Drivers W2 or 1099
Employee or Independent Contractor
You made the business decision to enter into the trucking industry, but you can’t decide whether to operate as an asset based Carrier (physically purchasing trucks/trailers) or allowing Owner Operators to lease onto your motor carrier number (MC#). This article will highlight the difference between utilizing Truck Drivers as Employees or Independent Contractors.
The first area one must determine is the type of relationship that exists between the company and the individual performing the services. In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.
Facts that provide evidence of the degree of control and independence fall into three categories:
- When and where to do the work
- What tools or equipment to use
- What workers to hire or to assist with the work
- Where to purchase supplies and services
- What work must be performed by a specified individual
- What order or sequence to follow when performing the work
- Significant investment
- Unreimbursed expenses
- Opportunity for profit or loss
- Services available to the market
- Method of payment
Type of Relationship
- Written contracts
- Employee benefits
- Permanency of the relationship
- Services provided as key activity of the business
Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.
The key is to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.
Asset Based Carrier
If your company is an Asset based Carrier controlling the behavior, financial, and type of relationship in reference to the truck drivers operating your equipment, then there is a high probability that these drivers are considered employees and employment tax related issues will have to be dealt with such as incurring payroll taxes and unemployment insurance.
Owner Operators Leasing onto MC
If your company allows for Owner Operators to lease onto your company’s MC, and you don’t control the behavior, financial, and type of relationship in reference to the truck drivers operating their equipment, then there is a high probability that these drivers are considered Independent Contractors and no employment tax related issues will have to be dealt with, with the exception of potential 1099 MISC needing to be issued for payments to the Truck Drivers for services rendered of $600 or more during the calendar year.
For 2014, form 1099 MISC, if filing on paper, must be filed by March 2, 2015. If filing electronically, file by June 1, 2015 in order to prevent penalties from being assessed.
Penalties are the following:
- $30 per information return if correctly filed within 30 days from the due date
- $60 per information return if you correctly more than 30 days after the due date but by August 1
- $100 per information return if you file after August 1 or you do not file the required information form.
It is important to remember that in every working situation the surrounding facts and circumstances need to be provided in order to truly determine whether one is an independent contractor or an employee.
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