IRS v. Trucking Independent Contractor History

Summary

The trucking Independent Contractor (IC) pool is a big one. Surveys show that one-third of truckers are IC’s and 80%+ of them are leased to fleets. The biggest player is FedEx Ground - hence the long-time target on their back by the Internal Revenue Service (IRS), States and unions. Other big numbers come from the Intermodal sector, which is also under fire. I agree with my esteemed colleague John Schultz and offer the following overview.

Analysis

As Independent Contractor programs ballooned through the ‘90’s, we assisted in creating hundreds of contracts for fleets. Our questionnaire addressed basic financials to be paid (pay rates), services to be offered (fuel, license plates, truck sales, insurance, etc), regulatory compliance (DOT, IRS, etc.) and a bunch of legal risk-mtigation mumbo-jumbo (from transport attorneys).

While we worked with major fleets, our company picked up and ran distressed trucking companies. We always favored refrigerated and flatbed companies, which were some of the first with large IC concentrations. Some private fleets we started working with were Monfort Beef, Leprino Foods (cheese) and Cargill (Excel) Beef. Each were very professionally run, but only Cargill’s fleet is still going today.

The small distressed trucking companies we picked up were in trouble. One saying is so true in that if there are problems in one part of a business, there will be others. It is common for companies in trouble to “put-off” addressing compliance issues and taxes, so we got to know the Denver IRS folks. While there were some problems with aggressive approaches in the mid-‘90’s, we also saw the “kinder-and-gentler” IRS. Depending on the agent, the IRS can be here to help. Here is some of the guidance offered:

The IRS operates to “20 General Factor Common Law Rules” to assist all businesses in identifying between an “Independent Contractor” and an “employee”. This is done to clarify who is responsible for the payment of payroll taxes, social security, etc.

The IRS looks favorably on positive answers to the following ten questions when dealing with IC / owner-operator classifications:

1.) Does Contractor have a significant investment in their business? (Weighed heaviest)

2.) Can the Contractor realize both a profit and a loss? (Weighed a close second)

3.) Does the Contractor hire, direct and pay helpers?

4.) Does the Contractor own (or is purchasing) their own equipment?

5.) Does the Contractor have fixed / recurring liabilities? (Fuel, maintenance, taxes, etc.)

6.) Is Contractor pay based on worked performed, commission, or trip basis?

7.) Can the Contractors services affect his own reputation?

8.) Does the Contractor pay for or attend free, fleet orientation / training courses?

9.) Are the only files kept by the Fleet on the Contractor for DOT purposes?

10.) Does the Contractor have the ability to pick or turn down loads?

Fleets like FedEx Ground can answer in the affirmative for all of these, but some argue about number 10. Their routes are an asset (can buy / sell), so that’s makes that one more positive. It’s a similar model to many of the companies who run routes for mechanics' tools like Snap-On, supermarkets like for off-branded potato chips, mobile window repairs, home food delivery, home appliance repairs, etc.

Other fleets like UPS contract out excess freight to fleets with IC's during the Holidays (pulling UPS trailers). Many well-known fleets with well-run IC programs include Con-way Truckload, Schneider National, Swift Transportation, JB Hunt, Knight Transportation, Landstar System, Werner Enterprises, US Xpress, Crete Carriers, Quality Distribution, Kenan Advantage, Dart Transit, Marten Transport, most Household Movers and thousands of others. Then again there is the port / rail Intermodal marketplace involving some already noted plus Pacer and Hub.

Most complaints are from current or ex-contractors who never paid taxes on their 1099ed income and got in trouble with the IRS, others who opted out of Workers Compensation and got hurt and even others who applied for unemployment benefits who never paid into it. Many fleets offer referrals to help get Contractors taxes done and also offer occupational accident insurance (some require OC/AC) in lieu of Workers Comp. Many contractors at FedEx Ground and other fleets actually end up with multiple trucks where they pay their employees’ payroll / Social Security / unemployment / Workers Compensation taxes.

Granted there are good fleets and contractors who play by the rules. We have found that those fleets who do still have the periodic complaint are primarily due to IC’s not complying with the rules. However, outside pressure like going on today can change the game rules!