, you are not going to enjoy what the IRS is planning on doing with your Contractors. READ ON

THE MISSCLASSIFICATION OF EMPLOYEES AS INDEPENDENT CONTRACTORS

A Congressional research report titled “Tax Gap: Misclassification of Employees as Independent Contractors,” focused on the tax gap created by misclassifying workers as independent contractors rather than employees and the problems associated with enforcing proper classifications.

Businesses must withhold tax and pay Social Security, Medicare and unemployment tax on wages paid to employees. On the other hand, they don’t withhold or pay taxes on payments to independent contractors. An IRS study found that workers misclassified as independent contractors for whom employers did not report compensation on Form 1099-MISC reported only 29% of their compensation on their tax returns and, as a result, created a significant tax gap. The IRS study also found that 15% of employers misclassified 3.4 million workers as independent contractors, causing an estimated total tax loss of $2.7 billion, in inflation-adjusted 2006 dollars.

Congress is making an effort to reduce misclassification through yet to be passed legislation:

Taxpayer Responsibility, Accountability and Consistency Act - would repeal Section 530 and replace it with new rules that would make it more difficult for employers to avoid employment tax liability if they misclassified a worker as an independent contractor. The new rules would generally require employers to have a “reasonable basis” for classifying a worker as an independent contractor.

Misclassification Prevention Act - which was introduced this spring as H.R. 5107 and S. 3254, would take a different approach to reducing misclassification. It would amend the Fair Labor Standards Act of 1938 (FLSA) to require every person to (1) keep records of non-employees (contractors) who perform labor or services (except substitute work), including through an entity such as a trust, estate, partnership, association, company, or corporation, for remuneration; and (2) provide certain notice to each new employee and new non-employee, including their classification as an employee or non-employee and information concerning their legal rights.

The report concludes that improved classification would not only cut the federal tax gap but also reduce state and local tax gaps; possibly reduce the cost of publicly-provided assistance programs such as Medicaid (on the theory that independent contractors aren't provided with employee benefits and are more likely to rely on government programs); and provide reclassified workers with fringe benefits and protections under federal law.

Watch for further developments.

Franklin Katz, ATP ,PA, PB
Frank’s Tax and Business Service
120 York Rd
Kings Mountain, NC 28086-3151
(704) 739-4039
Fax: (704) 739-3934


Providing Professional Accounting Services and Income Tax Preparation

Circular 230 Disclaimer – Any tax advice in this communication (including any attachments) is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax related penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or tax-related matters addressed herein.
 

Roller111

Seasoned Expediter
Is this saying that fleet owners with trucks leased to an expedite company can no longer consider their drivers as contractors for tax purposes?
 

paullud

Veteran Expediter
So they are so concerned over the possibility that they might be missing out on $2.7B that they are going to spend a bunch of time and money investigating and creating new laws to nail people but think nothing of handing out $100's of billions to huge corporations and welfare payments. :confused:
 

moose

Veteran Expediter
Is this saying that fleet owners with trucks leased to an expedite company can no longer consider their drivers as contractors for tax purposes?

This will greatly depends on the contract between the Fleet Owners ,and the contractors driving their trucks.
if a team drives an Owner truck without a sign detailed contract, and a paper trail documenting the terms of doing business - then that's can become an issue.
it's can becomes messy not only for the fleet owners, but also for drivers, once they file a claim for benefits with the feds later on in life. that's why we donot have 'company drivers' positions available in Expedite, the rates simply cannot pay for it.
 

Fkatz

Veteran Expediter
Charter Member
To all.

This is what they are trying to do, but it will be up to each compamy to change there contracts between Expediting Company and its Leasee, and the Leasee and there drivers to read properly within the contract. which would mean that you would have to have a lawyer to do all of these contracts and have them notorized to be legal (Very Possible)


Franklin Katz, RTP, ATP ,PA, PB,
Frank’s Tax and Business Service
120 York Rd
Kings Mountain, NC 28086-3151
(704) 739-4039
Fax: (704) 739-3934
e-mail: [email protected]

Providing Professional Accounting Services and Income Tax Preparation

Circular 230 Disclaimer – Any tax advice in this communication (including any attachments) is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax related penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or tax-related matters addressed herein.
 

roadeyes

Veteran Expediter
Charter Member
I think all fleet owners better get used to the fact that their drivers are really not independent contractors at all but in fact are employees.

In order for the driver to be an independent contractor and not an employee, the driver must have an equal chance of profit and loss which they clearly do not unless they own the vehicle and pay the maintenance costs associated with it. Sorry, but paying for the gas on a 60/40 split and nothing else doesn't cut it. Neither does having the freedom to decide which loads to take and where to layover, as you still do not have an equal chance for a loss as you do for making a profit.

As a driver, if you are getting a set per mile rate, you are definitely an employee and if you are getting a percentage of the load then you are a commissioned salesperson but not independent because you are only getting your commission from one source (your fleet owner) and therefore are still an employee.


I'm no tax expert, however that is the way it has been done here north of the border for some time now and on paper your IRS's criteria is similar, and now it looks like it is starting to apply that criteria more stringently.


I think the only way for the fleet owner to get around this will be to lease the truck to the driver, the details of which I will leave to the tax experts. Just remember what I said about the driver having an equal chance of profit and loss, as that will be the "stress test" they will have to pass before they will be considered independent contractors and all your rewritten contracts won't mean jack no matter how good your lawyer is!
 

CharlesD

Expert Expediter
As a driver, if you are getting a set per mile rate, you are definitely an employee and if you are getting a percentage of the load then you are a commissioned salesperson but not independent because you are only getting your commission from one source (your fleet owner) and therefore are still an employee.

Now I'm not a lawyer or a tax guy, but it seems like that would rule out any owner operator making a contract rate per mile or any owner operator leased to one carrier, since one makes a set rate and the other gets his income from one source. Are you saying that any commissioned sales people who get all their income from one company should be classified as employees?
 

moose

Veteran Expediter
as you still do not have an equal chance for a loss as you do for making a profit.

. Just remember what I said about the driver having an equal chance of profit and loss, as that will be the "stress test" they will have to pass before they will be considered independent contractors and all your rewritten contracts won't mean jack no matter how good your lawyer is!

There are MANY ways to make this a mute point ,by simply targeting this task in the contract ,and papertrail .
like if the drivers are paying for the hotel and shuttle when the truck is in the shop , buying their own additives ,work accessory's ,if the drivers are not expecting to get paid when the truck is down ,providing their own logbooks, passing on all 'time pay' from the carrier, back charges for using the fuel cards, signing a 60/40 split rather than 40/60 ,responsible for all fines, cargo claims, insurance, accidents, and SO mach more...

you see ,if the drivers are paying for the fuel ,and the owner run a solid business ,then it can easily be that the cost to the drivers for servicing the carriers needs, are almost the same ,or even grater then the owner costs ,so which party is having an equal chance of a loss here ?
 

mss1963

Expert Expediter
This sounds like what I'm up againist,working for a company and they list me as 1099, But they own all the equipment pay for everything tell me what time to start, run same run 5 nights a week. I have no say so in anything or freedom I tried to explain to them that I was being treated as a company driver and they said you are a Independent and I said there is no signed contract between me or company!! So I turned it over to the IRS and still waiting on their Determination if I'm employee or Contractor.The run is paid on flat rate per night no work no pay.
 

roadeyes

Veteran Expediter
Charter Member
Now I'm not a lawyer or a tax guy, but it seems like that would rule out any owner operator making a contract rate per mile or any owner operator leased to one carrier, since one makes a set rate and the other gets his income from one source. Are you saying that any commissioned sales people who get all their income from one company should be classified as employees?


There are a number of criteria used to decide if someone is an employee or independent contractor such as:


freedom of hours

who dictates how the work should be done

who owns the tools (truck) needed to do the job

the costs associated with maintaining the tools

the ability to obtain revenue from other contracts/jobs



I'm sure there are more criteria but, these are all I can remember off the top of my head.
Check the IRS/CRA websites and also google "employee or independent contractor" and see what comes up?

There is no "one" deciding factor, however I can tell you that equipment ownership weighs heavily when the decision is made as to who is an employee or a contractor. That is why in addition to having the freedom to set their own hours, owner operators would not be classified as employees no matter how they are compensated.

Using tradespeople as another example, in many cases they are not free to set their own hours. If they are working at a construction site they are expected to be there at a certain time and keep pace with the other contractors so the job can progress on time. So using them as an example they do not have freedom to set their own schedule yet are still classified
as independent contractors because they own and pay the maintenance costs associated with the tools that are required to complete the job.


Let's look at another scenario with commissioned salespeople:

A car salesperson that is paid on commission is considered an employee because they only sell the inventory owned and provided by their employer. A real estate salesperson is an independent contractor even though they may be compensated by commission as well, because they are free to source their own deals (listings) from any source, and the real estate brokerage is only a "clearing house" so to speak to facilitate the deal. On the other side of the coin, if that real estate salesperson was selling only new homes for a builder, they would be considered an employee same as a car salesperson as they do not have the freedom to source deals outside of their employers inventory.

Same thing happened in the taxi industry in the late eighties.
Revenue Canada went around to all the taxi companies and deemed that the fleet owner's drivers were employees even though they were being paid on commission and were free to obtain revenue from any source (they could pick up fares off the street as well as use the companies dispatch service),
because they didn't own the equipment or pay the associated costs of maintaining the vehicle. Now that is why taxis are rented or leased to the drivers at a fixed rate per shift/day/week regardless of the revenue they generate, so that driver has an equal opportunity of profit or loss.


Sorry for the long winded response but I wanted to look at a number of scenarios to demonstrate the fact that there is no one factor that decides wether a person is an employee or independent contractor.

I will say it again, as demonstrated in the above scenarios, equipment, vehicle, or inventory ownership is one of the most heavily weighted factors in deciding employee/contractor status over and above freedom of movement and the ability to set your own hours.
 

golfournut

Veteran Expediter
There are MANY ways to make this a mute point ,by simply targeting this task in the contract ,and papertrail .
like if the drivers are paying for the hotel and shuttle when the truck is in the shop , buying their own additives ,work accessory's ,if the drivers are not expecting to get paid when the truck is down ,providing their own logbooks, passing on all 'time pay' from the carrier, back charges for using the fuel cards, signing a 60/40 split rather than 40/60 ,responsible for all fines, cargo claims, insurance, accidents, and SO mach more...

you see ,if the drivers are paying for the fuel ,and the owner run a solid business ,then it can easily be that the cost to the drivers for servicing the carriers needs, are almost the same ,or even grater then the owner costs ,so which party is having an equal chance of a loss here ?

Just one more thing I would add to this. Don't micro manage. The driver picks and choses what loads to run. The more loads turned down, the less revenue is generated. The higher the revenue to expense ratio on a 60/40 split. Load turn downs are recorded by the carrier and could be used to show driver control of revenue.

Your best bet, hire a vet! Please.
 

CharlesD

Expert Expediter
That's veteran, not veterinarian! lol

Your best bet, hire a vet! Please.

We've had a few vets driving for us. Some of the best drivers we've had, and I don't have to worry about how they present themselves at a pickup or delivery.
 

golfournut

Veteran Expediter
We've had a few vets driving for us. Some of the best drivers we've had, and I don't have to worry about how they present themselves at a pickup or delivery.

Amen.

Of course there is always that 10%, but that still leaves 90% to choose from.

Your best bet, hire a vet! Please.
 

golfournut

Veteran Expediter
being there done that - never again !
by the time she turns in the truck i had all kinds of hair and p00p in it...

Because of this, I am going to re do my contract. Vehicle is not to be used for mobile pet grooming service or veterinary services or kennel boarding of any kind. lol

Your best bet, hire a vet! Please.
 

purgoose10

Veteran Expediter
This sounds like what I'm up againist,working for a company and they list me as 1099, But they own all the equipment pay for everything tell me what time to start, run same run 5 nights a week. I have no say so in anything or freedom I tried to explain to them that I was being treated as a company driver and they said you are a Independent and I said there is no signed contract between me or company!! So I turned it over to the IRS and still waiting on their Determination if I'm employee or Contractor.The run is paid on flat rate per night no work no pay.

I had 12 drivers in 1975, I started them on 1099's as contractors until IRS told me I could not do it with more than 2 drivers. Now I know times have changed and rules have changed but that was way back. Anyway I put them all on commission, which then with credit cards and fuel was 50c a gallon (tells you how long that was). It's hard to do that now with fuel the way it is and idling. A good bonus program would help if you could come up with one. The problem is everyone has a different situation.:cool:
 
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