Independent Contractor or misclassification?

[roadeyes]

This is from Blacks Law Dictionary

What is INDEPENDENT CONTRACTOR?
This term describes the person who is asked do perform an action or job who maintains the control over the job.

We have drivers that lease trucks and they pay Mayfield Express a percentage of the income from the trucks. As for providing the contractor equipment to do the job. Our driver's rent equipment from us to do the job. They have control over what loads they take or turn down.

Like Davekc we used a Lawyer for our contract.

I don't think leasing a truck from a carrier will pass in the future if what I think will happen does take place. Again, the driver is only paying you a percentage if and only if they are generating revenue so that is not a true lease no matter what you or your lawyer call it as there is no fixed monthly payment required if the driver is not generating any revenue. The drivers have no fixed expenses to operate their supposed business outside of what it would cost them to live anyways. They generate profit when it is busy but they do not incur losses when it is slow.
They are only incurring expenses if they are generating revenue therefore there is no reasonable chance for significant loss.

That is also why real estate and mortgage agents who are also paid on a percentage basis are considered to be self employed as they can and do incur significant expenses in advertising costs, travel expenses etc... All the while with no guarantee that they will ever make a sale.

The driver in our industry however only incurs expenses if they are being guaranteed revenue, therefore there is not an equal or even reasonable chance or expectation of profit and loss. I think that is the most heavily weighted part of the stress test even over and above who owns the "tools" to do the job or wether or not they are dictated to as to how the work is to be performed in determining ic/employee status.

Yes, as fleet owners you may have passed audits and contract reviews for now, however going forward I believe it is going to change. Hopefully the IRS or in our case the CRA, will not be vindictive enough to try to collect retroactively (ya right).

 

[davekc]

I wouldn't worry too much about it. They have carriers doing lease purchases that would be a bigger fish to go after verses fleet owners and that hasn't happened. But like anything, it could always change and if it does, folks will adapt. Since they already approved what we basically see now, a change in Congress is about the only way it would happen.

 

[ATeam]

So what I'm getting at is that there is no reasonable chance for the driver to incur a loss as they do not have any fixed expenses the are required to pay even if the vehicle is not generating any revenue.

The definition of an independent contractor is not a clear as you are making it out to be, and it is not determined by one item alone on whatever list of independent contractor characteristics you are using.

The IRS uses one list. Each state has a list of its own. Courts have made different decisions based on essentially the same set of facts but in cases that have their unique nuances.

If this issue was cut and dry, there would be one list that everyone used and agreed upon. Also note that the definition of an independent contractor for tax purposes may be different than the definition for unemployment insurance purposes. There is much to consider.

The definition aside, it is indeed possible that the driver of a fleet owner's truck on a percentage contract can suffer a loss. It costs them money to be in business, like owner-operators.

The expenses are less because the driver is not paying for the truck, and maybe not for fuel, but it still costs the driver money to be in the business. Losses are not tied to loads. They are tied to the costs of doing business.

Driver expenses include the money to get and maintain a CDL, drug tests, office supplies, postage and shipping, truck supplies (paper towels, window cleaner, hand soap, etc.), work accident insurance that the fleet owner may not pay, orientation fees if the carrier charges them, cost of travel to mandatory training events, cost of lodging when the truck breaks down, internet access, business books and publications, business computer programs, self-employment tax, tolls if the fleet owner or carrier does not pay them, copy and fax expenses, highway use tax, truck repairs paid by the driver if the driver is at fault for the damage (if a driver leaves a perfectly good set of emergency triangles behind after using them on the road, the driver would likely pay to replace them), transponder fees, car rental for business purposes, tools purchased for use on the road that the fleet owner does not provide (bolt cutters, hand tools, a certain kind of dolly you want but that the fleet owner will not provide), driver's portion of a freight damage claim, drivers portion of the cost of an accident in which the driver was at fault (per fleet owner's contract), border crossing fees, business meals (you pick up the tab for lunch with someone with whom you meet for business reasons), taxi, monthly Qualcomm fees, driving glasses, work gloves, coveralls, steel-toe shoes, hard hat, safety glasses, uniforms if your carrier has them, scale costs, traffic fines, laundry, showers (occasionally paid for apart from free showers with fuel purchase), hotel when you want or need a break from the truck, dog food for the pit bull you keep in the truck for security reasons, truck parking, laptop computer, prepaid legal, fuel additive that you believe in but your fleet owner does not, DOT physicals, cost of attending industry events like the Expedite Expo, cell phone usage, TWIC card application fees, HAZMAT endorsement fingerprinting fees, passport cost, loss of damage deposit or earned pay to an unethical or incompetent fleet owner, and more.

Not all of these costs are deductible but all would be included as items on a driver's profit and loss statement.

 

[OntarioVanMan]

When postal contractors start getting nailed i will start to worry.... One of the most regulated non-employees out here.

 

[roadeyes]

Phil, I agree with everything you are saying, and I did not say that there was only one or two criteria to determine ic/employee status. I am well aware of the criteria of the "stress test" used to make that determination. it was listed in the OP and It's pretty much identical here in the great white north.

However most of the items you mentioned such as licences, endorsements, security clearances etc... would be required costs of the driver to maintain employment anyways regardless of their classification. Of course the carrier/fleet owner may choose to pay some or all but the point is, employee or ic, most of those expenses would have to be incurred to maintain your involvement in the industry regardless of IRS or state status.

Some of the items you mentioned are also expenses of a personal nature that you would incur to live anyways regardless, and while possibly tax deductible, I do not believe they would carry much weight in making that status determination.

Costs of ownership/maintenance/and insurance of the tools required to do the job however in most cases are not paid by the driver and that along with who directs how the job is to be done and whether or not there is a reasonable expectation of profit and loss are the 3 most heavily weighted items in that test to make that status determination.

IMO it comes down to this:

If you are incurring expenses only while generating revenue
(outside of personal living expenses and expenses you would have to incur
anyway to maintain your involvement in the industry),
which would narrow it down to mostly only fuel, maybe tolls and cell phone,
then while tax deductible, should only be deducted as "employment
expenses" on your tax return and IMO do not qualify as self employment.


I am neither a lawyer nor an accountant, nor do I currently have a dog in the fight, I do however have first hand experience of a status determination made many years ago in the taxi industry (on both sides of the border), which was setup pretty much identical to how the expedite trucking industry is now in regards to how the drivers were paid (on percentage and with no associated costs other than maybe fuel and tolls and no other risk and therefore little expectation of chance of loss). Not only was their industry so called "self employed" status revoked by the Feds going forward, here in Canada (not sure what happened in the U.S), the CRA went even further and retroactively penalized the fleet owners for back employment insurance and Canada pension plan, workers comp etc.... It left a number of fleet owners looking at some pretty hefty amounts (plus penalties and interest of course).


As we all know that governments on all levels are broke and are looking for any additional sources of revenue that they can wring out of someone, all fleet owners/carriers should prepare themselves now for what I expect will be a narrowing and stricter interpretation by the IRS/CRA of the rules that determine employee/ic status.

Maybe Frank Katz can chime in here with his view, or if he has any updated information he can bring to light as to what rumblings he might be hearing?

 

[ATeam]

When I posted the list of expenses, it was with the idea of profit and loss in mind. In any business, if an item qualifies as a business expense, it is counted as such. Expenses are totaled. Revenues are totaled. And the two are compared to determine if there was a profit or loss in a given time period.

A business expense is a business expense. It does not matter if you might buy the item anyway if you were an employee. It does not matter if you might buy the item anyway for personal reasons.

An example is a laptop computer. If you buy it for business, it is a business expense. The same is true of a cell phone or a pair of coveralls. Sure, you might buy the same things for personal reasons, but that does not mean that they cannot also be legitimate business-expense items.

The more expenses you have, the greater your possibility of loss. And the greater your possibility of loss, the more likely you are to meet that piece of the independent contractor definition.

 

[Bruno]

So many things people worry about when it comes to employee vs contractor status. When you hire a plumber to do work that doesn't make them an employee. People confuse the status so often because they are unaware of the laws set in place by the IRS, the labor board of the state the truck is based out of. The Laws are pretty clear cut and fleet owners need to go by the rules set in place. Owners that don't offer equipment rental to their contractors for load locks, straps, APU, and so on have employees not contractors. If you provide contractors with this equipment to do the job they are employees. That was just one example of the 20 different rules for classification of an employee vs contractor.

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[zorry]

I'm sorry Dave. If you told me you were going to charge me for bars and straps, I'd be looking for some kind of trade-off.
Higher percentage, or some other spiff.

Looks like a money grab to me.

I may be the only one to say this. Betcha I'm not the only one to think this.

 

[MissKat]

Its a paper item in that firm Zorry.

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[OntarioVanMan]

So many things people worry about when it comes to employee vs contractor status. When you hire a plumber to do work that doesn't make them an employee. People confuse the status so often because they are unaware of the laws set in place by the IRS, the labor board of the state the truck is based out of. The Laws are pretty clear cut and fleet owners need to go by the rules set in place. Owners that don't offer equipment rental to their contractors for load locks, straps, APU, and so on have employees not contractors. If you provide contractors with this equipment to do the job they are employees. That was just one example of the 20 different rules for classification of an employee vs contractor.

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Actually I think if you spell everything out contract wise you'd be ok...

I am paying a TOTAL of 70% on every load the breakdown as follows

65% line haul
1% to wear uniform
2% to have company decals
2% to use company supplied load safety devices...
Total = 70%

 

[zorry]

Its a paper item in that firm Zorry.

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If the owner gives me 60% and fuel surcharge I don't care if he says his 40% covers truck lease (sic), equipment rental, and APU rental.
If he gives me 60% plus fsc and then takes $40 per month for equipment and $60 for APU I'd call foul.

An owner offered me a nice truck at 55% and FSC. I don't think he's doing anything for me. I would be buying HIM a nice truck.
Maybe I should look at it as giving me an option.
If I'm going to sacrifice take home pay for a nicer truck, my name will be on the title.

 

[zorry]

I'll be really excited when I can go to Penske or Ryder and lease a truck for a % of income.

 

[Bruno]

Why its it that that drivers feel like owners owe them everything? If you think 40% of the line haul (if the drivers are paying for fuel) is making owners rich your very mistaken. We have to maintain trucks that driver love to misused and tear up. When I started drivers was given 50% of the line haul then it was raised to 60% to help offset the high cost of fuel. There was no FSC at that time, now that there is I feel that it should go back to a 50/50. The cost of trucks are almost four times they was in 1995. If drivers don't like how owners lease out the trucks, they can go buy one.

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[layoutshooter]

Why its it that that drivers feel like owners owe them everything? If you think 40% of the line haul (if the drivers are paying for fuel) is making owners rich your very mistaken. We have to maintain trucks that driver love to misused and tear up. When I started drivers was given 50% of the line haul then it was raised to 60% to help offset the high cost of fuel. There was no FSC at that time, now that there is I feel that it should go back to a 50/50. The cost of trucks are almost four times they was in 1995. If drivers don't like how owners lease out the trucks, they can go buy one.

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I understand where you are coming from. The flip side to that is it MAY be difficult to find and keep good drivers at that rate. Just thinking out loud.

 

[Bruno]

Layout we don't pay our drivers that way as we lease drivers trucks with us paying the fuel. They pay us 60% of the line haul and 100% of the FSC as that is the way I have done it since I started. In 1995 when I started they paid a co driver 13 to 15 percent to start with Roberts Express. I was one first contractor to pay their co driver 20% of the load when I drove OTR. I just fill people think fleet owners have tons of money rolling in. If that was the case I would already hit my goal of 100 trucks.

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[layoutshooter]

Layout we don't pay our drivers that way as we lease drivers trucks with us paying the fuel. We pay a team 40% of the line haul as that is the way I have done it since I started. In 1995 when I started they paid a co driver 13 to 15 percent to start with Roberts Express. I was one first contractor to pay their co driver 20% of the load. I just fill people think fleet owners have tons of money rolling in. If that was the case I would already hit my goal of 100 trucks.

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I was just thinking out loud. I have never been an owner, I was considering it at one time but have pretty much decided to go a different route, for many reasons.

 

[roadeyes]

Phil, no one is debating wether actual items are business expenses or not. Almost all the items we have talked about here are definitely business expenses. The only difference here is wether or not they mean that you qualify as being self employed or not. Yes, of course the more expenses you have the greater chance of loss, but again, every expense you have spoken of from laptops to licenses and security clearances to personal safety gear could just as easily be expenses you could be required to incur as an employee (in any industry) and be a requirement by your employer to maintain that employment, and while definitely an employment expense that you can still write off, it in no way would qualify you as self employed.

Ken, thanks for breaking down your split but it's irrelevant as there is no debate about wether or not owner ops who own or have control of their own vehicles are self employed or not.

I think we are starting to get off topic now talking about different splits. it doesn't matter what the split is. IMO any split where the driver does not own, lease or rent the equipment needed to do the job, and does not pay the recurring associated expenses required to maintain the equipment or tools required to do that job (repairs and insurance if not already included in a full maintenance lease or rental agreement), does not qualify to be self employed because they do not have those recurring expenses wether or not they are earning any revenue at all and therefore do not have a reasonable chance of loss.

Anyways, I'm done with this thread. For all fleet owners sake I truly do hope I'm wrong but I have a strange feeling that in the not to distant future I'm going to be proven right about this. I just hope the "hit your gonna take won't put you out of business.

Good luck to all!

 

[Turtle]

Owners that don't offer equipment rental to their contractors for load locks, straps, APU, and so on have employees not contractors. If you provide contractors with this equipment to do the job they are employees. That was just one example of the 20 different rules for classification of an employee vs contractor.

That's simply not true. If the load locks, straps, APU and so on are part of the truck, especialls if they are permanently attached to the truck as an APU would be, then they are paid for by the contractor along with the payment to the fleet owner for the truck, and thus the contractor is making the same investment in those tools as he is in the truck.

In addition, making tools available and making tools mandatory are very different things. If the fleet owner mandates that certain specific tools be used, and provides those tools, such as, "You must use my supplied ratchet straps and not your own," then it doesn't matter if he charges a separate equipment rental for them or not, the fleet owner is an employer in that case, because he's getting involved in ways and means of performing the job. If tools are made available and the contractor chooses to use them, that does not make the contractor an employee, nor does it make the fleet owner an employer.

If a plumber comes to your house and ends up using one of your wrenches or a wash rag, it doesn't turn it into an employer/employee relationship, anymore than a driver using supplied ratchet straps or an APU does.

Charging for straps and load locks is like charging for tread wear or for the oil that is used. It's ridiculous. Like others have noted, charging an additional and separate charge for use of supplied "tools of the trade" is a money grab, pure and simple.

 

[zorry]

Bruno, you say we pay a team 40%.....
you may want to start saying the team pays us...., Sounds better for your argument.
And if the team leases the truck from you, and are really independent, why doesn't Panther pay them ?
They in turn pay you your lease money.
I won't argue the 50% deal. You're older and wiser than me. ( Older in Expediting at least.)
You know what works for you.

 

[davekc]

If one is contracting their services to drive, that is different than an actual vehicle lease. The first can be anything the fleet owner and the driver agree to. On a actual vehicle lease, Turtle is correct. The components attached to the vehicle would usually be included in the set lease price.
But of course you have the tractor trailer industry that do lease purchases but also would charge a few for a QC. So there is always that angle.
Then of course you are at a rental car agency where they will charge additional monies for GPS ect.
Same if you lease a trailer. There is a price for the trailer, and another price if equipment is needed inside of it. In that case they wrap it a bow with one payment usually.

But back to the original IC issue, some of that was already answered. OVM mentioned mail contractor, but the USA government has contractors all over the place. No movement there to do anything. And as mentioned, just about every cab company in every major city is ran by independent contractors verses employees. Same with most (not all) limo services.
But things could change, but so far, not seeing it unless you have the extreme like Fedex Ground.
That situation is different than expedite because they dictate the time you work, where you work, how you dress, where and how your vehicle must be purchased just to name a few.

Probably should add, after the issues with Ground, I have to think the folks at the Fed took a pretty close look at Custom Critical and I am not aware of any changes they made with regards to contractors.