Fedex Ground has been in the news lately about how the IRS thinks their drivers are employees and not independent contractors. Apparently Fedex Ground has been having problems in various states on this issue. The article starts with the IRS, these two paragraphs reference their problem in Massachusetts
IRS differs with FedEx Ground
By Jill Dunn
Coakley charged that FedEx Ground “intentionally violated all three prongs of the independent contractor law by directing and controlling the activities of drivers and restricting the drivers’ ability to deliver for any other entity.”
Coakley said her investigators also determined drivers were “performing the core business of FedEx Ground” — language especially troubling to any trucking fleet that operates on an owner-operator business model.
If the IRS wins almost any trucking company in the country could be next.
If you’ve ever looked at the employee vs independent contractor rules from the IRS, leased owner operators could go either way.
From irs.gov Summertime Tax Tip 2007-24, August 31, 2007
Three broad characteristics are used by the IRS to determine the relationship between businesses and workers - Behavioral Control, Financial Control, and the Type of Relationship.
Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training, or other means.
Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
That’s kind of vague and if you do a search on irs.gov of “independent contractor or employee” it gets even more confusing. The only clear cut part is the Financial Control - Topic 762 - Independent Contractor vs. Employee
Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job. This includes:
* The extent to which the worker has unreimbursed business expenses,
* The extent of the worker’s investment in the facilities used in performing services,
* The extent to which the worker makes his or her services available to the relevant market,
* How the business pays the worker, and
* The extent to which the worker can realize a profit or incur a loss.
Most leased owner operators can’t make their services available to the relevant market, but the trucking companies make sure we are financially responsible with an investment and plenty of unreimbursed expenses.
A leased owner operator has very little control over how their company classifies them to the IRS. Any problems the IRS charges Fedex will be the responsiblity of Fedex to take care of and not their contractors.
However, I’ve seen several truck owners that have drivers in their trucks and treat their drivers as independent contractors because it’s easier and cheaper with less taxes and paperwork. If you have trucks leased to a company, you’re the independent contractor. If you have drivers in your trucks, those drivers are probably your employees. So be careful with that.
When my wife was driving with me, I made her an employee to take advantage of several business deductions and a health care flex spending account for the two of us. I’ve got the w2’s and employer taxes (another quarterly bill) to back it up.
Like any tax or business advice don’t believe everything I or anyone else tells you. You’ve got to have someone you can go to. I not only do a lot of reading on my own and I do the majority of my own taxes, I still have someone I can go to and ask questions and who reviews my situation and comes up with things I wouldn’t have thought about doing.
I have always wondered how trucking companies get away with calling their owner-operators independent when they have so much control over you. Like the statement above, you are performing their core business. I always felt that they just call you a business professional to make you feel good, but you’re truck isn’t much different than a mechanic bringing a toolbox to perform his duties, it’s just that a truck is more expensive to operate than that box of tools. I guess that’s where the “extent” language comes in.
I noticed that Schneider started putting a load board on the Internet like Landstar. I wonder if they’re doing it because of language like this coming into legal arguments or if it’s part of improving their business model.
Taxes and employment law. What a mess.
As you can see, they may not be getting away with it much longer. Being leased isn’t the ideal way of being independent, especially some of these companies make you paint your truck and have so much control over everything from you might as well be an employee.
And then they add escrows, maintenance funds, registration funds, fuel funds even a 2290 fund at one company, there’s barely any pay left and they have all your money and it’s like pulling teeth to get your own money out of some of them.
For having such an independent image, thanks to technology and being under a companies thumb even as an owner operator, truckers aren’t that independent anymore.
I could see technology turning the tables on the companies though. I know you can make it with your own authority with all of the services that are out there, it is just a hassle to get it working together and you need to have the contacts and reputation to get high paying freight.
All it would take is a some smart folks to provide all of the services an owner operator gets from a trucking company and sell them at a price that is a better deal than leasing to a company. If they can find good freight for you and provide the services that you pick and chose, then you are a true business person just buying their services. This arrangement would be much more efficient than a bloated company.
Some companies are almost leaning this way, but they still hit you with required extras that you don’t need and they charge to much for the service and they still try to make you part of the “company”.