Should I Classify My Truck Driver As an Employee or an Independent Contractor? | Episode 50

Classifying a truck driver as either an employee or an independent contractor is one of the hottest topics in the trucking industry. If you are considering hiring a driver, this is an important episode. To help us out with this topic, we’ve brought in the big guns, Ryan Nelson, president of the Utah chapter of Employers Council.

Ryan has lots of experience and expertise in the trucking industry and joins us to help shed some light on this complicated topic. Employers Council is a nonprofit that provides employment law resources to employers. You can learn more about them at EmployersCouncil.org.

What To Expect From Episode 50

You may have heard the saying that words have meaning, well, this is an example where the words have a lot of meaning. If you aren’t familiar with that phrase, I use a military example to explain it in the first few minutes of the episode. Too often trucking companies use these two words as nothing more than labels, which has gotten a lot of trucking companies into serious trouble. How drivers are classified is a big decision that has significant consequences.

The federal government and each state has their own test to determine if someone who does work for you can be classified as an independent contractor. We focus on the 11-factor test that the IRS uses. The 11 questions are listed below. Ryan uses a great analogy of the old sliding scales, remember them from gym class or the doctor’s office? If not, here is a picture of one.

Think of your potential hire being in the middle of the scale. Before you start answering the 11 questions, the scale is not tipping one way or the other. As you answer each one of these questions the scale is going to tip more toward the employee side or the independent contractor side.

If you want to classify a driver as an independent contractor you want to have that slide moved as far over toward the independent contractor side as possible.

11-Factor Test

1. Does the company give instructions on when, where, and how to work?
2. Does the company train the individuals?
3. Is the individual reimbursed business expenses?
4. To what extent has the individual made an investment? (i.e. tools and materials)
5. Can the individual market his or her services to others?
6. How is the individual paid? (A flat fee per “job” or an hourly fee?)
7. To what extent can the individual realize a profit or loss?
8. Is there a written contract describing the relationship? (A lot of people think this is all you have to do to be protected. That is far from the truth)
9. Does the individual receive benefits? (i.e. insurance, vacation pay, etc.)
10. How permanent is the relationship? Is it indefinite or for a fixed period?
11. Are the services provided by the individual part of the business’s regular business activity.

Classifying Someone As an Independent Contractor

If you do decide to classify someone as an independent contractor, here are some of the steps you should take.

• Use an independent contractor agreement
• Require them to register as a business entity, which means they should:
  • Get an EIN (Employer Identification Number)
  • Provide their own insurance
• Make them use their own equipment
• Document everything

What Are Some of the Consequences?

If you misclassify someone as an independent contractor, here are some of the main consequences you face.

• Have to pay back pay, possibly including overtime and liquidated damages
• Pay back taxes, double because of penalties
• Legal expenses
• Lost productivity

Additional Resources and Information

• Department of Labor Misclassification
• IRS Rulings
• State example from Ohio

Listen to the Full Episode