Am I a Contractor or Not?
Posted on Jul 14, 2009 - 11:46pm by Donna Snelling in Trucking
Last year I did a few articles on becoming a lease-purchase operator. Or as most companies call them “IC”s (independent contractor). I am sure that there is some other slang term for them as well because most lease-purchase operators end up paying for the company’s equipment and then some. But that’s not what this article is about. This article is about what classifies a person as an IC.
When most people sign up to become a lease-purchase operator they are told they will be looked upon as an IC. Meaning that the person is responsible for paying their own taxes, social security, etc. Of course it also means the person is responsible for the truck expenses as well (payments, insurance, fuel, etc.). What they do not tell you is that if you dare act like a true owner-operator, you more than likely will either not get the miles you need to make a living or you will be let go for a “technical” reason.
What do I mean? It is actually quite simple if you think about. Every business has a plan to make profit. That includes owner-operators and IC’s alike. If you do not have a good business plan to follow you can expect not to succeed at whatever it is you are doing. Most owner-operators and IC’s know (and realize) that if your wheels are not rolling, you are not making money. An idle truck is a truck that will cost you money, not make you money.
However, there are times when you do decide (for your business) that maybe you do not want to go to a certain area that the company you are leased to, wants to send you. The reasons could be for anything from higher fuel prices to mountains (bad fuel mileage). Since you are technically an owner-operator/IC you have the right to tell the company that you do not want to take those certain loads. A lot of the companies will tell you it’s a bad business decision, even if you ARE making that decision in the best interest of YOUR company. Some companies will then decide to “punish” you for not taking what they wanted you to by cutting your miles, giving you short loads, or simply just leaving you sit wherever you are. Is this bad practice? Sure it is, but it’s because you did not do what they wanted you to.
Most large companies do require you to use an OBC (on board computer) of some sort (you know so they can keep track of you) and their specific log books. I think in their eyes this is more of a “safety” measure than anything. As with having to use an OBC and their log books they figure that you can not “find” hours to keep driving. They also like to tell you where to get your truck repaired. You do have a choice remember it is YOUR truck. Although most lease-purchase contracts do state if you want to add anything (like nice shiny chrome) you have to get permission first.
The IRS actually has a handy little form on the internet, that if need be, can be used to “determine” whether or not you are (in the IRS’ eyes) considered an employee or IC. I spoke to an IRS agent and she told me that very rarely do IC’s turn the form in and if they do it is usually because the IC is either a disgruntled “ex” IC or someone that feels as if they have gotten the shaft (so to speak). The Form is SS8. It can be found at: http://www.irs.gov/businesses/small/article/0,,id=99921,00.html. I think one of the best questions that make you think on there is the one that is stated: “Does the company control or have the right to control what the worker does and how the worker does his or her job?” I am sure that very question comes up a lot with “suggested” routes that are given or “fuel solutions” to optimize fuel consumption/spending. I have heard of drivers actually getting yelled at because they went out of their so called route by 20 miles to see their family. That is when a nice little reminder of “Who is paying for the fuel?” needs to come about especially if the driver stills has the ability to make OTD (on time delivery). I could see it being a problem if the driver is late, but if they are not, there should not be anything said. Period.
The bottom line is that if you are an owner-operator or IC you have the same rights while you are leased to a company as you would if you were running under your own DOT number. My advice is to read you IC contract VERY carefully before signing it and if there is something you do not agree to – do not sign it!
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Why do people lease onto companies. Getting your own authority is easy and not really expensive.
Some do it to avoid the expense of base plates, the expense of getting their own authority (that way someone else is responsible for those things as well as being sure that IFTA is paid accordingly and paperwork being handled by someone else). That would be my guess.
Why lease onto a company?
The company I’m leased to has a fairly small office building at corporate headquarters. I’m guessing but I’d say over a hundred office people work there.
There are five or six other terminals in other states. Maybe a hundred or so more office workers.
These office workers “do things”. The least of which is dispatch.
Among other things they find loads,deal with brokers,deal with shippers, negotiate rates, file tariffs with state and federal agencies, handle logs, negotiate with state and federal agencies in response to the many, many, rules and regulations involved in trucking, keep the many, many, permits up to date. Bill the customer, collect from the customer. Make sure all the various legal documents are up to date and filed with the proper authorities.
To name but a few functions. All of which has to be done whether there’s one truck or many. To screw up means to get fined, or worse.
Now. What do you want to do? Drive a truck or do all of the above.
The notion of an owner operator with his own authority is nice but I think it’s not realistic.. One person, just don’t have enough time to get it all done.
Plus. what happens if a customer doesn’t pay?
Well, since the majority of this topic involves whether you are a “Lease Operator or Independent Contractor”, you must consider that many of the people involved in these ventures either have little or no experience or limited credit and finances.
Since many people who start any business do so in relative insecurity, (i.e. truly independent) there is some logic to going into busines with a larger company backing you up. They are already established in the industry and have the work available on day one.
Think about how many Starbuck’s you see, they are all franchisees, kind of like being a lease operator. Does this mean it is the best way to get your own truck? Not for many people. To get that answer you would need to consult an acountant and/or attorney to see what is best for your situation.
Sean I appreciate your comments! That’s why I said, do not sign that contract if there is something you do not agree with! Just as with anything!
Thanks for all the valuable feedback!